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Lemon Tree, Voltas to Zensar: Which stocks to buy?
HDFC Securities maintains BUY on Zensar after its in-line 1QFY20. Strong deal pipeline, ramp-up of large deals and improving win-ratio provide revenue visibility. However, Margins are not showing signs of improvement despite revenue up-tick.
After a drastic fall for four consecutive trading session, the stock markets have been trading in the green for the second consecutive session today. When stocks fall, investors lose money. However, right information help minimise the risk. Here are the reports from brokerages on these 5 stocks:
Lemon Tree (BUY):
Edelweiss said that given the uncertain pricing environment, it is conservatively adjusting down Lemon Tree’s annual recurring revenue (ARR) expectation for FY20, leading to a 3 percent/4 percent cut in FY20/21E earnings before interest, tax, depreciation and amortization (EBITDA). We had initiated the stock citing valuation concerns (refer note), and lauded its best-in-class parameters and growth visibility. With the latter intact and the stock having corrected 20 percent since, the brokerage said that its concern around valuation is addressed. "Hence, we are upgrading the stock to ‘BUY’ with a DCF-based target price of RS 65 (Rs 69 earlier).
Zensar Technologies (BUY):
HDFC Securities maintains BUY on Zensar after its in-line 1QFY20. Strong deal pipeline, ramp-up of large deals and improving win-ratio provide revenue visibility. Margins are not showing signs of improvement despite revenue up-tick. "We cut multiple to 14x from 16x on slow margin recovery and rising on-site cost. Our TP of Rs 265 is based on 14x June-21E EPS."
UltraTech Cement (BUY):
Domestic volume growth of 3 percent led by ramp-up of UltraTech Nathdwara Cement Limited (UNCL), which operated at 60 percent utilisation level. Aided by higher prices, benign input costs and significant improvement in UNCL operations (PBT break even within two quarters), UltraTech operated at earnings before EBITDA/tonne of Rs 1,465 in Q1FY20 (+56.1% YoY/+37.3% QoQ), YES Securities daily report said.
"We have increased our EBITDA/tonne estimates by 16.5%/12.9% for FY20/FY21. Expect net debt/EBITDA to decline to 1.38x by FY21. Valuing UTCEM at 16x EV/EBITDA on FY21, we increase our target price to Rs 5,087 (previously Rs 4,840). We have a BUY rating at CMP of Rs 4,243."
Voltas’ 1QFY20 results beat expectations. Net sales rose 24 percent YoY (13% above JM Financial estimate), as the unitary cooling products (UCP) segment reported a jump of 47 percent year-on-year (YoY) on a strong summer season (industry sales grew 36%) and an increase in market share to 24.1 percent vs. 23.5 percent in 1QFY19. Given the strong jump in sales, operating margins remained steady at 10.7 percent vs our expectations of a 70 bps decline on a high base. Its order book grew 3 percent YoY as inflows were up 40 percent YoY, said JM Financial daily report.
"We remain positive on Voltas as a sharp reduction in room AC inventory (negative capital employed in the UCP division), increase in market share and favourable base are likely to be key earnings drivers in subsequent quarters and should help combat higher customs duty and adverse forex movement. We maintain BUY with a target price of Rs 625."
JK Lakshmi Cement (BUY):
JK Lakshmi reported a 13 percent revenue growth on the back of 11 percent realisation improvement. Realisations grew by 12 percent on a sequential basis. Capacity utilisation during the quarter was at 78 percent. Management estimates cement volume growth of 10 percent in FY20 to be fulfilled through higher blending, clinker purchase and lower clinker sale, JM Financial daily report said. "About 20MW CPP has been commissioned and benefits are expected to accrue from FY21. 0.8MTPA Cuttack grinding unit are expected to be commissioned by 2Q-end. Price stability and cost saving initiatives will be key for profitability in a seasonally weak quarter. We value the stock at 9x EVE. Maintain BUY with a target price of RS 440 (Mar 2020)."
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