Top 10 Stock Recommendations - India...

Top 10 StockRecommendations

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Top StockRecommendations

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Stock Recommendations

Sr No Stock CMP (`) Target Price (`) Upside (%)

Large Caps

1 Kotak Mahindra Bank 1,606 1,850 15

2 Axis Bank 693 814 17

3 ICICI Bank 435 505 16

4 Reliance Industries 1,372 1,594 16

5 Larsen & Toubro 1,424 1,875 32

Mid Caps

6 ABB India 1,520 1,747 15

7 Gujarat Gas 175 229 31

8 Deepak Nitrite 302 408 35

9 Atul Ltd 3,967 4,791 21

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*CMP as on October 16, 2019.

• Kotak Mahindra Bank (KMB) is expected to register strong loan growth at 20% CAGR over FY19-21Elargely due to growth in corporate and retail segment lending.

• KMB is expected to deliver 26% earnings CAGR over FY19-21E led by a well-capitalized balancesheet, granular book, controlled opex through digitalization and superior asset quality. Also, thebank’s SMA-2 balance is lowest in the banking industry.

• KMB is armed with capital (17.9% tier 1 CAR standalone, as of Q1FY20), liabilities (50.7% CASA,105.2% LDR) and healthy asset quality (2.0% GNPA, 65.5% PCR). These parameters put KMB in astrong competitive position to acquire market share.

• KMB is well positioned vs. peers due to higher capitalization, a strong liability franchise and benignasset quality, which will allow it to gain further market share. We estimate ~26% consolidated EPSCAGR over FY19-21E. We value core banking business at 4.5x P/BV (`1,390/share value and`460/share value from subsidiaries) and arrive at the target price of `1,850.

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CMP: ` 1,606 BUY TP: `1,850 Upside: 15%

Consolidated (` Cr) NII PPOP EPS (`) EPS growth (%) P/BV (x) RoA (%) RoE (%)

FY20E 17,750 14,230 43.9 16.4 4.6 2.0 13.4

FY21E 21,020 17,120 60.1 36.9 4.0 2.1 14.9

Financial Summary

Kotak Mahindra Bank

*Price and valuations ratios as on October 16, 2019

• Axis Bank’s strengthened capital position coupled with strong liability franchise keeps it well placedto sustain its growth trajectory.

• Sharp drop in credit costs, improvement in margins and reduction in cost ratios will be the keydrivers of RoE. We expect the bank’s RoE to improve by 960bps to 16.4% over FY19-21E.

• Improving asset quality (with rising coverage), better risk practices, focus on high yielding retailproducts and cost consciousness will drive earnings. Moderation in cost ratios and lowering creditcost will lead to 77% EPS CAGR over FY19-21E.

• The stock is trading attractively at 1.8x FY21E P/BV. We recommend Buy with target price of `814(2.2x FY21E BV).

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CMP: `693 BUY TP: `814 Upside: 17%

Standalone (` Cr) NII PPOP EPS (`) EPS growth (%) P/BV (x) RoA (%) RoE (%)

FY20E 26,060 24,230 27.8 52.7 2.1 0.9 9.9

FY21E 29,770 28,580 56.7 104.0 1.9 1.6 16.4

Financial Summary

Axis Bank


• ICICI Bank’s, focus on improving margins, lower credit cost and initiatives to bring down operatingcosts will help to achieve 13.4% RoE in FY21E from 3.2% in FY19.

• We believe that the Bank is witnessing the end of recognition of stressed loan cycle, which alongwith improving PCR clearly denotes moderation in credit cost, going forward.

• With strong liability franchise, superior customer outreach across business segments and a healthycapital position, we expect the Bank to continue to grow its retail portfolio which now constitutes60% of the bank’s advances. Also, its healthy capitalization will likely support loan growth.

• Improving cost-income ratio and declining slippages to likely aid profitability and drive re-rating.Improving momentum in fees & operating leverage to drive earnings over FY19-21E. The stock istrading attractively at 2.1x FY21E P/BV. We recommend Buy with target price of `505 (2.5x FY21EBV).

