Karvy has used highly reliable Techno Funda Analysis to recommend 10 of the best stocks which are good for buy in 2019.
The stocks have strong fundamentals and good dividend paying track record.
On the basis of technical analysis also, the stocks are likely to give good upside.
So, the ten stocks are recommended as a good buy for 2019 because they have good fundamentals and excellent technical parameters. (Click here to download the research report)
The recommended stocks have massive upside potential of as much as 96%.
The 2019 stock recommendations given on the auspicious occasion of Diwali are an investment product of Karvy Stock Broking Ltd formulated by its Equity Fundamental & Technical Research, based on Techno-Funda Analysis.
It enlists 14 stocks from the Karvy Large-cap stock universe.
The objective of ‘Diwali Picks’ is to deliver superior returns over next 12 months.
The investment philosophy works on simple but superior fundamental and technical research.
The 14 large cap companies reflect superior businesses with operating efficiency and growth potential.
Karvy also tracks short-term price distortions that create long-term value, driven by sound economic fundamentals of the company.
This reflects stocks that have margin of safety will converge to their intrinsic value over a period of time and will reflect superior returns.
This is also a part of managing the overall risk, the objective is to attain higher risk adjusted returns and deliver consistent out-performance.
The stocks’ performance will be assessed on an ongoing basis and the composition of the stocks in the product will be altered based on target achievement, changes in the fundamentals of the stocks, industry position, market performance and broad macro-economic factors.
|The Best 10 Stocks To Buy For 96% Gain In 2019 (Techno Funda Analysis)|
|Stock||CMP (Rs)||Target Price (Rs)||Upside (%)|
Best Stock To Buy | Jamna Auto Industries
Jamna Auto Industries is among the largest leaf spring manufacturers globally. It enjoys ~70% OEM market share and will be a key beneficiary of the sustained strong performance of the commercial vehicle (CV) industry. It has return ratios of >30% and strong free cash flow generation and is a quality play on the domestic CV industry
Adani Ports & Special Economic Zone Ltd
India’s Largest Commercial Ports Operator
Integrated operating model across the value chain: APSEZ enjoys a unique & integrated business model with presence in ports + logistics + SEZ. It enjoys concession assets in a supportive regulatory environment with a weighted average concession period of 28 years. It operates container rail operations in ports pan India with a 20 year license along with 3 inland container depots for warehousing. APSEZ boasts of its land bank of around 8000 hectares of which the company is focusing on developing industry in a logistics hub. Recently, APSEZ closed lease agreement with Britannia and Concor for 83 acres.
Expansion to drive growth: Expansion of Dhamra to make it handle containers and making Kattupalli port a multipurpose cargo port could be the growth driving factors. Coal handling is expected to increase on the back of higher electricity demand and lower inventory at different power plants. Ennore terminal has also started operations from Jan’ 18, therefore the increasing volume can be factored in coming quarters to make all the sites operational. Company plans to incur a capex of Rs. 25000-28000 Mn. As a result of the above strategies, company expects the container and cargo volume to grow by 20% and 12% respectively.
Financial performance: FY18 revenue grew by 34% vs FY17 to reach Rs. 113 bn while the EBITDA grew by 32%. Consensus estimates revenue CAGR of 5.5% along with earnings CAGR of ~14% for FY18-20E.
Diversification aiding overall improvement: APSEZ is consistently delivering growth with gaining market share (14.8% to 15.2% as on FY18). Total cargo volumes grew by 7% for FY18 to 180 MMT while all India cargo grew by 4%. Container volume has also grown across all ports.
Valuation and Risks: Healthy growth of container and cargo volumes coming in from the expansion plans are the key positives. Stock is currently trading at 15.4x. The consensus values the company at 20.9x for a target price of Rs. 458.
