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Published on 9/11/2020 4:16:17 PM | Source: SPA Securities Ltd

Diwali Picks 2020 By SPA Securities

Posted in Diwali Report| #SPA Securities Ltd #Diwali Report

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Tata Motors Ltd

Valuation & Outlook

The stock trades at an EV/EBITDA of 3.3x and P/B of 0.7x on FY23 estimates vs. 10-year average EV/EBITDA of 5.1x and P/B of 1.7x. Key downside risks include a no-deal Brexit, luxury car demand contraction in target markets, failure of new launches, and adverse currency/commodity prices..

 

The India Cements Ltd.

Valuation & Outlook

In terms of valuation, on the asset front provide opportunities in India Cements. On an EV/t basis, the company is available below $70 per tonne against replacement cost of $100-$120 per tonne, implying sufficient room for upside. On an earnings basis, the company is available at an EV/EBITDA multiple of 8x FY22E, which looks lucrative.

 

United Spirits Ltd.

Valuation & Outlook

While sales were impacted by COVID related disruption in the 1H FY21, the margin performance was healthy. In the last few quarters, a sharp focus on cost optimization has led to robust margin performance and in the near term, while sales growth will be challenging for the industry and the company, operating performance should be better, supported by relatively benign COGS environment and cost optimization measures. Thus we recommend Buy for United Spirits as it remains the best play on India’s liquor industry (in the listed space) by robust market share and benefits ensuing from management control of Diageo.

 

Escorts Ltd.

Valuation & Outlook

Tractor industry remains relatively well placed in current environment. We expect EL to continue to gain market share in the tractor segment on the back of inroads in the South and West markets and the benefits from the Kubota. We also expect improvement in margins aided by improving product mix, increasing localisation and benefit of operating leverage. We expect Revenue/EBITDA/PAT to grow at a CAGR of 13.2%/31.9%/34.2% from FY20 to FY22E. At CMP of INR 1285, stock is trading at 13.1x its FY22E earnings (vs average of 20.8x for last 5 years).

 

Dabur (India) Ltd.

Valuation & Outlook

Dabur's new product development (NPD) pipeline is robust compared to peers & we see more than 50% of sales generating categories on high growth path either with high addressable mkt. With strong tailwind from health and immunity products, we believe Dabur would continue to witness strong growth from these trends. We expect the company to witness earnings CAGR of low teen over FY20-23E. Based on back of the envelope calculation of FY23E EPS, Dabur is trading at 45x & we have positive outlook on the stock.

 

RITES (India) Ltd.

Valuation & Outlook

Current Order book provides reasonable visibility of Revenue for next 2.5 to 3 years. Based on TTM earnings, It is trading at 10.8x& we've positive outlook on the stock led by Cash surplus BS, healthy dividend pay-out.

 

Polycab (India) Ltd.

Valuation & Outlook

Dabur's new product development (NPD) pipeline is robust compared to peers & we see more than 50% of sales generating categories on high growth path either with high addressable mkt. With strong tailwind from health and immunity products, we believe Dabur would continue to witness strong growth from these trends. We expect the company to witness earnings CAGR of low teen over FY20-23E. Based on back of the envelope calculation of FY23E EPS, Dabur is trading at 45x & we have positive outlook on the stock.

 

Sun Pharmaceutical Inds. Ltd.

Valuation & Outlook

While the company’s US generics front is going through calibrated product rationalization, specialty segment looks promising due to robust product pipeline, steady progress . This metamorphic shift from generics to specialty, however, is likely to weigh on US growth in the near term . That said, higher contribution from specialty and strong domestic franchise is likely to change the product mix towards more remunerative businesses by FY22 . This would have positive implications for margins also as we expect faster absorption of frontloaded costs on the specialty front

 

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