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Standalone (` Cr) NII PPOP EPS (`) EPS growth (%) P/BV (x) RoA (%) RoE (%)

FY20E 32,080 28,090 19.4 454.3 2.4 1.1 9.8

FY21E 36,450 32,500 28.6 47.4 2.2 1.4 13.4

Financial Summary

ICICI Bank


• Reliance Industries (RIL), is expected to re-rate on account of its overall de-leveraging drive (~`1.1lakh cr via fiber/tower asset sale, 20% O&C sale to Armco and roping investor for consumerbusiness) coupled with solid traction in Retail and Telecom (Jio) business.

• We expect favorable diesel & petrol crack spreads led by opportunistic sourcing and refinerycomplexity, which will aid in GRM improvement (US$9.2/bbl in FY19 to US$10.5/bbl), making up forweakness in petchem business.

• We expect improvement in Jio’s EBITDA & cash flows (recovery of IUC) leading to higher EV for thebusiness. Further, subscriber additions and end of capex (in the near term) are key positives. Robustsame sales growth and geographic expansion is likely to aid retail EBITDA margins.

• Overall, we expect consolidated revenue/EPS CAGR of 23%/19% over FY19-21E. We recommendBUY with a SOTP based target price of `1,594, ascribing `763/`385 EV/Share to Jio/Retail and `859EV/Share to others (net debt/share of `413).

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CMP: `1,372 BUY TP: `1,594 Upside: 16%

Consolidated (` Cr) Revenue EBITDA Margin (%) EPS (`) EPS growth (%) P/E (x) RoE (%) RoCE (%)

FY20E 8,05,332 11.7 76.8 22.5 17.9 11.9 9.1

FY21E 8,65,732 12.2 88.5 15.2 15.5 12.4 9.8

Financial Summary

Reliance Industries


• L&T is India’s largest engineering and construction company, well placed to leverage the uptick inthe investment cycle.

• We believe that the government’s push on infrastructure and widening base of mid-size orders willaid faster execution. L&T's strong order book of `2,94,014cr (2.8x TTM sales) at Q1FY20-endprovides healthy revenue visibility for the next 2 years.

• Further, monetisation of non-core assets will help release capital and improve return ratios. ROE ofthe company is expected to improve by 268bps over FY19-21E.

• Aided by strong order book, we estimate the company to report revenue CAGR of 19% over FY19-21E with a flat EBITDA margin. PAT CAGR is estimated at 20% over the same period.

• Enthused by the strong order book and its behemoth position, we recommend BUY on thecompany with a target price of `1,875/share, valuing it on SOTP basis (core business at`1,044/share (20x FY21E EPS) and other investments/subsidiaries are valued at `831/share).

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CMP: `1,424 BUY TP: `1,875 Upside: 32%

(` Cr) Revenue EBITDA Margin (%) EPS (`) EPS Growth (%) P/E (x) P/BV (x) ROE (%)

FY20E 1,69,971 11.7 72.9 14.8 19.5 15.5 7.0

FY21E 2,00,403 11.7 91.4 25.5 15.6 17.4 7.6

Financial Summary

Larsen & Toubro (L&T)


• ABB India is a diversified industrial play, with leadership in power and automation space.• The company’s base orders, which form 90% of the order mix, are growing at 13-14% yoy.

Moreover, the green shoots in industrial spends, rail electrification, thrust on renewables and sub-T&D investments with digitalization focus are expected to aid the near-term visibility.

• The company has a steady order backlog of `10,100cr. Additionally, increase in sourcing forproducts and services by the parent aids long term visibility for exports. Hence, we expect thecompany to report revenue CAGR of 10% over CY18-20.

• Further, focus on short-cycle & product businesses, along with continuous localisation is expectedto continue supporting the volumes and margins. PAT CAGR is estimated at 27% over CY18-20E.ABB has become debt-free in CY18.