Ambuja Cements Ltd
Ensuring value creation through expansion
Quarterly performance: Ambuja’s Q2FY19 revenues increased 12.7% YoY (up 13.4% QoQ) to Rs. 2,614 crore. EBITDA margin decreased 158 bps YoY to 13.7% mainly led by 13% YoY increase in power cost (led by higher pet coke prices), 19.5% YoY increase in freight cost (led by higher diesel prices) and 15% increase in other costs. PAT decreased by 34.4% YoY to Rs. 179 crore due to lower other income as last year base quarter had dividend income of Rs.103 Cr, included in the other income.
Capacity Expansion: The company has made the announcement of expanding the capacity by 3.1 MT of clinker plant at Marwar, Rajasthan. The company plans to invest Rs.1,391 crore towards the first phase of 1.7 MT, which is expected to be commissioned in the second half of 2020.
Supply Chain Agreement: The board has approved master supply agreement with ACC for three years commencing from the date of execution. Under the agreement, ACC and Ambuja can procure from each other clinker, cement, raw materials (including fuels, fly ash, slag) & spare parts and undertake toll grinding in certain plants. This will enable both companies to lower their lead distance, maximize utilization of assets as well as spare inventory.
Growth Drivers: The volume growth mainly came from healthy execution in the infra sector & low cost housing projects. We expect cement volumes to increase at a CAGR of 7.6% in CY17-19E. In addition, we expect prices to improve in company’s key areas of operation, especially in the north led by a pickup in demand.
Valuation and Risks: The demand momentum will continue to remain healthy due to focus by governments on construction of roads and affordable housing segment. Consensus values Ambuja Cement at 14.0x EV/EBITDA to FY20E with a target price of Rs. 235.
Hero MotoCorp Ltd
Growth Remains Intact
Three new product launches planned in next three months: The Company is planning to formally launch three new models in scooter and premium bike category in the next 3 months. This includes a premium bike apart from recently launched Xtreme 200cc and two new Scooters in 125cc category. These three models are likely to be launched in domestic as well as the international market in a phased manner. The Company is expected to get higher volumes especially in scooter segment from these new models in the medium term.
Pickup in rural market: During H1Y19, HMCL has reported 9.4% volume growth. Given the Company’s robust product pipeline of three new launches within the next 2-3 months, we expect volume growth to pickup well in the rural market. During H1Y19, HMCL has reported 15.4% EBITDA margins and we expect this to be maintained on the back of higher capacity utilization.
Performing amidst tough market environment: HMCL faced major headwinds in the last three months including aggressive price cuts by its nearest competitor and five year insurance norm for two wheelers. Despite that, HMCL reported 9.4% volume growth in H1Y19. The management continues to maintain 8-10% volume growth guidance for FY19. The Company has lined up three new product launches (Premium bike and two 125+ Scooters) over the next three months. We understand, given its strong brands and robust distribution network, HMCL is in a better position to benefit from any economic recovery.
Valuation and Risk: At CMP Rs. 2893, the stock is currently quoting 13.7x FY20E earnings. We believe, given its strong brands and robust distribution network, HMCL is in a superior position to benefit from rural economic recovery. New model launches and exports are expected to aid its volume growth further. At PER of 13.7x FY20E, we see a favorable risk reward ratio. We maintain our “BUY” rating on the stock with price target of Rs. 3580 (PE of 17xFY20E earnings).
Housing Development Finance Corp Ltd
Healthy AUM Growth and Stable NIM
AUM has continued to grow and HDFC posted a PAT under IND AS of Rs. 21.8 bn, up 56% YoY aided by dividend income from subsidiaries; PAT growth adjusted for dividend income was 18%. Loan book growth at 20% (18% AUM growth) led by higher growth in individual book remains healthy and inline with consunseus. Asset quality as per IGAAP was stable QoQ at 1.18. It regained momentum in FY18, led by housing book growing at 18% and non-housing at 17% and continuing into Q1FY19.
De-risked loan portfolio: HDFC has a de-risked loan portfolio with 72% exposure towards individuals followed by construction finance with 13%. AUM has continued traction with growth of 18% for another quarter. Growth is similar across individual as well as non-individual segment. Individual loans, including loans sold over last year has grown by 25%. Spreads are stable on a sequential as well as YoY basis at 2.3%. NIMs have improved by 10 bps on a YoY basis to 3.5%.
