Stocks of the day: These 5 shares may give you good returns
Brokerages Edelweiss and JM Financial have given a buy call on Infosys share.
Identifying profitable stocks from a large pool of shares is not an easy task. Often retail investors do not have a clue about which shares to buy and their fundamentals. Stock markets are affected by various forces such as economic, political and psychological. Therefore, remaining updated is very important for the stock market players to gain from the trade. Here are the five shares on which brokerages have given buy calls:
Brokerages Edelweiss and JM Financial have given a buy call on this share. Edelweiss said Infosys posted a robust 12.4 percent year-on-year (YoY) constant currency (cc) growth versus annual guidance of 7.5–9 percent (2.3%/2.8% QoQ in USD/cc terms), thereby forcing a guidance upgrade in the first quarter (Q1) itself (to 8.5–10%), which is rare.
Large deal-wins worth $2.7 billion is the highest ever and instils immense confidence in the industry-wide growth story. EBITDA margin at 23.6 percent, down 30bps YoY, outclassed Dalal Street’s 22.9 percent estimate. While margins are negatively impacted by wage hikes and visa costs, they are offset by the improvement in realisations, the brokerage said. "Besides, margin pressure would largely ease off with the proportion of digital rising and deployment of trained resources leading to decline in sub-contracting costs, thereby paving the way for stronger-than-expected earnings growth in our view. Stock trades at a valuation of 17.4x FY20E EPS, and we retain it as our top pick. Maintain ‘BUY/SO’ with a revised target price of INR923 (INR 880 earlier, 20x Q3FY21E EPS) as we roll over to Q3FY21E."
"Infosys reported strong revenue growth led by communications and energy & utilities, which grew by 22.6 percent and 17.7 percent (YoY, cc) respectively. Financial services and retail, which were soft last quarter, delivered robust growth of 11.3 percent and 6.9 percent, respectively .Our belief in the strength of the underlying demand is vindicated by the upward revision in FY20 revenue guidance to 8.5–10 percent YoY (7.5–9.5 percent outlined in Q4FY19). Given blistering digital growth (41.9 percent YoY), Infosys is in pole position to achieve the upper end of its stronger guidance for FY20 in our view." JM Financial said in its daily report. The share is trading at 767.05, up 5.49 percent, at 11.20 am on the BSE.
IndusInd Bank (Buy)
Brokerages Edelweiss and JM Financial have given Buy calls on this share. Edelweiss said that the fist quarter of financial year 2020 (Q1FY20) marks the manifestation of the much-awaited merger of Bharat Financial Inclusion (BhaFin) with IndusInd Bank (IIB).
The report said that the combined entity reported a steady core operating performance. Key highlights: a) Asset quality is steady with slippages curtailed at Rs 7.25 billion (1.5 percent). Moreover, sub-1.7 percent exposure to stress pool and lower SMA-1 and 2 (35bps, across 48 accounts and declining) allay concerns, though exposure of 3.1 percent of sub-investment grade category will be closely monitored. b) Business momentum held up (24 percent-plus YoY in vehicle financing despite underlying slowdown), though sustenance will be key. BhaFin posted softer growth due to caution in a couple of geographies (WB, Odisha), but customer addition remains strong. c) NIMs are under pressure owing to the transition to MCLR, but capital infusion and a fixed rate book lend comfort. Strong fundamentals and imminent crystallisation of the merger benefits would drive re-rating of stock. Maintain ‘BUY’ with a target price of Rs 2,060.
"We believe continued stability in earnings will drive stock performance hereon. Upfront crystallization of watchlist assets into NPLs are downside risks. Maintain BUY with unchanged TP," JM Financial said.
Avenue Supermarts (Buy)
Brokerage JM Financial said DMart’s 1QFY20 earnings report was a mixed bag - margin surprised significantly on the upside, but was offset by slower-than-expected growth in topline with average revenue per-sqare-feet growth of just 3-5 percent YoY (vs double-digit growth in each of the past three quarters). Store-addition picked up pace (8 new stores opened in 1Q) with a lot of the additions being spillover from the previous quarter. Stock reaction to the 15-16 percent profit beat (vs our forecasts) would have been expected to be pronounced (on the upside) had it not been for the question that could now be raised on account of the lower topline traction.
