Sharekhan handpicks 15 stocks for investment

Sharekhan has come out with its report on Stock Ideas.

ADITYA BIRLA NUVO : the company is best valued using the sum-of-the-parts (SOTP) method. In the wake of the better than expected margin and efficiency of the insurance business, we have raised our new business achieved premium (NBAP) margin multiple for the insurance segment from erstwhile 16% to 18% for FY2012 with an assumption of a 15% growth in the new business premium (on the back of a 29% decline reported by the company in FY2011). Further, with the company for the first time reporting net worth for the consumer finance business, we incorporate the same at 1x its book value. Thus, the revised SOTP-based price target works out to Rs960 and we continue with our Hold recommendation on the stock.

BAJAJ FINSERV : The company’s profit was lower in FY2011 due to the sharp increase in the motor pool losses. The company is among the top performers in the general insurance space with a combined ratio of about 98% excluding motor pool and has shown profits despite an adverse environment. In a steady state the company expects to generate return on equity (RoE) of 15% from the general insurance business. Of late Bajaj Finance Ltd (BFL), the financing subsidiary of Bajaj FinServ, has started focusing on infrastructure lending and construction equipment lending. The company is looking for deals worth Rs50-100 crore in power, port and road projects. It plans to build a book of around Rs3,000-4,000 crore in three to four years. We maintain our Buy recommendation on the stock with a price target of Rs634.

BAJAJ HOLDINGS & INVESTMENT : For Q4FY2011, Bajaj Auto and Bajaj FinServ reported a strong performance. However, for Bajaj Auto we have reduced our price target due to the macro headwinds likely to hit going forward. We value BHIL based on our price target for Bajaj Auto and on the base case scenario for Bajaj FinServ and the other group companies on cost; we give a holding company discount of 50% for the same. Furthermore, the company has cash and liquid investments worth Rs5,442 crore on its balance sheet. However, we value these investments giving it a 40% discount on account of its volatile nature. Consequently, we arrive at a fair value of Rs1,009 for the stock (based on the company’s fully diluted equity), which is significantly above its current market price of Rs764. Moreover, the company has given a healthy dividend of Rs35 per share which translates into a dividend yield of 4.6%, making the stock attractive at this price. We, therefore, maintain our Buy recommendation on the stock with a revised price target of Rs1,009.

BHARAT HEAVY ELECTRICALS : We are also cutting down BHEL’s target multiple to 10% premium to Crompton Greaves target (16x) multiple from earlier 20% premium in view of hangover of likely FPO, margin pressure and slowdown in its growth momentum. Accordingly, our revised fair value works out to Rs2,596 (17.6x FY2013E earnings). At the current market price, the stock trades at 13.1x FY2012E earnings, which is quite attractive and at a significant discount to its average historic multiple of 20-21x. Hence, we maintain our Buy recommendation on the stock.

CADILA HEALTHCARE : Cadila through its US subsidiary has entered into a material definitive agreement to acquire the assets and the product pipeline of US based Nesher Pharma, a subsidiary of KV Pharma. Cadila will pay $60mn in cash for the divested assets, however the timeline for product launches is yet unknown. The transaction At the CMP of Rs904, Cadila is trading at 21.1x its FY2012E and 17.3x its FY2013E earnings. We maintain Buy with a price target of Rs1045.

GAYATRI PROJECTS : Currently, the stock is trading at 6.5x and 4.4x its FY2012E and FY2013E diluted earnings respectively, making the valuations attractive. Hence we maintain our Buy recommendation with a price target of Rs405.

GENUS POWER INFRASTRUCTURES : At the current market price, the valuation remains attractive at 3.4x FY2013E earning per share (EPS) while it discounts its FY2011 book value by 0.6x. Hence we maintain our Buy recommendation on the stock with a revised price target of Rs23 (5.5x FY2013E EPS).

GRASIM INDUSTRIES : On the valuation front, we continue to value the stock using the SOTP valuation methodology and maintain our price target of Rs2,750 with the Buy recommendation. At the CMP the stock trades at a PE of 7.8x discounting its FY2013 estimated EPS.

