Published on 25/10/2019 2:48:21 PM | Source: Motilal Oswal Services Ltd

Diwali Picks Samvat 2076 - Motilal Oswal

Posted in Diwali Report| #Motilal Oswal #Diwali Report

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ICICI Bank is better placed in a challenging macro environment, given that it has limited exposure to the newly surfaced stressed names and is well on track to see earnings normalization. We expect the bank to deliver loan CAGR of 17% over FY19-21 and core RoA/RoE to improve to 1.5%/15.5%.Maintain Buy with TP of INR550

SBIN - We believe that SBIN is well poised for an earnings recovery led by steady operating performance at the PPOP level, recoveries from NCLT resolutions and normalization in credit cost to 1.9%/1.3% over FY20E/FY21E. Maintain Buy with TP of INR350

HDFC Ltd is well placed in the current tough liquidity environment, given that it is able raise money comfortably at lower rates and gain market share. We expect HDFC to deliver 14% AUM CAGR over FY19-22, with largely stable NIMs and Core RoA/RoEs of ~1.7%/~14% over the medium term. Maintain Buy with TP of INR2600

Bharti Airtel: BHARTI’s cash requirement could reduce due to lower capex intensity and the reduction in interest cost, which should result in FCF breakeven in FY20. We expect ARPU to remain flattish in FY20 and increase by 10% in FY21 led by price actions. We expect consol. EBITDA CAGR of 12% over FY19-21 which has a strong upward bias in case of a price increase. We maintain Buy with our TP at INR415.

HUL- Four key trends point towards an elevated earnings growth trajectory for HUL compared to the past, such as (1) rapidly improving adaptability to market requirements, (2) recognition and strong execution on Naturals, (3) continuous strong trend towards premiumization, and (4) extensive plans to employ technology, creating further entry barriers. Premium valuations are justified as the company has the best earnings growth visibility in the large-cap Indian consumer space, and also, the highest return ratios so far. Maintain Buy with TP of INR2265

Titan - The longer-term investment case remains strong as Titan is well placed to grow led by a combination of its own initiatives and regulatory tailwinds. With over 60% of the jewelry segment growth continuing to come from SSSG, operating margins are also likely to improve. Maintain Buy with TP of INR1435

JK CEMENT - JKCE’s capacity expansion will reduce the proportion of inefficient assets. JKCE is strategically well placed to benefit price improvement in the north due to limited supply addition. The white cement business has gained meaningful scale and deserves premium valuations, given raw material scarcity and JKCE’s 40-45% share in the domestic white cement market.Maintain Buy with TP of INR1270

ASHOK LEYLAND- Unlike the previous cycles, AL is currently on a strong footing (lean cost structure and net cash balance sheet) and is focused on adding new revenue/profit pools. Valuations are reasonable in view of the downcycle in earnings.  Maintain Buy with TP of INR88.

L&T-For L&T, we forecast adjusted consolidated EPS CAGR of 23% over FY19-21. Consolidated RoEs should expand to 17.6% by FY21 from 14.6% in FY18.Adjusted for valuation of subsidiaries, core E&C business is trading at FY20/21E P/E of 19.6x/16.1x, which is at a significant discount to its long-term one-year-forward trading multiple of 23x. Maintain Buy with TP of INR1900.

Mahindra & Mahindra Finance- Despite a slowdown in OEM volumes, MMFS has been able to deliver strong AUM growth, driven by its diversification into new product segments (such as pre-owned vehicles and CV/CE) and increasing share in different OEMs. We expect AUM growth to moderate to 14% YoY. Maintain Buy with a target price of INR400.

Indian Hotels- Indian hospitality industry is set to enter into an upcycle, led by favourable demand-supply dynamics. Given strong presence in high-demand, high-occupancy micro markets, IHIN is well placed to capitalize on the growth opportunities. We expect consolidated revenue/EBITDA CAGR of 9%/25% over FY19-21, supported by ARR growth of 8%. Maintain Buy with TP of INR176.

Aditya Birla Retail - Accelerated pace of store addition under Pantaloons is likely to drive healthy 13% revenue CAGR over FY19-21. We expect Pantaloons EBITDA margin to improve 150bp YoY, and Innerwear losses to reduce to INR300m by FY21.Expect PAT CAGR of 68% over FY19-21. This coupled with its healthy FCF and RoCE profile, should allow ABFRL to garner superior valuations. Maintain Buy with TP of INR250

Colgate Palmolive-A few factors are in CLGT's favor from the medium-term perspective - (a) the toothpaste market share hemorrhage appears to have abated after three years, (b) there is evident traction driven by herbal and other launches and (c) valuations are relatively less expensive at ~35x FY21E EPS. With return ratios likely to improve further due to better utilization of expanded capacity, the discount to consumer peers should reduce. Maintain Buy with a TP of INR1750

Petronet LNG- Higher gas adoption from industries and the power sector will likely support volume growth for PLNG. We believe that, due to the Kochi-Mangalore pipeline and Dahej expansion, PLNG’s total volume could grow by ~9/7% in FY20/21. We estimate Revenue/EBITDA/PAT CAGR of 15%/22%/23% over FY19-21. Maintain Buy with a TP of INR336

PI Industries -PI is set to commence operations at two new plants in FY20, which would act as a key growth driver for its CSM business, providing strong revenue growth visibility. We believe that the acquisition of Isagro Asia for INR3.5b at a valuation of ~15x P/E FY19 bodes well for PI not only from the point of view of synergies but also from valuations. PI boasts of strong balance sheet with debt to equity of 0.04x as of FY19. Maintain Buy with a TP of INR1508.


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