Published on 25/10/2019 1:55:20 PM | Source: Religare Securities Ltd

Diwali Picks Samvat 2076 - Religare Securities

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

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Diwali Picks Samvat 2076 


Havells India Ltd.

Outlook & Valuation:

Havells is strengthening its leadership by constantly expanding its product portfolio, increasing market reach and brand positioning. We believe Havells is best placed to leverage the opportunities in the FMEG space given the strong market share and distribution network. We expect its performance to improve (vs Q1FY20) in the next few quarters led by festive demand. Moreover, Havells has strong balance sheet (low debt, low working capital), robust return ratios and healthy cash flows. We recommend a Buy with a target price of Rs 795.


Mahindra and Mahindra Ltd.

Outlook & Valuation:

M&M has witnessed sharp correction in the last one year owing to cyclical downturn in the auto industry. Going forward, we expect the tractor industry to recover as normal monsoon, easing liquidity conditions and lower interest would aid domestic sentiments. M&M’s automotive segment is likely to witness challenges due to increase in competitive intensity and BS-VI implementation. Nonetheless, we believe that these concerns are largely factored in and the core business is available at attractive valuations. Further, recently announced JV (not priced in our estimates) with Ford India would help M&M in strengthening its product portfolio, improve operational efficiencies, and increase exports from India. Therefore, we recommend a Buy on the stock, valuing the core business at 12x and arrive at a SOTP based target price of Rs. 695.


Marico Ltd.

Outlook & Valuation:

The Indian FMCG industry is the fourth largest sector in the economy, which is currently witnessing demand slowdown, thus we believe that in the near term sector would continue to face challenges. However, we expect the sector to revive going forward and grow steadily led by increasing demand from both rural and urban areas, changing consumer preference and emerging e-commerce space. With positive sector outlook, management remains confident on growing its revenue by ~13-15% YoY and volumes by ~8-10% YoY. Further, we believe the company would drive sustained profitable volume-led growth over the medium to long term, which would be driven by product mix, innovating new products, maintaining leadership position in key brands and by increasing promotion and advertisement spends. In addition, declining copra prices would help in providing cushions to margins. Hence, we recommend a Buy on the stock with a target price of Rs. 451.


Maruti Suzuki India Ltd.

Outlook & Valuation:

We believe that the worse is over for the PV industry and it would witness gradual recovery from H2FY20 led by anticipated festive sales demand, recent government measures and favourable base effect. Further, we continue to remain constructive on long term growth prospects of the industry given low penetration of cars in India as compared to other major economies, economic recovery, increase in per capita income, low interest rate and higher rural income. MSIL is better placed than peers in the PV space given its leadership position, strong product portfolio and wide distribution network. Further, MSIL is likely to be a key beneficiary of BS-VI transition (April-2020) due to its higher share of petrol vehicles and limited price increase in majority of its product portfolio. On the operational front, we expect margins to remain subdued in FY20E due to negative operating leverage but expect healthy recovery in FY21E. Factoring in a dismal show H1FY20 and a modest recovery in H2FY20, we estimate MSIL’s Revenue/EBITDA/PAT to grow at 4.9%/2.7%/8.5% over FY19-22E. We recommend a Buy on the stock with a target price of Rs. 7,936.


Reliance Nippon Life Asset Management Ltd.

Outlook & Valuation:

We continue to remain constructive on the Indian mutual fund industry given its low penetration level as compared to major economies (11% AUM to GDP ratio v/s world average of 62%), increase in financialization of savings and continuous strengthening of SIP flows. Further, the regulatory changes in terms of reduction in total expense ratio (TER) is not only beneficial for investors due to low cost but would also benefit larger players like RNAM due to their ability to absorb cost which would lead to faster consolidation of industry. RNAM’s consistent increase in equity assets, industry leading retail assets and strong presence in B-30 cities augurs well for the growth prospects of the company. The consistent increase in monthly SIP book (Rs. 8.6 bn) would ensure longevity and regular inflows providing stable growth. Further, the recent buyout by Nippon Life Insurance (75% ownership currently) from Reliance Capital removes the overhang on RNAM and would narrow the substantial valuation gap with HDFC AMC. Therefore, we recommend a Buy on the stock with a target price of Rs. 319.


Voltas Ltd.

Outlook & Valuation:

Led by revival in consumption and capex cycle coupled with the company’s efforts towards brand building, enhanced product offerings and widening distribution reach, Voltas’ sales and PAT are estimated to grow by ~13% & 24% CAGR respectively over FY19-21E. We expect relatively better demand scenario for room AC and air coolers in the coming quarters, which will result in improved volume off-take in UCP. Despite intense competition, Voltas is well poised to sustain its leadership position in room ACs. Further, sales and profit growth in EMPS is expected to be healthy given better quality order book and efficient execution particularly on the domestic front. We recommend a Buy on the stock with a target price of Rs 780.


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