INFOSYS TECHNOLOGIES : The recent organisational restructuring and management realignment at Infosys is likely to get reflected in the weak Q1FY2012 financial performance. Nevertheless, we believe the 13% correction in the stock price since the company’s Q4FY2011 results announcement and the current discount of 10.4% to TCS large factor in the near-term headwinds. At the current market price of Rs2,861, the stock trades at 20.3x and 16.7x FY2012E and FY2013E earnings respectively. We remain structurally positive on Infosys’ long-term sustainable and robust business model and recommend investors to Buy the stock with a 12- month price target of Rs3,485.

ITC : We have incorporated the balance sheet numbers for FY2011 and there are no major changes in our earnings estimates for FY2012 and FY2013. At the current market price the stock trades at 24.4x its FY2012E EPS of Rs7.9 and 20.6x its FY2013E EPS of Rs9.3. We maintain our Buy recommendation on the stock with a price target of Rs223.

LARSEN & TOUBRO : The current valuation at 17.4x FY2013 estimate largely factors in all the concerns as the same is still much lower than its five-years average one-year forward multiple of 23x. Hence, we maintain our Buy rating on the stock with a price target of Rs2,011.

MARUTI SUZUKI INDIA : We have downgraded our earning per share (EPS) estimates for Maruti for FY2012 and FY2013 on account of lower than expected volume growth. Our volume growth assumption now stands at 8% and 13% for FY2012 and FY2013. Consequently our EPS for FY2012 and FY2013 has been revised downwards to Rs85 and Rs98.3 respectively. We maintain our Hold recommendation with a revised target price of Rs1,277.

MAX INDIA : The company expects a flattish growth in its life insurance business in FY2012 despite a sluggish growth in the insurance premiums. During FY2011, its life insurance business registered a growth of 9% year on year (YoY) against a 20% year-on-year (Y-o-Y) decline for the other private players. The expense ratio for the life insurance business dropped to 34% in FY2011 (29% in Q4FY2011) from 40% in FY2010 due to increased distribution through the bankassurance mode and rationalisation of branches and agency force. We maintain our Buy recommendation on the stock with our SOTP-based price target of Rs234.
 
PATELS AIRTEMP INDIA : In line with the revised estimates, we have revised our price target for the company to Rs103 (5x FY2013 earnings per share [EPS]). At the current market price the stock is available at 4x FY2012E earnings. Given its healthy dividend yield of 2.7% and robust return on net worth of 23.7% (for FY2011), the stock’s valuations appear to be quite attractive. We maintain our Buy recommendation on the stock.

SELAN EXPLORATION TECHNOLOGY : We have cut FY2012 estimates marginally to account for the lower than expected production volumes in Q4FY2011. However, with aggressive drilling programme, we expect Selan’s net revenues and earnings to grow at CAGR of 40% and 42% respectively over FY2011-13, largely driven by volume growth. Currently, the stock is available at 14.4x FY2012 and 8.7x FY2013 earnings estimates. We maintain our Buy rating and price target of Rs500.

TATA CONSULTANCY SERVICES : We remain positive on TCS on a longer-term perspective. However, in the medium term, looking at the uncertainties in the key geographical regions and the increasing probability of further negative news flow, we maintain our Hold recommendation on the stock with a 12-month price target of Rs1,315. At current market price of Rs1070, the stock trades at 20.4x and 17.1x its FY2012E and FY2013E earnings respectively.

TORRENT PHARMACEUTICALS : At the CMP of Rs609, Torrent is trading at 16.4x its FY2012E earnings and 13.7x its FY2013E earnings. We roll over our multiple to FY2013 and value the company at 14x PE. This gives us a price target of Rs640, an upside of 5%. Citing the limited upside from the current levels, we downgrade our rating to Hold.

UNITY INFRAPROJECTS : We expect the earnings to grow conservatively at a CAGR of 18% over the next two years, which is much lower than the management’s guidance. Currently the stock trades at a P/E of 4.9x FY2012e earnings, which is very attractive. Hence, we maintain our Buy recommendation with a price target of Rs112.

Source : moneycontrol.com