Stock picks: Top shares to buy? Check these 5 scrips
Brokerage Edelweiss said Tata Motors' demand outlook remained challenging, and it expected free cash flow (FCF) to remain negative for JLR through FY21.
The stock market has been volatile for quite some time now and picking out a right share is not easy under such a situation. To make a profit, the investors have to make informed decisions. Here are the reports on these 5 shares that may help retail investors:
Tata Motors (HOLD):
Brokerage Edelweiss said Tata Motors' demand outlook remained challenging, and it expected free cash flow (FCF) to remain negative for JLR through FY21; which would cap valuation. "We maintain ‘HOLD/SU’, with a revised TP of INR156 valuing the India business at 7x December 2020E EBITDA and JLR at 5.5x EBIT. The stock is trading at FY20/21E PE of 12.1x/6.3x."
Bharti Infratel (HOLD):
Brokerage Edelweiss said while the Bharti Infratel management remained hopeful of demand revival for sites on account of network expansion, it believed that the company will prefer to share sites with Reliance Jio (RJIO) given that significant portion of its sites are connected with fiber. At current market price, the stock trades at an attractive valuation of 6.9x FY20E and 6.4x FY21E EV/EBITDA. The brokerage maintained ‘HOLD/SP’ with DCF-based target price of Rs 303.
Bharti Infratel’s (Infratel) Q1FY20 numbers, adjusted for accounting change and cost reversal, came broadly in line with expectations, the brokerage said. Gross tenancy addition – key metric indicating underlying demand for its services – dipped to 1,479, from 2,061 QoQ. Despite high capital expense-to-sales ratio of telecom operators, Infratel’s weak tenancy addition pace sustained. On the positive side, pace of tenancy cancellation slowed to 956 versus 3,787 in Q4FY19. The brokerage has expressed concern on growth challenges as telecom companies are using sectorisation, MIMO and small cells to enhance network capacity. "We await Infratel’s merger with Indus Towers (expected to be completed in August) and the new management’s commentary on expansion in business," the brokerage said.
Shriram Transport Finance (BUY):
Shriram Transport Finance’s (SHTF) asset under management (AUM) growth, mirroring the tepid underlying auto volume trend, reported further softness—6 percent in Q1FY20 from 20 percent-plus in Q1FY19. This, coupled with stable asset quality and steady net interest margin (NIM), led to 11 percent profit after tax (PAT) growth, brokerage Edelweiss said.
Key highlights: a) softer demand and delayed monsoon impacted AUM growth; however, the brokerage estimates a relatively better H2FY20 on a lower base further driven by BSVI transition driven pre-buying to lead to 13–14 percent growth (management estimate >15%); b) NIM was broadly steady at 7.2 percent, reflecting SHTF’s pricing power. Liquidity was managed well—resorted to securitisation and ECBs; and c) asset quality was steady with stage-3 at 8.5 percent, coverage at 30 percent and credit cost at 210 bps. The brokerage said it envisaged the general weakness in auto sales to impact SHTF’s AUM growth momentum, though product niche (used financing) and deep reach will sustain it in mid-teens.
"Lower earnings growth and overhang of group corporate restructuring (merger of group companies) will weigh on valuation multiple. Hence, we revise down target P/ABV to 1.8x (from 2.0x), leading to revised target price of Rs 1,375 (Rs 1,500 earlier). Maintain ‘BUY’," it said.
Ambuja Cement (HOLD):
Edelweiss said Ambuja Cement (ACEM) will benefit from positive industry fundamentals of high clinker utilisation, favourable prices and benign cost. "However, we maintain ‘HOLD/SU’ as the target price under our valuation framework (12x CY20E EV/EBITDA and 50.05% stake in ACC at 30% discount to our fair value estimate) offers limited upside. At current market price, it trades at 11.9x CY20E EV/EBITDA," the brokerage said.
Edelweiss said PVR's growth in Q2FY20 could be challenging given the strong base – Sanju, Stree and Gold – and risk from transitory slowdown in discretionary spends. However, over the long run, the brokerage remains enthused by PVR’s expansion and innovation focus. "We will keep tabs on: (1) contagion risk of local body tax (LBT); and (2) aggression of over the top (OTTs). "We retain our TM of 30x EPS rolling to December 2020E, to arrive at target price of Rs 2,040. Maintain ’BUY/SO’. The stock is trading at ~49x/32x FY20/FY21E EPS (post Ind AS 116 adjustment)."
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