Motilal Oswal has maintained a buy on State Bank of India with an upside potential of 25 percent while it feels that Tata Motors with its strong JLR numbers can give 36 percent return.
The Nifty has given handsome returns to investors with the index gaining nearly 10 percent in the last six months, driven by earnings and domestic liquidity. However, the index fell 1.25 percent in passing week on rising crude oil prices and rupee weakness.
September quarter earnings season will end in the coming week.
Most analysts were expecting muted earnings for the quarter due to GST and NPA concerns. More or less, however, earnings have been better-than-expected that helped the market scale new highs in the beginning of November.
Here are top eight picks by Motilal Oswal, which can give up to 36 percent returns:
State Bank of India | Rating: Buy | Target: Rs 415 | 25% upside
Research and broking firm Motilal Oswal sees the NPL cycle turning for State Bank of India and expects the bank to reduce its net NPA to 3.1 percent by FY19E. SBI is well capitalised, with a Tier-I of 11 percent, which will enable it to utilise the capital infusion from the government for cleansing its books and thus report a prompt recovery.
The house expects capital infusion of Rs 12,000 crore in FY19 from recapitalization and has revised the estimates with a credit cost build-up of 2.6 percent/2.1 percent/1.8 percent over FY18-20E. It estimates SBI to report net profit of Rs 31,500 crore in FY20.
SRF | Rating: Buy | Target: Rs 1,992 | 15% upside
SRF has recently been troubled by a slowdown in the global agrochem industry, leading to inventory build-up. Motilal Oswal expects demand revival only by Q4FY18 and has marginally cut FY18 earnings estimates by 4 percent. The house is of the view that revenue CAGR will clock 13 percent and adjusted PAT CAGR of 11 percent over FY17-19E. Motilal Oswal values the stock at 19x FY19E EPS.
Tata Motors | Rating: Buy | Target: Rs 575 | 36% upside
According to Motilal Oswal, Jaguar Land Rover October 2017 wholesale volumes grew 5 percent YoY (-13.3 percent MoM) to 49,757 units against estimate of 55,500, including China JV at 6,880 units. Jaguar volumes declined 13.1 percent YoY to 13,295 units against estimate of 16,250 due to lower sales of XE.
Land Rover volumes were up 13.7 percent YoY at 36,462 units against estimates of 39,300, led by ramp-up of the all-new Discovery in North America and China, and RR Velar introduction in the UK and the EU.
The stock trades at 17.2x/6.5x FY18E/FY19E consolidated EPS while for the DVR the target is Rs 403 per share, it added.
Allcargo Logistics | Rating: Buy | Target: Rs 215 | 29% upside
Motilal Oswal believes that MOT segment is likely to do well in the medium term, led by firming of global container freight rates. Although the Container Freight Station (CFS) segment is facing headwinds in terms of DPD, the Kolkata CFS should provide growth for the segment.
The house feels that P&E segment should see stabilisation of profits and believes that valuations of 12.6x/10.9x FY19/FY20E earnings appear attractive, given its strong fundamentals, improving return ratios, and earnings CAGR of 16 percent over FY17-20E.
Motilal Oswal believes that an additional value of 25-30 percent of present market capitalization could get created in the medium term from contract logistics, land monetisation and entry into last mile delivery, which we are not factoring in our present target price.
Eveready Industries | Rating: Buy | Target: Rs 400 | 14% upside
Motilal Oswal is of the view that Eveready Industries has witnessed a recovery in all its key segments, especially LED products. Appliances business too witnessed significant traction, with 1HFY18 revenue touching Rs 37.8 crore as against Rs 10.4 crore in H1FY17.
It believes that with economies of scale, the segment is expected to turn EBITDA profitable. The house has maintained revenue/PAT CAGR of 12 percent/16 percent over FY17-19E and values the stock at 23x FY19E EPS.
Mahindra & Mahindra | Rating: Buy | Target: Rs 1,607 | 15% upside
Motilal Oswal has raised Mahindra & Mahindra's consolidated earnings per share (EPS) by 8 percent for FY18E and by 5 percent for FY19E. The stock trades at 18.6x FY19E and 16.3x FY20E consolidated EPS.
Endurance Technologies | Rating: Buy | Target: Rs 1,334 | 16% upside
Consolidated net sales of Endurance Technologies grew 11.9 percent YoY to Rs 1,620 crore (in-line), led by EU. EBITDA margin expanded 30bp YoY (40bp QoQ) to 14.1 percent against estimate of 13.9 percent). Higher tax rate restricted PAT growth, up 11.6 percent YoY to Rs 99.7 crore against estimate of Rs1,080 crore).
Research firm Motilal Oswal has cut the earnings per share (EPS) estimates of Endurance Technologies by 7 percent for FY18/FY19 to factor in higher tax rate. It has upgraded the PE multiple to 27.5x March 2020E due to higher visibility on growth drivers beyond FY20.
Amara Raja Batteries | Rating: Buy | Target: Rs 856 | 14% upside
Net sales of Amara Raja Batteries grew 7.1 percent YoY (-4.7 percent QoQ) to Rs1,430 crore (est. of Rs 1,540 crore), driven by growth in auto, inverters and solar. EBITDA margin expanded 380bp YoY (-50bp QoQ) to 16.7 percent (est. of 13 percent), led by a favorable product mix (higher share of autos, inverter, e-rickshaw, etc.), optimal utilisation and price hikes in replacement market.
Motilal Oswal has upgraded earnings per share (EPS) estimates of Amara Raja Batteries by 11 percent/4 percent for FY18/FY19, factoring in lower RM cost. The firm has increased its depreciation and tax rate assumptions and sees the stock trading at 26.6x/22x FY18E/19E EPS.
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