• Given the company’s leadership position and strong earnings growth outlook, we value thecompany at 46x CY20E EPS and arrive at a target price of `1,750/share.

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CMP: `1,520 BUY TP: `1,747 Upside: 15%


CY19E 7,361 8.0 33.1 37.4 45.9 16.7 10.7

CY20E 8,102 9.4 38.8 17.2 39.1 17.8 12.4

Financial Summary

ABB India


• Gujarat Gas, India's largest city gas distribution company, is expected to post sector leadingearnings growth over FY19-21 on the back of strong volumes.

• Industrial volumes (70% of overall FY19 volumes) are likely to grow at 35% CAGR over FY19-21E onthe back of strong Morbi volume growth (~51% CAGR) post regulatory orders coupled with benignLNG prices. CNG (22% of overall FY19 volumes) and Domestic PNG (8%) are expected to post ~12%volume CAGR over the same period. Hence we expect overall volume CAGR of 28% over FY19-21E.

• We estimate EBITDA margin to expand by 283bps to 15.7% over FY19-21E (stable spreads). Lowerspot LNG price leaves scope for further margin expansion as Gujarat Gas imports ~70% of itsrequirement via ST cargo. Lower tax rate is expected to assist in EPS CAGR of 59% over FY19-21E.

• Valuation at 11.5x FY21E PE is at significant discount (~50%) to IGL despite better earnings CAGRand superior ROE profile. Value at 15x FY21E EPS, recommend BUY.

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FY20E 10,057 15.5 12.3 102.7 14.2 33.6 20.9

FY21E 11,468 15.7 15.2 24.2 11.5 32.2 21.8

Financial Summary

Gujarat Gas


• Deepak Nitrite (DNL) is one of India's leading chemical companies and is on the track for a sharpjump in earnings in FY20E.

• The newly-commissioned phenol capacities are operating at more than 85% utilization levels.Additionally, the non-phenol business is likely to report a strong year, boosted by a spike in DASDAprice and growth in the specialty chemical portfolio.

• Thus, we expect the company to report revenue and PAT CAGR of 29% and 51% over FY19-21E,respectively. Additionally, strong growth in EPS will lead to substantial improvement in RoCE (to~26% in FY21E), lower Net Debt/Equity (to 0.4x in FY21E) and strong free cash flow (of `305cr inFY21E).

• The company is trading at an attractive valuation of 10x FY21E EPS. Given the strong growthoutlook, we value the stock at 14x FY21E EPS and arrive at a target price of `408/share.

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FY20E 4,184 21.5 32.3 152.6 9.4 34.4 32.2

FY21E 4,520 18.7 29.1 -9.7 10.4 24.0 26.4

Financial Summary

Deepak Nitrite


• Atul Limited, an integrated chemicals company, is likely to benefit from industry tailwinds owing toits diversified business portfolio and strong chemistry skills.

• FY19 revenue growth (21% yoy) was largely realisation led while volume growth was modest ~3%owing to two non-operational plants (to meet environmental norms). Expected rebound in volumesled by crop protection, better mix and de-bottlenecking are expected to drive 13% revenue CAGRover FY19-21E.

• Operational efficiencies (incl. performance of JVs and Subsidiaries) and better product mix areexpected to drive earnings CAGR of 25% over FY19-21E. Moreover, Atul being a significant netexporter and full tax payer stands to benefit from INR depreciation and corporate IT cuts.

• Atul is debt free and generates strong operating cash flows which will be utilized for its currentcapex plan worth `412cr (with a revenue potential of ~`850cr). Stock trades at 17.4x its FY21E EPS.We recommend Buy with target price of `4,891; valuing at 21x FY21E EPS.

