These stocks can be good option for investment in 2018: Axis Securities
If you desire to invest in equity shares, you would like to study the list of stocks Axis Securities in its report 'New Year Pick – 2018' has explained.
The last day of trading session for the year 2017 was helped by a strong rally in the stock market as both benchmark indices, Sensex and Nifty, surged over 30%. They outperformed many global emerging markets.
The year has also been rewarding for both secondary and primary markets, encouraging investors for the year 2018.
If you desire to invest in equity shares, you would like to study the list of stocks Axis Securities in its report ‘New Year Pick – 2018’ has explained.
SBI Life Insurance
SBI Life with its unparalleled distribution network, leadership in New Business Premium (NBP) among private insurers, strong management team and top quartile service ratios is a proxy play to the huge opportunity in India’s life insurance space.
The company is yet to harness benefits from a large part of State Bank of India’s (SBIN) unmatched branch network – a single factor that itself can drive exponential growth in NBP in ensuing years.
Robust premium growth along with increasing share of high-margin products and operating leverage to drive return on Embedded Value (EV) of ~19% by FY20E.
Axis Securities said, "We expect 19.5% EV CAGR over FY17-20E to Rs 282 bn driven by ~30% CAGR in Value of New Business (VNB) to Rs 22.7 billion in FY20E."
CRISIL research expects India’s new business premium / total premium of life insurance industry to post CAGR of 11-13%/13-15% over FY17-FY22
Axis has set target price of Rs 850 (~30% upside from CMP) for SBI Life.
InterGlobe Aviation (Indigo)
Indigo’s capacity expansion plans through its sizeable orders from Airbus lends greater visibility vs. its peers who have a stated plan of keeping their fleet sizes similar to current levels until FY18 (Indigo’s order book > cumulative order book of its peers). With ASK growth of 20% expected in FY18, higher capacity will help it capture further market share (currently 40%)
Also Indigo’s key cost controls include (1) operating a no-frill Low cost Carrier (LCC) model (low operating cost; low fares and thus high load factors), (2) single-aircraft/ young fleet (low maintenance cost), and (3) lean balance sheet (due to operating leases of aircrafts).
Axis said, "We believe Indigo deserves to trade at a premium as the underlying passenger traffic growth for the industry is significantly higher at CAGR of 9% over the next 20 years vs. Europe (4%), Middle East (6%) and US (2%)."
Target price for Indigo has been set at Rs 1,199 upside of 26% from current market price, as per Axis.
Axis said, "Endurance Technologies Ltd (ETL) ticks all the boxes of what we like in an auto component firm."
They believe this stock would perform better due to a list of factors.
- High economies of scale given that it’s the largest 2W auto component player
- One-stop-shop for OEMs – given its strong presence in 4 key products
- Diversified in terms of products/geography
- Consistently outperformed underlying industry – historically outgrown motorcycles by 800 bps
- Low hanging fruits for further outperformance – inroads into relatively untapped
- OEMs (Hero/Honda)
- Structural increase in content per bike – going into new regulations (ABS/CBS) and Premiumization
- Highly profitable Europe business (~18% margin; 22% RoCE) – getting EV ready
Axis' target price of Rs 1,550 values the company at 15x FY20 EV/EBITDA - a slight premium to its leading auto comp peers.
Godrej Agrovet (GAVL)
According to Axis, "GAVL to continue its multi-year secular growth; tremendous growth potential in each segment as each business segment."
GAVL operates in its either under-penetrated (animal feed) or in high growth areas (dairy, poultry, agri-inputs)
Axis believes factors like leader in animal feed with customer stickiness. 5-7x growth opportunity as industry shifts from non-compound to compound feed, benefits from strong brand, R&D, sales on cash & carry and pan-India distribution would support the performance of the company.
Axis has set target price of Rs 648 for the company on the back of above factors.
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