7 Stocks to Buy in 2021
Nikita Bhoota
Nikita Bhoota
11th December 2022 - 03:36 pm
Outlook:
The Indian economy has fared relatively better than expected in 2020. Nifty 50 and Sensex have jumped 15% and 16% respectively from January 01,2020- December 31,2020 respectively. The efforts taken by the GoI and RBI aren’t glorified enough and have played a major role in rural revival. Favourable policies and rural tailwinds are expected to be key drivers whilst urban economy nurses back to recovery. Some economic & health indicators are pointing at gradual normalisation which sets the stage for upwards revision to GDP forecast. Political stability is an important factor that will support the markets. Although the valuations are expensive and are factoring most positives, uptick in commodity prices pose a risk to inflation. However, the impact on our recommended portfolio is not expected to be significant. We have picked stocks that either have resilient business models which stood the test of time or are available at compelling valuation and/or have attractive dividend yield.
Top Picks for long-Term:
Reliance Industries (RIL)
CMP: Rs 1,985
Target: Rs 2,204
Upside: ~11%
Reliance Industries (RIL), India’s largest company by market capitalization, has major presence across petroleum refining & marketing, petrochemicals, retail and telecom & technology. RIL’s has a highly integrated and complex O2C operation which provides cushion during volatile periods. The refining margins are under pressure however, RIL has the ability to adjust its product slate in-line with changing product crack and it stands to benefit the most from improving middle distillate cracks. As for petchem, RIL has high level of flexibility to choose feedstock which enhances its margins and we believe that RIL stands to benefit from sharp spike in margins of key petchem products. The Retail and Jio businesses have enabled significant deleveraging and have transformed the company which has provided support during volatile period for O2C. Factors like tariff hikes, entry in post-paid & enterprise segments and collaboration with Google for entry-level smart phone would drive growth for Jio. New store opening and scale up of JioMart along with inorganic opportunities are main drivers for R-Retail.
|
Year |
Revenue(RsCr) |
EBIDA(%) |
EPS(Rs) |
PE(x) |
|
FY21E |
6,06,888 |
12.2 |
65.3 |
30.4 |
|
FY22E |
6,89,424 |
13.5 |
73.1 |
27.2 |
HCL Technologies:
CMP: Rs 946
Target: Rs 1,048
Upside: ~11%
HCL Tech is India’s third largest listed IT services company by revenue and is the only company with major presence across services and products. It also has a leadership position in IMS. The company has been witnessing solid traction in deal wins and the pipe line remains robust which provides good revenue visibility. We believe that HCL’s portfolio is relatively insulated vs. peers as it has lower concentration to verticals like travel, energy, hospitality, etc. and higher exposure to low-impact verticals like BFSI, healthcare and technology. Moreover, it has ~37% exposure to IMS (resilient service line) where it has strong partnerships and capabilities that can enable it to capitalize on opportunities in areas of cloud migration and network security. HCL Tech has been successful in strengthening its Products & Platform segment by acquiring IBM products, which have yielded positive results in the first year. This BU too has shown resilience and provides recurring revenue stream.
|
Year |
Revenue(RsCr) |
EBIT(%) |
EPS(Rs) |
PE(x) |
|
FY21E |
75,523 |
20.9 |
45.6 |
20.7 |
|
FY22E |
83,513 |
20.9 |
51.1 |
18.5 |
Power Grid Corporation of India
CMP: Rs 190
Target: Rs 220
Upside: ~16%
Power Grid Corporation of India Ltd. (POWERGRID) one of the world’s largest electrical power transmission utilities should benefit from steady capitalization and the regulated ROE model which should drive standalone PAT over the next few years. The company has orders in hand worth ?41,000cr and the company has guided that it has projects in pipeline of ~?17,900cr for inter/intra state transmission work works. Additionally, projects of 20GW from Rajasthan, 20GW from Gujarat and 10GW Leh-Ladakh RE Parks are under consideration with opportunity size of ~?28,000-30,000cr. We believe that current orders and pipeline offers growth visibility for next 3 years. Although the lack of significant new orders has resulted in declining order book, the management has indicated in the past that it will maximize payout of dividend if there is no capex to meet. Hence, we expect dividend to increase form ?10 per share in FY20 to ?14.3 and ?15.0 per share in FY22E and FY23E respectively. Moreover, the company is best placed to gain from pick up in transmission investments over the long run.
