Top stocks that can return up to 50% in 2014

04 Jan

The Indian markets may very well touch new record highs in 2014, attracting offshore funds despite an
expected bumpy period for emerging markets (EM) as the Fed shifts the monetary policy,
SMC Capital said in a report.
Moreover, the various efforts taken by the Government and the Reserve Bank of India (RBI) to bring down Current Account
Deficit (CAD), to cushion the free fall of rupee, boost manufacturing and curb rising inflation have indeed sent out positive vibes, are likely to translate into growth numbers in the coming years.

Moreover, the factors such as improvement in economic activity, better policy decision-making by the newly elected stable government post-election and an improvement in the investment climate are likely to stimulate bulls in the

It is expected that the general elections promises a quickness in policymaking and the election could murmur the reforms engine in many long-pending areas of economic importance.

In the year 2014, with the improved global condition, the global economy is likely to perform better comparatively. No doubt, the developing economies will enjoy relatively high growth in 2014, while the United States will continue with real growth, driven by a reduction in fiscal austerity, a resurgent housing market.

Back home, apart from the general election, other major events, which are likely to keep investors tizzy to some extent are tapering of the easy liquidity policy by the US Federal Reserve which would result into the squeezing of the liquidity from the markets and China’s growth and its interest rates. The cumulative effect of both namely Fed tapering and tighter China interest rates is likely to weigh on
the Emerging Market (EM) in the year 2014 The markets sentiments were dull last year comparatively due to a loss of
confidence in government policymaking, a yawning Current Account Deficit (CAD) and a sharp slowdown in growth and this have had hampered the market’s performance.

No doubt, India will continue to be an attractive destination for FIIs despite all the headwinds because the fundamentals as well as the valuations of the Indian companies look attractive.

There is also an expectation that these companies will benefit the most from an easing interest rate cycle, which the RBI is expected to start going next year.

On the macro part, the normal monsoon and improving exports force to believe that there’s a strong possibility of improvement in the current account deficit and balance of payment situation.

The vote on account, which is schedule to come on 15th Feb 2014, is also likely to give some directions to the markets.

To conclude, despite steady improvement, one cannot ignore that U.S. unemployment remains high, Europe’s
debt crisis is far from over, and China’s economy continues to slow. So at this juncture, diversification is a strong advice for market participants for this year. One should position oneself with respect to volatility of the markets.
Here is a list of top 10 stocks which can deliver up to 50 per cent return in 2014:

Cairn India Ltd: Target price set at Rs 421, upside seen

The company maintained its trajectory of gross production growth in Rajasthan to an average of 175,478 boepd during the quarter ended September 2013, up 1 per cent QoQ. The asset is currently producing around 178,000 boepd, and remains on track to deliver a FY’14 exit production target of over 200,000 boepd.

Cairn India’s consolidated net profit jumped by 45.8% to Rs 3385.08 crore. Its new sales grew by 4.7% to Rs 4649.91 crore in Q2
September 2013 over Q2 September 2012.

In the last few years, the company has delivered strong financial performance. The company is focused on exploration across the asset portfolio both in India and core areas  internationally and has also started the seismic survey in its South Africa
block, which is in line with company’s exploration led growth strategy focused on replacement and growth of reserves leading to long term sustainable value creation

SMC expects the stock to see a price target of Rs.421 in one year time frame on a target P/E of 7x and FY15 (E) earnings of Rs.60.21.
Crompton Greaves Ltd: Target price set at Rs 202, upside seen

During the FY13, the company has acquired 100 per cent of ZIV, a global leader in the high value Smart Grid and Automation Solutions  segments for Industrial and utilities companies.

This acquisition expands the CG portfolio for power system automation and protection and creates a strong
platform for CG in the smart grid arena. The company maintains its FY14 revenue guidance of 8-10% given at the start of
the current fiscal.

With a unique combination of businesses, the company  is well poised to capitalise on future global growth opportunities. Going
forward, the company is expected to register a healthy sales growth, supported by strong order backlog.

On the estimated September FY15E EPS of Rs 8.09 and target P/Ex of 25x, SMC expects the stock to see a price target of Rs 202 in one year time frame.

Mahindra & Mahindra Ltd: Target price seen at Rs 1202, upside seen 25%

The company’s recent acquisition Ssangyong Motor Company Limited, S. Korea, the company has reached brake-even in Q1FY14, thus providing with profitable ways with a 20% growth in consolidated revenues and a 114% growth in profits. In SsangYong, M&M is looking at a total of 1 trillion won of investment from CY 2013, 2014, 2015, and 2016.

The Company has so far invested Rs. 120 crore in the agriculture business, which includes Rs. 70 crore invested in Engineering, Procurement and Construction (EPC) Industries, the micro irrigation company it acquired in 2011.

It plans to also invest around Rs. 200 crore in the agriculture business in the next two years. Overall, by fiscal 2016, Mahindra has a target to achieve revenues of Rs 1,000 crore in the agriculture business

As its farm equipment expertise has grown over the years, company has expanded into key overseas markets. Currently, it has a strong presence in more than 40 countries and a global customer base of over 1.45 million.


