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HDFC, ITC, SBI, to Ceat - Which shares to buy?
HDFC Ltd reported a core operating profit of Rs 34 billion, aided by robust assignment/securitisation income and lower expenses.
Indian equity indices witnessed another session of negative movements due to uncertainties over US-China trade war and domestic factors. The year has been tumultuous for the stock market, with many investors losing big amount of money. Under such a volatile market, making a right bet is not easy. Information is wealth for the investors. However, small investors do not have much information. Here are the brokerage JM Financial's analyses on these 5 stocks:
HDFC Ltd reported a core operating profit of Rs 34 billion (+12% YoY / -5% QoQ), aided by robust assignment/securitisation income and lower expenses. Profit after tax (PAT) was Rs 32 billion (+46% YoY/ 12% QoQ) benefitting from Rs 19 billion of gains on GRUH stake sale. "We expect AUM CAGR of 13%over FY19-21E with earnings CAGR of 10 percent. We value HDFC using the SOTP method and maintain BUY with a target price of Rs 2,280," said a JM Financial report.
ITC Ltd (BUY):
ITC’s 4QFY19 earning report was broadly in line with our overall expectations, said the brokerage. Cigarette earnings before interest and taxes (EBIT) grew double-digit (just about) after eleven quarters and all non-cigarette segments together grew profits by 25 percent to drive aggregate segment EBIT growth to an 18-quarter high of 12 percent. Cigarette volume growth of 7-8 percent was about 1-2 percent above our forecast while cigarette EBIT growth of 10 percent was 1 percent short: Elevated costs (capsules, leaf tobacco) led cigarette margin to decline for another quarter – this was a key disappointment to us, it said. The market’s reaction (stock down 3% post result) was overdone, in our view – the result was admittedly not great but not that bad either.
"We continue to like the stock - risk-reward is favourable considering the steep 45 percent payments expected per year (PER) discount to the sector (vs 10-year average of 20-25%)."
The brokerage said that the bank's muted quarter, and stress likely to inch up. SBI reported a PAT of Rs 23.1 billion in 1QFY20 (40% below JMFe), with the bottomline miss largely led by provisions (Rs 92bn, 20% above JMFe). Slippages were elevated in 1QFY20 (INR 170bn, 3.4% annualised), with corporate slippages contributing 33 percent. "We were earlier conservatively building RoA of 0.7% in FY20E, which we have now cut to 0.5%. Our outlook for FY21E remains largely unchanged. We maintain BUY with a revised a target price of Rs 380."
Dalmia Bharat (BUY):
Dalmia Bharat 1QFY20 EBITDA exceeded expectations on lower costs. Revenues grew 7 percent primarily on realisation uptick. Blended realisations grew 5 percent sequentially (+4% YoY) while volume growth was muted at 1 percent YoY. "Going forward, the stability of prices and improvement in demand will be a key for growth. We maintain BUY; TP of INR 1,300 (Mar’20)," the brokerage said.
In 1QFY20, CEAT reported an EBITDA margin of 9.5 percent (-80bps YoY, +30bps QoQ), 60 bps above the brokerage's estimate, due to lower risk premium (RM) and favourable mix. A stable RM environment and improving utilisation are likely to aid. The brokerage maintains BUY with a March 2019 target price of Rs 1,150. "Sustained weakness in the demand environment and inability to maintain market share in PV/2W tyres are key risks to our view."
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