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CMP: `3,967 BUY TP: `4,791 Upside: 21%


FY20E 4,592 20.3 188.9 28.5 21.0 19.0 18.7

FY21E 5,189 21.6 228.1 20.8 17.4 19.4 18.9

Financial Summary

Atul Ltd


Top Mutual FundsRecommendations

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Top 5 Recommended Mutual Funds

14Note: Returns less than 1 year are absolute; Returns greater than 1 year are CAGR; AUM as on September 2019; Returns as on October 15, 2019Source: ACE MF

Scheme Name Fund Manager AUM (₹cr)

1M(%)

6 M(%)

1 Y (%)

3 Y (%)

5 Y (%)

Nippon India Large Cap Fund(G) Sailesh Raj Bhan 12,531 2.1 (7.3) 5.7 8.8 9.5

ICICI Prudential Midcap Fund(G) Mrinal Singh 1,767 0.2 (8.1) (0.9) 4.1 8.3

HDFC Small Cap Fund(G) Chirag Setalvad 8,845 (1.7) (15.4) (8.8) 6.4 10.5

SBI Magnum Multicap Fund(G) Anup Upadhyay 8,073 2.7 1.3 12.3 9.0 12.3

Mirae Asset Hybrid Equity Fund(G) Neelesh Surana 2,590 0.6 (1.5) 8.8 9.3 --

Nippon India Large Cap Fund

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Fund Basic Details

Fund Benchmark S&P BSE 100 - TRI AUM (₹cr) 12,531

Inception Date Aug 2007 Exit Load Nil upto 10% of units within 1Y and 1% for morethan 10% of units within 1Y, Nil after 1Y

Fund Manager Sailesh Raj Bhan Expense Ratio 1.9%

Asset Allocation It is an equity based fund that primarily invests (at least 80% ofAUM) in top 100 companies by market capitalization.

The key objective of this scheme is to generate long term capitalappreciation by investing predominantly into equity and equityrelated instruments of large cap companies.

The scheme also aims to generate consistent returns by investing indebt, money market securities, REITs and InvITs.

As of September 2019, the fund had invested 79% of AUM in largecap stocks while 15% was invested in mid cap stocks. The fund hadhighest allocation to Banks (29.9%) followed by refineries (7.7%).

Its top stock holdings comprise of ICICI Bank (7.6%), HDFC Bank(6.9%) and SBI (6.7%).

Investors who prefer to invest in a diversified portfolio of blue chipstocks can invest in this fund to create wealth in the long term.

This open ended fund is suitable for investors who have moderatelyhigh risk appetite with investment horizon of at least 3 years.

Returns (%)

79%

15%

3%3%

Large Cap

Mid Cap

Small Cap

Others

5.7

8.8 9.58.410.5 9.1

1 Year 3 Years 5 YearsFund Benchmark

Note: Returns less than 1 year are absolute; Returns greater than 1 year are CAGR; AUM as on September 2019; Returns as on October 15, 2019Source: ACE MF

ICICI Prudential Midcap Fund

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Fund Basic Details

Fund Benchmark Nifty Midcap 150 – TRI AUM (₹cr) 1,767

Inception Date Oct 2004 Exit Load 1% on or before 1Y, Nil after 1Y

Fund Manager Mrinal Singh Expense Ratio 2.3%

Asset Allocation It is an equity based fund that aims to generate capital appreciationby actively managing a diversified portfolio of a mid cap stocks (atleast 65% of AUM in companies ranked from 101st to 250th bymarket capitalization).

The fund looks to identify and invest in growing companies thathave significant room for value unlocking. Management integrity isalso a key criteria while screening stocks for investing.

As of September 2019, the fund had invested 66% of AUM in midcap stocks, while 19% was invested in small cap stocks. The fund hadhighest allocation to Hotels (7.6%) followed by Banks (6.5%).

The scheme’s top holdings comprise of Indian Hotels Company(5.8%), PI Industries (4.7%) and Tata Chemicals (4.4%).

Investors who prefer to invest in mid cap stocks and are looking forrelatively higher returns in the long run can invest in the scheme.

This open ended fund is suitable for investors who have moderatelyhigh risk appetite with investment horizon of at least 5 years.