|
Year |
Revenue(RsCr) |
EPS(Rs) |
PE(x) |
|
FY21E |
39,299 |
20.6 |
9.2 |
|
FY22E |
42,738 |
23.9 |
7.9 |
Tata Consumer Products (TCPL)
CMP: Rs 590
Target: Rs 688
Upside: ~17%
Tata Consumer Products (TCPL), the second largest branded tea player in the world is transforming from being a largely branded tea & coffee player into a diversified FMCG company. We believe that TCPL would be a key beneficiary of gradual shift from unbranded to branded tea in a market where top two (TCPL & HUL) account for ~45% by value and the unorganized segment accounts for ~40-45% share. Apart from its already established two key brands (Tata Tea and Salt), the company intends to drive growth from its relatively smaller portfolio of pulses and spices (Tata Sampann). We believe that there is significant opportunity for TCPL to leverage on the direct reach of the tea portfolio. Moreover, the integration of food business is expected to yield synergies of 2-3% of sales of the combined entity and only part of the synergy has been realized so far.
|
Year |
Revenue(RsCr) |
EBIDA(%) |
EPS(Rs) |
PE(x) |
|
FY21E |
11,231 |
14.3 |
10.6 |
55.7 |
|
FY22E |
12,061 |
14.6 |
11.5 |
51.3 |
Coforge (COFO):
CMP: Rs 2,706
Target: Rs 3,043
Upside: ~13%
Coforge (erstwhile NIIT Technologies), a part of Baring Private Equity, is mid-size IT services company which has been posting sector leading growth profile after change in management and reorientation of its Go-To-Market strategy. COFO has continuously invested in building digital capabilities and its specialisation in emerging tech, including digital integration, in verticals such as insurance, BFS and transportation has given it scale that is equivalent to a large peer. Consistent focus on client mining and deal wins have aided the sector leading growth rates. This has enabled it to perform well despite significant impact on its travel vertical (~19% of revenue) in Q1FY21. Coforge has a healthy deal pipeline and executable orders of USD489mn over the next 12 months. The healthy order intake on TTM basis implies a book-to-bill ratio of 1.3x. Led by consistent top-quartile growth, COFO has traded at ~19% premium to mid-cap peers over the past two years. We believe the stock will continue to command premium valuations, given its strong execution capabilities.
|
Year |
Revenue(RsCr) |
EBIDA(%) |
EPS(Rs) |
PE(x) |
|
FY21E |
4,675 |
13.3 |
80.7 |
33.5 |
|
FY22E |
5,474 |
15.1 |
109.7 |
24.7 |
RBL Bank:
CMP: Rs 231
Target: Rs 300
Upside: ~30%
RBL Bank, one of India’s fastest growing private sector banks with an expanding presence across the country, is an attractive play given the steep discount to peers and improved business model. RBL has an adequate capital positioning with a Tier-1 CAR of 15.1% and total CAR of 16.5% as on Q2FY21. This is further set to strengthen after infusion of ~?1,566cr via preferential allotment in 3QFY21, which would add ~230bps to CET-1 capital. Stronger internal accruals, potential resolution and Corporate portfolio consolidation will ensure good capitalisation for the near-to-medium term. RBL’s overall profitability is expected to improve going ahead on account of improvement in NIMs and lower credit cost. Improvement in NIM going forward would be driven by the increasing share of retail loans, deposit rate cuts and run-down of excess liquidity while improving asset quality is expected to bring down credit cost from peak levels. On the liability side, RBL has delivered a strong 32% yoy growth in H1FY21 and shed bulk deposits. Despite improving profile, RBL is currently trading at a higher discount to peers like IndusInd, City Union and AU than its average discount since listing; similarly, it is trading at a far lower premium to Federal Bank than its average premium.
|
Year |
NII(RsCr) |
PPOP(RsCr) |
EPS(Rs) |
P/BV |
|
FY21E |
3,950 |
2,880 |
10.1 |
1.0 |
|
FY22E |
4,450 |
3,110 |
19.5 |
0.9 |
Kaveri Seeds
CMP: Rs 520
Target: Rs 714
Upside: ~37%
Kaveri Seeds is one of India's leading seed producers, with a broad product portfolio that includes hybrids for cotton, corn, paddy, bajra, sunflower, sorghum and various vegetables. Kaveri Seeds has not raised any external money in the form of either equity or debt, and meanwhile has paid out ~?850cr to shareholders (including FY20) via share buybacks & dividends. This reflect the company’s strong FCF generation. The non-cotton portfolio now contributes around half of total seed revenues but nearly 70% of total seed EBITDA. The non-cotton portfolio is likely to grow faster than the cotton portfolio (barring approval for new technology in cotton) and also generates higher margins. Kaveri remains ignored by most investors despite steady EPS growth, ~45% ‘core’ ROE (ex-cash), and a 7-8% dividend + buyback yield. At 9.8x FY21E PE, it looks clearly undervalued. We believe the shift in earnings mix towards the non-cotton business – which is less regulated, higher-margin and faster-growing – could drive an expansion in margins and an increase in valuation multiples over time.
|
Year |
Revenue(RsCr) |
EBIDA(%) |
EPS(Rs) |
PE(x) |
|
FY21E |
10,560 |
29.0 |
53.3 |
9.8 |
|
FY22E |
11,716 |
29.6 |
59.5 |
8.7 |
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