The benchmark indices snapped a three-day losing streak on November 2 and ended higher with the Nifty above 11,650. The Sensex added 143.51 points or 0.36% to end at 39,757.58 while the Nifty was up 26.80 points or 0.23% at 11,669.20.
Aurobindo Pharma | Brokerage: ICICIdirect | Rating: Buy | LTP: Rs 760 | Target: Rs 1,025 | Upside: 35 percent. ICICIdirect believe a significant portion of the company’s debt (Rs 4,777 crore as of Q1FY21) is working capital based. Therefore, a major portion of cash generated through sale of Natrol is likely be utilised for strategic investments. The sale of non-core segment is likely to improve focus on new and complex ventures such as biosimilars, vaccines and complex injectables where capital requirements are higher and precise. Therefore structurally, the broking house remains positive on the company as it possesses one of the best, enduring generics ecosystems among peers (vertically integrated model, lower product concentration) to withstand volatility in the US and other generics space.
IndusInd Bank | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 628 | Target: Rs 720 | Upside: 14 percent. Motilal Oswal expects the loan growth to remain muted over FY21, led by a weak environment and cautious approach by the management in building its book. Deposit traction remained strong while margins are likely to remain in a narrow range (a slight improvement from the reduction in the cost of funds and a decline in excess liquidity). The bank reported collection efficiency of 94.7 percent while for MFI, it is at around93 percent. The bank has guided for a restructuring book of low single digits. The bank has shored up its PCR to around 77% and carries total COVID related provisions of Rs 21.5b (1.1% of loans). The strong profitability would still enable the private lender to deliver FY22E RoA/RoE of 1.4%/12.5%.
Reliance Industries | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 1,877 | Target: Rs 2,400 | Upside: 28 percent. The recent monetisation of RIL’s stake in the fibre and tower InvIT would further strengthen the balance sheet. Sharekhan believes that the acquisition of Future Group’s retail business (subject to regulatory approvals) would help it gain market share and further consolidate its position in the Indian retail space. RIL’s next leg of growth would be driven by new revenue streams from digital services and retail, which would drive a strong PAT CAGR of 19% over FY2021E-FY2023E. Further value unlocking in digital and retail (post recent stake sales deal) would add value to shareholders’ return over the coming years. Disclosure: Reliance Industries Ltd, which owns Jio and Retail, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes moneycontrol.com.
BPCL | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 346 | Target: Rs 495 | Upside: 43 percent. Broking house Sharekhan has increased FY2021 earnings estimate to factor in sharp beat in reported GRM in Q2FY2021 and fine-tuned its FY2022EFY2023E EPS. The recent recovery in auto fuel volumes, above-average marketing margin and lower interest provides earnings visibility over the next couple of years. The recent sharp decline in BPCL’s stock price by 15% (due to delay in disinvestment process amid COVID-19) provides a good entry opportunity, given the potential for strong re-rating as privatisation could align valuation of refining and marketing assets to global peers and create long-term value for investors.
ICICI Bank | Brokerage: Sharekhan | Rating: Buy | LTP: Rs 417 | Target: Rs 525 | Upside: 26 percent. The bank is available at 1.7x/1.5x its FY2022E/FY2023E BVPS but adjusting for subsidiaries, it is at ~1.2x its FY2023E BVPS. The stock has corrected by around 29% from its highs and offers a favourable risk-reward for long-term investors. Sharekhan says valuations are reasonable, considering the overall franchise value as a whole and strong capitalisation and a high provision coverage ratio (PCR) being key comfort factors. Capital raising has further augmented the capital base (up by 247 BPS from Q1 FY2021), adding to balance sheet strength.
Bank of Baroda | Brokerage: Emkay | Rating: Buy | LTP: Rs 44.85 | Target: Rs 55 | Upside: 22 percent. Emkay has raised FY21-23 earnings estimates mainly factoring in the strong beat in Q2, a steady improvement in the growth trajectory and better asset-quality outlook in general. Factoring in earnings upgrade leading to better return ratios, higher retail orientation, reasonable capital position and a favourable risk-reward at current valuations among PSBs, Emkay has upgraded the stock to buy/EW in EAP. The key risks include higher NPA formation, mainly in corporate/SME book, and a slower-than-expected growth trajectory.