Returns (%)

-0.9

4.1

8.3

-1.9

4.3

10.3


4%

66%

19%

11%Large Cap

Mid Cap

Small Cap

Others


HDFC Small Cap Fund

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Fund Basic Details

Fund Benchmark Nifty Small Cap 100 - TRI AUM (₹cr) 8,845

Inception Date Apr 2008 Exit Load 1% on or before 1Y, Nil after 1Y

Fund Manager Chirag Setalvad Expense Ratio 1.8%

Asset Allocation The scheme predominantly invests equity and equity relatedinstruments of small cap companies (at least 65% of AUM incompanies ranked 251st and beyond by market capitalization).

It focuses on the companies which have reasonable growthprospects, sound financials, sustainable business model andacceptable valuations that offer scope for capital appreciation.

As of September 2019, 64% of its AUM was invested in small capstocks while 18% was invested in mid cap stocks. The fund hashighest allocation to Banks (9.5%) followed by IT (6.4%).

The fund’s top stock holdings comprise of Sonata Software (3.3%),DCB Bank (3.1%) and NIIT Technologies (3.1%).

Investors who are seeking to invest in a diversified portfolio ofsmall cap stocks and desire for superior returns in the long run caninvest in this scheme.

This open ended scheme is relevant for investors who have high riskappetite with investment horizon of at least 7 years.

Returns (%)

-8.8

6.410.5

-10.6

-3.7

3.0


4%

14%

64%

18%Large Cap

Mid Cap

Small Cap

Others


SBI Magnum Multi Cap Fund

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Fund Basic Details

Fund Benchmark S&P BSE 500 AUM (₹cr) 8,073

Inception Date Sep 2005 Exit Load 0.10% on or before 30D, Nil after 30D

Fund Manager Anup Upadhyay Expense Ratio 2.1%

Asset Allocation The scheme focuses to generate long term growth in capitalthrough active management of investments in a diversified basketof large cap, mid cap and small cap companies.

Thus the fund can invests at least 65% of its AUM in equity andequity related instruments across the market capitalization and restin debt and money market instruments.

The scheme follows bottom-up approach to stock picking andselects companies across sectors and styles.

As of September 2019, the fund had invested 63% of AUM in largecap stocks while allocation to mid cap and small cap stocks was 19%and 16% respectively. The fund had highest allocation to Banks(27.9) followed by IT (9.1%)

The fund had the highest allocation to HDFC Bank (8.9%) followedby Infosys (6.9%) and ICICI Bank (5.9%).

Investors with moderately high risk appetite with a time horizon ofat least 5 years, can look to invest in this open ended scheme toaccumulate wealth in the long run.

Returns (%)

12.3

9.0

12.3

5.0

7.6 7.9


63%19%

16%

2%

Large Cap

Mid Cap

Small Cap

Other


Mirae Asset Hybrid - Equity Fund

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Fund Basic Details

Fund Benchmark CRISIL Hybrid 35+65 - Aggressive Index AUM (₹cr) 2,590

Inception Date Jul 2015 Exit Load 1% on or before 1Y(365D), Nil after 1Y(365D)

Fund Manager Neelesh Surana Expense Ratio 2.0%

Asset Allocation It is an equity-oriented hybrid fund that invests 65%-80% of AUM inequity and equity related instruments, 20%-35% in debt and moneymarket instruments and up to 10% in the units of REITs and InvITs.

For equities, it focuses to identify high growth companies availableat a reasonable valuations while for debts the key focus is onGovernment securities and highly rated PSUs and corporates.

As of September 2019, the fund had invested 71% of the total AUMin equities and rest in debts. It had invested 61% of the equity AUMin large cap stocks, while 8% was invested in mid cap stocks.

Within equities, the funds had highest allocation to Banks (22.1%)followed by IT (6.5%). It had highest allocation to HDFC Bank (6.8%)followed by ICICI Bank (5.1%) and Reliance Industries (4.9%).

Aggressive investors who prefer a balanced approach (growth +capital protection), can invest in this scheme.