Torrent Pharmaceuticals Ltd: Target price set at Rs 655, upside seen

The Company plans to launch 2 products each in the chronic and the acute existing, 8-9 products in the new businesses derma, pain and Gynaecology etc. for the year.

It expects to launch 15 new products every year for the next 5 years. Further, the 3 markets to focus in the International markets are the Germany, Brazil and US. It is also quite bullish on the UK market going forward.

The Company has entered into a definitive binding agreement with Elder Pharmaceuticals Limited to acquire its
branded domestic formulations business in India and Nepal (“India Business”) for a consideration of about Rs 2000 crores. This acquisition strengthens its position in the Women Healthcare, Pain management & Vitamins/Nutrition segments by enhancing & accelerating market access.

The company is planning to improve its development through expansion into further locations and increasing its presence in new therapeutical area as well  as launch of new products to fill gaps in its current portfolio.

SMC expect the stock to see a price target of Rs 655 in one year time frame, based on estimated FY15E EPS of 36.38 on target P/Ex of 18.

Wipro Ltd: Target price set at Rs 705, upside seen

Backed by the improved performances in key verticals and geographies, the company during the quarter ended September 2013 reported 19% growth in the top-line at Rs 10990.70 on YoY basis. The bottom-line during the same period grew by 20% to Rs 1932.10 crore.

During the quarter ended  September 2013, the company has posted its strongest growth in seven quarters.
The strategy of focusing on the top 125 accounts is delivering the results.
There is a broad based growth across the customers.

Going forward, the growth momentum is likely to continue on the back of improved deal win rates and
couple of large multi-year deal won by the company. SMC expects the stock to  see a price target of Rs.705 in one year time frame on a target P/E of 20x and FY15 (E) earnings of Rs.35.27.

ITC: Target set at Rs 358, upside seen over 12%

ITC has come off by 18 per cent from the peak on moderate Q2 performance. Uncertainty on cigarette volume growth persists in
the near term. However, the probability of moderate excise increase in FY15 seems high, given past precedence of first year after elections.

Hotels business might show a moderate recovery on a low base, although no green shoots are visible.

The brokerage firm has reduced FY14 and FY15 EPS estimates by 2 per cent to Rs10.8 and Rs13.1 which factors in (1) lower margins in paper business, (2) delayed recovery and lower margins in hotels and (3) flat cigarette volumes in
FY14 and 4.8per cent volume growth in FY15. Another round of sharp excise  Increase in cigarettes and slowdown in FMCG demand remains a key risk to valuations.

HDFC Bank: Target set at Rs 725, upside seen nearly

Challenging macros seem to be having some impact on HDFC
Bank’s financials, but the brokerage firm sees limited risks to the overall
profitability as they draw comfort from (1) floating provisions (credit cost
comfort), (2) Opex efficiency (offset growth pressure) and (3) Superior
liability franchise
Macro has turned difficult for financials, but HDFC Bank provides comfort on multiple fronts
despite valuations. HDFC Bank remains preferred defensive over HDFC and Kotak Mahindra Bank.

L&T: Target price set at Rs 1,164, upside seen nearly

L&T is certainly facing the turmoil of a slow economic
growth environment. However, given its wide portfolio in capability, it remains
the best play in the infrastructure space. L&T is trading at P/E of 15.5X
FY15E core earnings.

However, with the recent news flow in terms of order intake being positive,
L&T seems to be on a comfortable wicket and is poised to end the year with a
15 per cent order inflow and 12-15 per cent revenue growth.

L&T is
trying to monetize assets in its subsidiary like Dharma port/few road projects.
Successful asset monetization could act as a catalyst as it will reduce the
burden on L&T’s balance sheet to invest in subsidiary and, in turn, improve
the parent’s ROE  ..

ONGC’s gas price is likely to rise by 61 per cent
YoY in FY15E, which would boost EPS by 24 per cent. Gas price would rise to
US$8.3/mmbtu as per approved formula. BofA-ML expects gas price rise to at least
US$6.8/mmbtu even if some subsidy has to be borne.

ONGC’s FY15E EPS would  be up 59 per cent YoY in the best case scenario of oil & gas price. The
brokerage firm is assuming ONGC’s net oil price to be flat in INR in FY14-15E.
However, its FY15E net oil price would rise by 2 per cent if prevailing upstream
subsidy formula continues and by 20 per cent if that proposed by the Kirit
Parikh Committee is adopted.


A rich US generic pipeline (116 ANDAs pending),
strong domestic formulation franchise and presence in key markets differentiate
Lupin’s profile with peers. Over FY13E-16E, the brokerage firm expects 24 per
cent profit CAGR on 19 per cent sales growth, driven by niche US launches (OCs,
opthal) and above-industry domestic growth.

Core margins are likely to expand by 100 bps to 23.7 per cent, driven by (a)
improved product mix
in the US and India, and (b) 500-600bp margin expansion in Japanese

With a strong execution track record, superior growth profile
and strong return ratios, BofA-ML expects Lupin to command a premium to the industry multiples.
Earlier-than-expected Suprax genericisation is the main risk.

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Posted by on January 4, 2014 in Uncategorized


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