Top Stocks to buy this week
STOCK UPDATE
Mahanagar Gas Limited
Cheapest CGD stock; earnings to bounce back on volume recovery
- We retain a Buy on MGL with unchanged PT of Rs. 1,380 given attractive valuation of 11.3x FY22E EPS and potential earnings recovery in FY2022E as volumes and margin would normalise with easing down of lockdown.
- Q1FY21 operating profit of Rs. 80 crore (down 71% y-o-y) substantially lagged estimates due to weaker-than-expected gas sales volume of 1.1mmscmd (down 62.5% y-o-y) and margin of Rs. 7.9/scm (down 23% y-o-y).
- Earnings to recover sharply over FY22E-FY23E as gas sales volumes likely to normalise (recovered to 65% of pre-COVID-19 level vs. 38% in Q1FY21) and margins rise (low gas cost, better operating leverage and high CNG mix).
- Cheapest CGD stock with attractive valuation of 11.3x FY22E EPS (discount of 28% to its historical PE and 49% to IGL). Valuation gap with peers to narrow on expected revival in volumes, superior margin and FCF yield of 7%.
Titan Company Limited
Jewellery business on road to recovery
- Titan Company Limited’s (Titan) jewellery business sales recovered to 80% in June on like-to-like basis. Increased demand from the wedding segment, higher demand for Gold Harvest Scheme, and improved sales of gold, considering it as the safest bet of investment, will enhance performance in the coming quarters.
- Other businesses such as watches and eyewear will take some time for recovery as out-of-home consumption is on backseat in the near term. Overall, management expects full recovery by Q4FY2021 (jewellery business might see full recovery from Q3FY2021).
- Titan's OPM was affected by unfavourable mix, ineffective hedges, and lower operating leverage. With recovery in performance in the subsequent quarters, OPM will see sequential improvement.
- Gain in market share, people shifting to trusted brands, and relatively stable balance sheet make Titan a better play in the retail space. We maintain our Buy recommendation on the stock with a revised PT of Rs. 1,200.
Wonderla Holidays
Focus on regaining footfalls
- Like other entertainment companies, Wonderla Holidays’ performance was disrupted by shut-down of amusement parks in Q1FY2021.
- Some low-capex new initiatives such as Wonder Kitchen are gaining good response; clocking revenues of Rs. 14,000 - 15,000 per day (Rs. 5 lakh revenues since commencing of venture).
- Four and half months of NIL operations have been utilised on consumer engagement, re-framing pricing and cost strategies (cost was reduced to Rs. 3.9 crore per month from Rs14 crore during pre-COVID level).
- Opening of international amusement parks hint at strong recovery led by pent-up demand; we expect revenues to return to 80% of last four-year average revenues in FY2022. We maintain our Hold recommendation on the stock with a price target of Rs. 162.
Bank of Baroda
Weak quarter, weak outlook
- Bank of Baroda (BOB) posted weak Q1FY2021 results with operational performance coming below expectations, but sequentially asset quality saw improvement (NNPA declined) with decreased moratorium.
- Headline asset-quality performance was stable, with credit cost at 1.87% in Q1FY2021 (1.82% in Q4FY2020). While gross NPA (GNPA%) ratio remained flat sequentially at 9.39%.
- We believe asset quality still continues to have uncertainties and, hence, will be a key monitorable.
- We maintain our Hold rating with an unchanged PT of Rs. 56.
VIEWPOINT
Affle India
Presence in right spots to drive growth
- We stay Positive on Affle India (Affle) and expect an 18-20% upside in the next 10-12 months.
- Affle India beat our estimates on all fronts, aided by revenue contributions from acquisitions; organic revenue declined 4.4% y-o-y; EBITDA margin remained flat on y-o-y.
- Management witnessed strong recovery in CPCU business in June month; expect the favorable growth momentum to continue; quarterly run-rate in CPCU business stands at Rs. 108 crore+, up 55% q-o-q growth.
- Given increased spend on mobile advertising and presence in high-growth verticals, Affle India is well positioned to deliver strong revenue growth of 30% CAGR over FY2020-22E.
Sudarshan Chemical Industries Limited
Standing tall amid near-term uncertainties
- We retain our Positive view on Sudarshan Chemical Industries Limited (SCIL) with a potential upside of 28-30%.
- We introduce FY2023 numbers and believe that the company will be able to deliver revenue and earnings CAGR of 22.4% and 20.3%, respectively, over FY2020-FY2023E.
- Encouraging demand environment in exports, a pickup in domestic expected, long term capex plans remain intact, with the company expected to incur capex Rs 350 crore during FY2021E. However a six-months delay in commissioning is expected.
- Multiple headwinds impacts Q1FY2021 performance, revenue, adj. EBITDA and adj. PAT lower by 14%, 18% and 41% respectively.
SECTOR UPDATE
Life Insurance
July figures turn positive
- Continuing with the encouraging performance, private life insurers reported 26% y-o-y growth for total first-year premium for July 2020, indicating a revert to normalisation, recovering from the COVID-19 lockdown impact.
- Notably, performance in July improved as compared to June, May and April, which indicates that the market is gradually normalising.
- Going forward, we expect protection and annuity products to continue to see higher growth, but volatile capital markets/tepid growth in banca channels are likely to keep traction low, especially in ULIPs for the near term.
- Our investment picks in order of preference are Bajaj Finserv (holding company of Bajaj Allianz Life), HDFC Life, ICICI Prudential, and Max Financials.
Comments
Post a Comment