11 Stocks – Brokerage initiates “Buy” for double digit returns

With the changing mood in the market, brokerages and analysts have revised their ratings and price targets on some stocks.  Here are 11 stocks where brokerages initiated coverage with a buy call:

Brokerage Stock Target Upside
Nirmal Bang UPL 1134 25%
Nirmal Bang Indian Hotels Company (IHCL)  195 29%
Edelweiss Astral Poly Technik (Astral)  1490 34%
Antique Stock Broking Ganesha Ecosphere (GNPL)  440 71%
Goldman Sachs HDFC Life 488 32%
Prabhudas Lilladher VIP Industries 579 24%
JM Financial Deepak Nitrite (DNL 340 25%
JM Financial Sanofi India 7000 22%
JM Financial ITD Cementation 165 28%
HDFC Sec Indostar Capital Finance 549 55%
BP Wealth Dishman Carbogen Amcis 291 42%

UPL :  The Indian multinational is present across the entire crop protection chemicals (CPC) and seeds chain. UPL caters to all categories focused on key crops and geographies, including Latin America (LatAm), its largest market.  UPL is present in 133 countries with 79 percent of its revenues coming from overseas markets. We forecast FY19-21E EPS CAGR of 41 percent for the UPL-Arysta combine (including synergies). Indian generics agrochemicals company UPL is set for robust growth after the recent $4.2 billion all-cash buyout of global competitor Arysta LifeScience Inc.

Indian Hotels Company : 

1) Cyclical upturn in the hotel sector along with favourable demand-supply dynamics which are expected to drive the occupancy rate and average room rate (ARR). 2) Aggressive restructuring strategy focused on improving EBITDA margin from 18 percent in FY16 to 25 percent by FY23E.

The key pillars of the aggressive strategy ‘Aspirations 2022’ are: 1) Expansion of the number of rooms with the shift to an asset-light model leading to increase in management contracts. 2) Cost optimisation. 3) Better management of brands. 4) Leveraging on the Tata Group’s strengths. 5) Sale of non-core assets and monetisation of the balance sheet.

Astral Poly Teknik :  Astral Poly Technik (Astral) is the domestic market leader in the niche CPVC pipes & fittings market. It has ventured in to the adhesives business in 2010-11 and gained significant traction in the same. The company has also entered the corrugated pipes segment via an acquisition. Innovations, proven track record and execution prowess help Astral further entrench its position in the domestic market and enhance presence in new markets.

It is the only backward integrated CPVC player in India with products related tie-ups with global players, deep distribution network with higher SKUs and sharpened focus on advertisement to deepen customer penetration. Moreover, a strong balance sheet and estimated free cash flow (FCF) of Rs 230 crore in FY20 offer the option of making more strategic investments sans balance sheet stress.

Ganesha Ecosphere (GNPL) has emerged as one of the leading polyethylene terephthalate (PET) recycling companies in India. GNPL’s business model of giving waste an useful second innings, is well-poised for the next leg of growth, on the back of: (1) a widespread channel network for procurement of raw material (PET bottles), (2) capacity expansion in north India (20 percent of current capacity), (3) greenfield expansion in south India, adding 65 percent of existing capacity, (4) new capacities to catapult the margin and return ratios. Commissioning of new RPSF facilities along-with better RoE/RoCE to be the key catalysts for stock re-rating. 

HDFC Life:  HDFC Life  is amongst India’s highest quality and most profitable Life insurers given its de-risked business model and its ability to tap into a large Protection profit pool. On the back of these strengths, we expect HDFC Life to deliver sector-leading NBV growth of 27 percent versus 20 percent for peers over FY19-22E. We initiate HDFC Life at buy with a 12-month target price of Rs 488.

It is the market leader in various pools of protection business such as 1) Online retail protection sales; 2) Critical illness riders, 3) Credit life business and 4) Annuities. Direct channel capabilities combined with access to affluent customers and largest protection product suite will help them deliver 50 percent of incremental profitability.

