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Performance of Reliance Industries' retail segment and Jio was better than estimates. Overall EBIDTA at Rs 213 billion was in line with forecasts.
The stock market today slipped into the negative territory following the global trends. Global markets fell on the expectation of lower Fed rate cut and tension in the Middle East. When stock markets fall taking trade calls become tougher. Here are some stocks that have been recommended by brokerage houses:
Reliance Industries (BUY)
Brokerages Edelweiss and YES Securities recommended BUY on Reliance Industries (RIL). The company's Q1 FY20 performance was tad better than expectations with a PAT of Rs 101 billion (Rs 10,100 crore) compared to YES Securities' forecast of Rs 99 billion. Petchem segment reported a mixed bag with lower than expected absolute EBIT performance (owing to lower production of PX and MEG) but a relatively strong EBIT Margin of 20 percent. Refining segment performance was below forecasts (GRMs at US$8.1/bbl vs estimate of US$8.4/bbl). Performance of retail segment and Jio was better than estimates. Overall EBIDTA at Rs 213 billion was in line with forecasts.
Going ahead, refining segment performance will be under pressure owing to weak demand (US-China trade war) and capacity additions. However, implementation of IMO norms will lead to higher demand for low Sulphur fuel will drive spreads for gasoline. Retail business momentum will sustain given RIL’s reach and new initiatives. For Jio, sustained subscriber addition will be offset by weakness in ARPU (customer mix).
However, operating leverage benefits will lead to exponential PAT growth in the next few years, said YES Securities. Jio’s demerger of fiber and tower assets will reduce the debt burden. FY21E P/E of 12.7x is attractive considering a consolidated PAT CAGR of 24.9 percent during FY19-21E. "Recommend BUY with a 1-year price target of Rs1,711 (Cut from Rs1,835 to factor in weaker GRMs)."
Edelweiss said, "We expect GRM to recover to USD11.7/bbl by FY21, driving 18% EBITDA CAGR over FY19-21, accounting for a third of incremental EBITDA during the period. We continue to retain ‘BUY/SO’ with SOTP-based TP of INR1,652/share (10.4x FY21 EV/EBITDA)."
Brokerage Edelweiss said Dabur India’s (Dabur) 9.3 percent YoY revenue growth in Q1FY20 came in line with its estimate, while EBITDA and adjusted PAT growth of 18.5 percent and 16.3 percent YoY, respectively, surpassed its expectations. Domestic volume at 9.6 percent YoY on a high base of 21.0 percent surpassed its expectation with an investment in power brands and robust rural distribution strategy clearly paying off.
Healthcare segment spearheaded growth (up 17.8% YoY) with HPC segment contributing as well (up 11.7% YoY). Late onset of summer in the North and heightened competition in beverages segment led to subdued growth in the foods segment (up 1.5% YoY), it said. Of, overall exposure to stressed group of Rs 1 billion, Dabur took Rs 200 million provision for impairment with more likely in coming quarters.
"Operationally, we believe, the company’s overall sharpened natural focus, rising market share, focus on power brands and improving distribution will help Dabur in the long run. Maintain ‘BUY’," the brokerage said.
ICICI Lombard (BUY)
Edelweiss said it believeed ICICI Lombard can grow at 20 percent for the next 20 years while maintaining 20 percent return on equity (RoE). Under-penetration assures the high-growth phase will endure while altered sector landscape and improved economics ensure growth acceleration. High float levels, scale-led cost/pricing edge, distribution investment and technology leadership are key moats for sustaining this 20 percent RoE.
"High granularity of risk exposure and diversification benefits of nation-wide scale provide comfort. We maintain ‘BUY/SO’ with target price of Rs 1,300. At current market price, the stock trades at 7.7x FY20E P/BVPS and 40.2x FY20E PE," it said.
Edelweiss retains its positive stance on Cyient anchored by strong demand for ER&D services and its cut-price valuations. It cut FY20/FY21E EPS by 14.5 percent/10 percent factoring in persistent challenges for revenue growth in a few verticals. The stock is trading at an attractive 11.9x FY20E EPS. "Retain ‘BUY/SP’ with a revised target price of Rs 632 (14x Q3FY21E EPS, Rs 688 earlier)."
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