Demand drivers: With government’s thrust on affordable housing through CLSS scheme, HDFC has also increased the focus on EWS & LIG segments. In Q1FY19, 37% of home loans in volume and 19% in value were to customers from these segments. Other drivers like improved affordability, low penetration levels, favorable demographics, urbanization are expected to work in favour of HDFC.
Institutional holding & operational highlights: Foreign investors hold 75% followed by Financial Institutions holding another 16%. Gross NPL for HDFC recorded at 1.18% as on Jun 30, 2018 with a capital adequacy ratio of 16.3% of which tier 1 capital is 15.0%.
Valuation and Risks: HDFC is the best proxy to play on Mortgage business along with Banking, Insurance and AMC through its subsidiaries. Value unlocking in subsidiaries such as HDFC AMC should support the valuation. Consensus values the stock at 5x FY20 BVPS with a “BUY” rating for a target price of Rs. 2201.
6 High Dividend Yield Blue Chip Stocks
Investors looking for blue chip stocks with high dividend yield have a lot to choose from. There is a recent list of six blue chip stocks which offer a high dividend yield of as much as 7%, which is very attractive. The six stocks are all PSU companies which means that they are safe and the return of capital is assured.
Diversification of Business Paying Off
Non Cigarette business picking up: Strong growth in packaged branded foods, better portfolio mix and improved operational efficiencies have led to 10.3% growth in the last 8 quarters for the FMCG segment. The company is expected to further leverage its strong brand building track record, and pan India distribution channel to scale up the existing portfolio and also launch brand extensions. Hotel and paperboard business are also on strong footing albeit at a lower base, has potential to significantly contribute towards the bottomline in the coming years.
Cigarette segment stable: Despite continuous hike in the taxes on cigarettes, ITC has managed to grow at 9% CAGR in the last 5 fiscals. The latest GST hike was in July 2017 (which brought taxation in line to its global peers), and the street does not expect further hikes in the coming fiscal. Backed by increasing consumer sentiment and pickup in rural economy, volumes and revenue for this segment are expected to be on a strong growth trajectory in the next two fiscals. Cigarette segment contributes 52.5% of revenue and 85.9% of the operating profit for the company.
Q2FY19 highlights: Revenues improved 7.3% to Rs. 111 bn, led by 6% volume growth in cigarettes, 12.7% growth in the FMCG business, 8.8% growth in agri business and 20.8% growth in paper and paperboard business. On the profitability front, FMCG EBIT doubled to Rs. 585 Mn and EBIT of hotel business came in at Rs.156 Mn, backed by higher occupancy rate (67-68%), strong F&B sales.
Valuation and Risks: Increasing private consumption on the back of better monsoons and increasing rural incomes is expected to lead to revenue growth of 10.8% and margin improvement of 50 bps, resulting in PAT growth of 11.7% CAGR over FY18-20E. The stock currently trades at average 1 year forward P/E of 26x and consensus values it 30x on FY20E EPS of Rs.11.47 and recommends ‘BUY’, with a target price of Rs. 340. Key risks to the call are further increase in tax on cigarettes and lower consumer demand for the FMCG products.
L&T Finance Holdings Ltd
Aggressive Growth Story, Likely To Continue
LTFH reported strong set of nos for Q2FY19, PAT grew by ~62.6% YoY to Rs. 5.6 bn due to a restatement of the previous year’s PAT and healthy growth in advances and lower provisions. Retail assets formed~47% of AUM while retail disbursements for the quarter grew by ~31% YoY to ~Rs.72.9 bn driven by ~59% YoY growth in rural finance, however loan book grew by ~29% YoY as wholesale finance disbursement declined ~3% YoY.