"We see no reason for any (slowdown) worry yet - our costs and margin analysis suggest that a lot of the new stores could have got operationalised only towards quarter-end, and would contribute meaningfully to revenue only from 2Q onwards. Moreover, the margin-reset exercise that commenced in 2Q LY would also have almost entirely anniversarised by then. DMart remains our favoured consumer pick; we remain bullish on what we believe to be a best-in-class cashflow-backed earning-compounder."
Metropolis Healthcare (Buy)
Brokerage JM Financial said in its daily report gave Metropolis Healthcare a BUY rating and a March 2020 target price of Rs 1,240. Metropolis is India’s 3rd largest clinical laboratory service provider by revenue. Through its evolved network of patient and institutional touch points, Metropolis offers a comprehensive range of clinical laboratory tests and profiles. Its focus on building scalable operations with high standards of delivery and processes positions it well to take advantage of multiple industry tailwinds including robust growth in the healthcare delivery market and a shift in the market structure in favour of organised players, it said.
Metropolis has delivered consistent performance with 17 percent revenue and 16 percent PAT CAGR over FY16-19. The share of the more profitable B2C business from individual patients in revenue has increased from 38 percent to 43 percent over FY16-19. Metropolis’ realisation per test is higher than that of its peers owing to higher contribution of specialized tests (c.37 percent) to revenue. A comfortable balance sheet position offers adequate room for inorganic growth. Metropolis’ multi-pronged organic growth strategy revolves around consolidating its position in its 5 focus cities (c.59 percent of revenue) by expanding its B2C business in these cities (52 percent in FY19 vs 43 percent in FY16) via aggressive network expansion and brand building campaigns.
"A combination of B2B/B2C strategy, investment in infrastructure & expansion of test offerings is expected to fuel growth in seeding cities and other potential markets. Given its strong brand, extensive test bouquet, rapid pace of network expansion (5.5x over FY16-19) and a young patient touch-point network, we expect Metropolis to continue to deliver industry-leading growth (c.22 percent PAT CAGR over FY19-21E)."
GTPL Hathway (Buy)
GTPL’s 1QFY20 reported consol. EBITDA was c.7% ahead of our forecast, but adjusting for EPC (Bharat Net) project and impact of Ind AS-116 (lease accounting), normalised 1Q core EBITDA was 2 percent higher at Rs 1.02 billion, vs comparable 4QFY19 EBITDA of RS 1.07 billion.
"We believe GTPL’s video or CATV business is now akin to a ‘cash cow’, as broadband may emerge as the future growth driver. We incorporate the EPC project in our earnings model, and thus raise FY20/21 EBITDA forecasts by c.12 percent each, and raise profit/EPS forecasts by 20-25 percent." The brokerage said that its revised TP is Rs 230 (June 20) vs Rs 220 (March20) previously. The TP faces upside risk from: (1) reduction in share of NCF kept by LCO—GTPL is letting LCOs retain >70 percent of the NCF [Rs 130 excl. tax] compared to 60-65 percent allowed by other MSOs; and (2) potential savings in bandwidth costs post access to fibre infra of RIL/Jio.GTPL remains the best run and the most undervalued among listed multiple system operators (MSOs). Even after a 44 percent jump in share price since 1Q results announcement, GTPL stock (at INR 77) is available for a song—FY20E P/E of 5.8x, EV/EBITDA of 2.4x and FCFE yield of 11 percent. GTPL stock remains under RIL-shadow post DEN/Hathway acquisitions and GTPL open offer—latter has reduced GTPL’s free float to 21.2 percent (below the 25 percent SEBI threshold), requiring RIL to off-load c.4 percent of GTPL stock before March 5, 2020.
"Nonetheless, GTPL can drive stock re-rating by boosting dividends from INR 1/share currently—its net debt as of Jun’19 was <0.6x annualised 1Q EBITDA. GTPL can easily become one of the highest dividend-yielding stocks in India. We reiterate Buy. Downside risk: unfavourable boardroom dynamics between the two promoters."
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