HDFC Life is better positioned and has better navigated equity market / regulatory uncertainty in the past given its balanced product mix. Even from a distribution perspective; a high proportion of proprietary channel and adoption of open architecture in banca reduce long term risks.

VIP Industries: VIP Industries has market leadership (around 50 percent revenue share) in the organized luggage industry, well-diversified product portfolio (six brands and multiple SKUs exceeding 1,500) and solid brand salience (brand-ex is around 5-7 percent of sales).  Strong distribution network (around 11,000 touch points), GST implementation (narrowed pricing gap with unorganized players resulting in up-trading) and entry into the under penetrated ladies hand bags and backpack market is likely to drive sales/PAT at a CAGR of 23.7/25.1 percent over FY18-21E.

While headwinds from currency & crude volatility prevail, product premiumisation (rising share of Caprese and Carlton) and increase in production from captive facilities at Bangladesh will aid in 40bps EBITDA margin expansion over FY18-21E.

Deepak Nitrite (DNL) is a leading global player for several niche chemical products which find application in colorants, petrochemicals, agrochemicals, rubber, pharmaceuticals, paper, textile, detergents etc. DNL commissioned its phenol plant on November 1, 2018 and quickly ramped up the utilisation levels to 80 percent.

Management is confident of further improving the utilisation levels to 90 percent in FY20E. On the back of this new project, DNL is expected to report strong earnings growth in FY19E and FY20E. The loss-making performance products segment has been successfully turned around by focusing on higher-value products.

DNL is also expected to report strong improvement in financials and profitability in FY20E. Venturing into phenol and acetone derivative products and continued investment in the standalone segment would further drive the growth beyond FY20E. We initiate coverage on the company with a price target of Rs 340 based on 15x FY21e earnings.

Sanofi India Ltd – a 60.4 percent subsidiary of Sanofi SA, France is engaged in manufacturing and marketing of pharmaceutical products. It has a leadership position in the anti-diabetic therapy market with brands like Lantus & Toujeo, one of largest OTC brands portfolio, distinct therapies in rare disease and API & formulations export to group companies across the world.

The anti-diabetic therapy segment accounts for 27 percent of total sales, and is growing faster than the market while its flagship brand Lantus is the most prescribed basal insulin.

ITD Cementation (ITDC) is at an inflection point, to drive topline growth based on its diversified strategy to grow in sectors such as marine, transport, airport and water projects.

Its recent strong order wins, improving balance sheet and rebounding / stable EBITDA margins would lead to an increase in the bottomline and better return ratios. The strong order backlog that is well diversified across various segments and strong inflows are expected to drive revenue and PAT CAGR of 23 percent and 25 percent, respectively, over FY19-FY21E.

Indostar Capital Finance-   Promoted and run by professionals, (INDOSTAR) is an NBFC, with a presence spanning multiple segments (unlike other NBFCs with a monoline business). After commencing operations as a special situation corporate and developer financier, INDOSTAR managed to pull off a transition to retail lending (fashionable).  Between FY12-18, AUMs grew at around 39 percent CAGR (as expected by an NBFC of its size), spearheaded by the corporate segment with ample demand and benign liquidity. Recent growth has been retail driven (SME, VF and housing finance).

Opportunistic and tactile lending by an astute management translated into (1) superior yields (around 15 percent over FY13-18), (2) astounding asset quality (G/NNPAs: 90/60bps), (3) efficient operations and (4) thus lofty RoAAs (4.7 percent, FY13-18). Granular growth will de-risk the overall book, hereon.

Dishman Carbogen Amcis (DCAL) has built a healthy order book in CRAMS, which is virtually full of current capacities, and thus the management’s focus is shifting to improve profitability. We expect a significant growth in earnings over the next couple of years (earnings CAGR of around 33 percent in FY18-21E), which will aid to generate sizable cash flows.  Apart from Niraparib, there are three to four potential launches in near future, which will not only accelerate growth, but also de-risk earnings from blockbuster products.

The emerging signs of a recovery in Carbogen, robust prospects from Vitamin D business, concentration on sweating off the assets and improving the financial ratios like Debt/Equity and ROCE, gives us confidence on its performance.

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