NIIM to remain stable with the rising interest rate scenario: Total share of NIIM plus fees for Q2FY19 improved further to 6.8% vs 5.7% last year and 6.5%for Q1FY19, supported mainly by the rising share of relatively superior yield retail portfolio, comfortable liquidity positioning and cushion earned through the recent QIP infusion. As the company continues to shift its focus from wholesale based lending to retail based lending, the overall margin trend to remain steady. RoE for the current quarter stood at 18.5% and expected to maintain same with a consensus estimated RoE of 18.4% and RoA of 2.3%. LTFH has positive ALM of 58% for the next 1 year along with Rs.61 bn of liquid investment, Rs. 42 bn worth investment in mutual fund and Rs. 20 bn of back up liquidity from L&T, which puts it in a sweet spot against the current liquidity crunch scenario of NBFCs.
Low Exposure to ILFS and Supertech: LTFH has an exposure to IL&FS group in six SPVs which are fully secured operational projects. Management also remains confident of recovering Rs. 8 bn exposure to Supertech Developers through granular project realization.
Valuation and Risks: The rising liquidity crisis is expected to slow down the wholesale segment but rural and housing to drive the growth forward for LTFH. At CMPRs. 134, the stock is trading at a P/BV of 1.7x FY20E BVPS, while the consensus has valued the same at P/BV of 2.1x FY20E BVPS to arrive at a target price of Rs.160, with a potential upside of 20%. A slowdown in the NBFC sector and higher cost to income ratio remains key risks to watch.
Oil & Natural Gas Corp Ltd
Higher Crude Oil Prices Help ONGC Cut Borrowings
ONGC reported a net profit of INR 6,144 crore, up by 58.1% QoQ. The revenue of Rs. 27,123 crore, up by 42.7% QoQ and VAP production increased by 12% for Q1FY19. Thus, the increase in EBITDA was largely driven by higher crude oil prices and depreciating rupee. If oil prices stay above USD 70 per barrel for the rest of the year, ONGC can create consolidated cash flow of more than Rs. 20,000 crore which in return can help in cutting borrowings spent to acquire 51.11% stake in Hindustan Petroleum Corp (HPCL).
The ONGC stock declined 19% in 2018 but that was due to the reason where the government did not want to cut excise duty and was looking at alternate means of asking ONGC & Oil India to share the subsidy burden. But later the government dropped the plan of asking ONGC to resume sharing its fuel subsidy burden if the Indian basket of crude breaches USD 70 a barrel.
ONGC acquisition of HPCL, integration a win- win deal: ONGC is the largest oil and natural gas producer with its diversification into refining business, it has become the third-largest refiner in the country. Post acquisition, the company has plans to achieve proper synergies like use of Naphtha and other liquid hydrocarbon with ONGC Petro-additions Ltd, and to maximize value, optimize cost and enhance efficiency.
ONGC already is the majority owner of MRPL we believe that the strategy is to strengthen the integration further so that business growth is well diversified and risk well distributed to tide over the volatility due to fluctuations in global crude oil prices.
Valuation and Risks: Synergies in ONGC’s business and likely consolidation in downstream business with merger of HPCL will ensure uptick in growth for the company.
Following the Bloomberg consensus target price of Rs. 218, the stock has been valued at PE 8.5x of FY20E EPS which gives potential upside of 39%. However, subsidy sharing, volatility in oil prices and Indian rupee will be detrimental to ONGC’s performance.
Power Grid Corp of India Ltd
Increase in Power Demand will Drive Investments
Data from developed countries shows that transmission infrastructure increases with demand growth. Electricity demand in our country has been increasing rapidly and is expected to rise further in the near term on the back of government’s ambitious mission of providing 24×7 “Power for All” at affordable prices. Addition of renewable energy generation capacities will also aid investment in transmission infrastructure. In the next five years, Rs. 2.6 tn is expected to be invested in the sector and PWG expects to spend Rs. 1 tn.
Capitalisation concerns however, healthy order book: Capex for Q1FY19 stood at Rs. 64 bn (up 1.1% YoY) and Asset Capitalization for the quarter was at Rs. 37 bn (up 4.5% YoY). PWG has guided for capex of Rs. 250 bn and Capitalization of ~Rs. 280 bn in FY19.
