The indices have fallen a bit in the last few weeks. There are worries that there maybe a further downside in equities as bond yields in the US continue to rise. While we maintain that the short term trend looks down, there are certain stocks that can be bought for the more long-term. These are largely taken from brokerage reports of some of the leading brokers in the country.
Geojit BNP Paribas has placed a buy call on Escort Tractors. The firm has suggested this stock for a number of reasons. It believes that good monsoons and the government's initiative to encourage mechanization will lead to strong demand for tractors.
The firm also believes that CAGR in revenues could be as high as 20 per cent in 2017-18 largely led by the tractor division. The firm also sees a margin expansion of 400 basis points for Escort Tractors.
Product launches to augur well
"Apart from the conducive environment , EL has launched 12 new products including the innovative Anti-Lift Tractor (ALT) to bridge the gap in its portfolio. Secondly, EL separated its dealership for its premium and economy brands, Farmtrac (12.6% Market share) & Powertrac (11.1% market share) respectively to improve its service quality and brand visibility.
Lastly, to address the lower penetration in southern market, EL has taken strategic decisions including focused support on its top dealers which is expected to convert in the form of more volumes," the firm has said in its research report.
Valuations and target price
At CMP, Escorts Ltd is trading at P/E of 22x & 15x on FY17E & FY18E. We value Escorts Ltd at a P/E of 17xFY18E EPS with a target price of Rs 425 and recommend buy, Geojit BNP Paribas has stated. Shares in Escorts was last trading at Rs 333 on the NSE.
Prabhudhas Lilladher has an accumulate call on the stock of Ambuja Cements with a target price of Rs 255.
"Prices are expected to remain firm in ACEM's key markets due to strong demand outlook and low
capacity addition. While, demand had been lacklustre in Q3CY16 primarily due to heavy monsoon. It is likely to revive Q4CY16 onwards on the back of good monsoons, impact of 7th pay commission, govt's strong focus on infrastructure spending (manifested by robust ordering activity) and low cost housing.
Robust prices along with improving demand are likely to support ACEM earnings going forward. Despite cut in earnings, we expect 2‐year CAGR at 22% in EBITDA for CY15‐CY17 on the back of higher margins," the firm has said in its research report.
Shares in Ambuja Cements closed at Rs 219 on the NSE. Check Ambuja Cement stock quote here
Jubilant Life Sciences
Prabhudhas Lilladher has placed a buy call on the stock of Jubilant Lifesciences with a target price of Rs740.
"With sustainable limited competition in Radiology products (unlike peers) in US and better visibility of utilisation of CMO plants, Jubilant's EBITDA margin (30‐34%) in US generics is currently highest among all Indian peers. Net Debt reduction of Rs7.6bn decreased D/E ratio to 1.1 in Q2FY17 from 1.6 in FY16 and promised better cash flow and return ratios in FY17E‐18E. ," the firm said in its research report.
"With improving financial metrics, there was partial rerating in valuation as it ran up 116% in Aug‐Oct 2016. In our SOTP valuation, we increased EV/EBITDA to 12x from 10x in Pharma and to 5x from 3x in LSI and derive new TP at Rs740 (previously Rs484). We downgraded our recommendation to ‘Accumulate' as upside potential reduces to 11% at current market price," the firm has said in its report.
The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article. The author and his family do not own any shares in the above mentioned stocks.