This (aggressive) Hybrid category fund is suitable for investors withmoderately high risk appetite with at least 3 years of investmenthorizon.

Returns (%)

8.8

9.3

9.9

9.1

1 Year 3 YearsFund Benchmark

61%

8%

2% 29%Large Cap

Mid Cap

Small Cap

Others


Disclosure

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.Nothing in this document constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to theinvestor's specific circumstances. The details included are based on information obtained from public sources and sources believed to be reliable, but no independentverification has been made nor is its accuracy or completeness guaranteed.Investors should consult their financial advisers if in doubt about whether the product is suitable for them. The fund may or may not be suitable for all investors, whomust make their own investment decisions, based on their own investment objectives, financial positions and needs. This document may not be taken in substitutionfor the exercise of independent judgment by any investor. The investor should independently evaluate the investment risks.India Infoline Ltd. or any of its director/s or principal officer/employees and associate companies (IIFL) does not assure/give guarantee for accuracy of any of thefacts/interpretations in this document, and shall not be liable to any person including the beneficiary for any claim or demand for damages or otherwise in relation tothis opinion or its contents.The aimed returns mentioned anywhere in this document are purely indicative and are not promised or guaranteed in any manner. Returns are dependent on prevalentmarket factors, liquidity and credit conditions. Instrument returns depicted are in the current context and may be significantly different in the future.The group company of India Infoline Limited, IIFL Wealth Management Limited is the Sponsor of IIFL Mutual Fund and holding company of the Investment Manager &Trustee Company of IIFL Mutual Fund.IIFL or its subsidiaries & affiliates may be holding all or any of the units of the scheme(s), referred in the document. The information contained herein is strictlyconfidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other personor to the media or reproduced in any form, without prior written consent of IIFL. While due care has been taken in preparing this document, IIFL and its affiliates acceptno liabilities for any loss or damage of any kind arising out of any inaccurate, delayed or incomplete information nor for any actions taken in reliance thereon.This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country orother jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IIFL or its affiliates to anyregistration or licensing requirement within such jurisdiction. IIFL and/or its associates receive compensation/ commission for distribution of Mutual Funds fromvarious Asset Management Companies (AMCs).IIFL hosts the details of the commission rates earned by IIFL from Mutual Fund houses on our websitehttps://ttweb.indiainfoline.com/trade/downloads/brokerage%20file.pdf. Hence, IIFL or its associates may have received compensation from AMCs whose funds arementioned in the report during the period preceding twelve months from the date of this report for distribution of Mutual Funds or for providing marketing advertisingsupport to these AMCs. IIFL group, associate and subsidiary companies are engaged in providing various financial services and for the said services (including theservice for acquiring and sourcing the units of the fund) may earn fees or remuneration in form of arranger fees, referral fees, advisory fees, management fees, trusteefees, Commission, brokerage, transaction charges, underwriting charges, issue management fees and other fees.Please refer to http://www.indiainfoline.com/research/disclaimer and http://www.indiainfoline.com/mf/disclaimer for additional recommendation parameter, analystdisclaimer and other disclosures.Please refer to http://www.indiainfoline.com/research/disclaimer for recommendation parameter, analyst disclaimer and other disclosures.IIFL Securities Limited (Formerly ‘India Infoline Limited’), CIN No.: U99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, Senapati Bapat Marg, LowerParel, Mumbai – 400013 Tel: (91-22) 4249 9000 .Fax: (91-22) 40609049, Regd. Office – IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, MIDC, ThaneIndustrial Area, Wagle Estate, Thane – 400604 Tel: (91-22) 25806650. Fax: (91-22) 25806654 E-mail: [email protected] Website: www.indiainfoline.com, Referwww.indiainfoline.com for detail of Associates.Stock Broker SEBI Regn.: INZ000164132, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:- INH000000248For Research related queries, write at [email protected] Sales and Account related information, write to customer care: [email protected] or call on 91-22 4007 1000

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