The company’s ongoing and future projects order book is worth Rs. 885 bn and the company also has Rs. 150 bn worth of Consultancy assignments with GoI. Strong project execution capabilities, history of meeting targets and high CWIP gives comfort on earnings visibility which could lead to strong cash flow and increased dividend pay-out.
Valuation: PWG has an order book of ~Rs. 1 tn which provides strong earnings visibility for next 3 years. At CMP, the stock is trading attractively at 1.5x FY20E P/BV for an RoE of ~16%. Consesus values PWG at 1.8x FY20E P/BV and arrived at a target price of Rs. 230.
– Increased competition in tarrif based-competitive bidding (TBCB) projects may impact RoE.
– The company may participate in intra-state transmission capex. However, poor Discom finances, lack of coordination and historic failures imply road blocks in this segment.
Past Tense, Future Ready?
Wipro has been a victim of events, some of which were not under its control. Be it crude price crash, issue with a utility client in the US or restructuring of India operations or subdued financial performance, it never lost sight of its future strategy. With a combination of inorganic growth and capabilities built in house, Wipro has built its digital capabilities. We believe Wipro is ready to take on the new reality of the changing IT business model. While all the events were a thing of past, we believe Wipro’s financial performance should start improving.
Focus on value added business: Wipro has changed strategy to focus more on opportunities where it can add value and showcase its capabilities. Its divestment in data centre business and spin off of India government business are part of the same strategy. This strategy should help it to free up the management bandwidth to channelize it towards more profitable projects that should help it in client mining and cross selling opportunities
Inorganic route to make it future ready: Wipro’s inorganic strategy to fill the gaps in its effort to building digital capabilities to make it future ready appears to be working. For instance, while Appirio enhanced its Saas capabilities, Designit enhanced its UI/UX capabilities significantly and is integral to its delivery of all major transformational deals.
H2FY19 to be better than H1: During our interaction with Wipro’s management, it said that H2 would be better than H1FY19 on the back of large deals it won. It was confident that Q3FY19 will buck the seasonality factor of being a weak quarter. We believe that Wipro should exihibit strong H2 in the fiscal on the back of large deals won in the recent past including its biggest ever Alight deal.
Valuation and Risks: We remain positive on future prospects of Wipro. We issue a “BUY” rating on the stock with a target price of Rs. 387 an upside potential of 22%. Consesus values Wipro at PE of 18x on FY20E consensus EPS of Rs. 21.5.
Odds In favour of Yes
Signs of recovery despite asset quality worries,: 2QFY19 PAT declined 4% YoY toRs. 9.6 bn on account of elevated provisions/ MTM losses. This quarter performance disappointed on asset quality notwithstanding the healthy business momentum. The slippages were much higher than anticipated nevertheless, the miss was led by concentrated exposure and the bank continues to see good possibility of recovery.
Outperformance on margins: The NIMs were stable QoQ at 3.3% notwithstanding high capital consumption as against our expectation of a sequential decline. We believe the outperformance against the retail peers is led by higher proportion of variable book and less competitive pressure on retail book.
Loan growth remains strong; expect it to remain healthy (~20/25%) notwithstanding capital and transition issue: The loan growth for the quarter was quite strong at 12%/61% QoQ/ YoY. The same was led by the branch banking, 9.5%/57% QoQ/ YoY and corporate banking, 12.6%/63% QoQ/ YoY. Within the Branch Banking, Retail Banking the most granular of the segment continues to show the strongest momentum at 14%/102% QoQ/ YoY. We expect most of the pressure on growth because of constrained capital and we estimate loan growth at 25%/21% FY19E/FY20E.
Valuation: We maintain “BUY” on the stock with the Target Price of Rs. 410 valuing the stock at 2.67x FY20E P/B.
Risks: Further rise in provisioning, higher NPAs owing to any divergence against the RBI risk assessment report for FY18, failure to find a suitable replacement for current CEO and capital constraints impacting loan growth.
Stock Recommendation Based on Technical Research