Equity markets ended FY21 with stellar returns on the back of sharper-than-anticipated financial and corporate earnings recovery. Overall, Nifty gained 71% in FY21 crossing the 15k mark for the very first time. The broader marketplace sharply outperformed with gains of +102% /126%, respectively.
4QFY21 is however once more anticipated to be robust for corporate earnings. We count on PBT/PAT to develop 98%/76% YoY for the MOFSL Universe in 4QFY21. 14 of the 20 sectors are anticipated to post >20% YoY earnings development. Nifty sales/EBITDA/ PAT really should develop 18%/26%/65% YoY in 4QFY21E. Metals, Private Banks and Automobiles are anticipated to drive ~60% of the incremental 4QFY21 PAT development.
The Nifty is anticipated to finish FY21 with healthful 13% earnings development (EPS of INR533), the highest considering the fact that FY11, regardless of the challenges posed by the COVID-19 pandemic. The expectations for FY22E earnings are operating higher with more than 30% development in Nifty FY22E EPS.
However, the current resurgence in COVID-19 situations may well pose a threat to the development estimates. Hence the pace of vaccination will assume critical significance.
Here are Motilal Oswal’s 10 stock picks for April 2021:
1. Voltas CMP-948 TP-1170
# Voltas’s 3QFY21 earnings had been 31% greater than our expectation, led by greater than-anticipated execution in the EMP segment, robust volume development in the UCP segment, with ongoing expense rationalization major to larger margin.
# It has retained its numero uno position in Inverter Air Conditioners/Room Air Conditioners (RAC) with a marketplace share of 21.8%/26% in Dec’20. Valuations are anticipated to stay elevated going into the summer season season, with higher expectations as nicely as probably announcement of a detailed PLI scheme for the AC business.
# We enhance our FY21E/FY22E/FY23E EPS estimate by 5%/11%/15% owing to the robust functionality in 3QFY21.
2. Ultratech CMP-6539 TP-8110
# UltraTech’s 3QFY21 outcome was impressive on various counts. UTCEM’s robust pan-India distribution network and preferred supplier status for crucial infrastructure projects spot it nicely to tap into anticipated development in each retail and institutional (non-trade) cement demand in India.
# While it is ramping up its beneath-utilized acquired capacities, it also has a robust pipeline of expansion projects that provides robust development visibility. We estimate a 14%/28% CAGR in consolidated EBITDA/PAT more than FY20–23E, driven by a 7% volume CAGR and decrease operating/interest expense.
3. Britannia CMP-3693 TP-4575
# The management’s efforts in the final handful of years on a) expanding distribution, b) boosting R&D capabilities, c) prosperous implementation of its low unit packs method, d) constant expense rationalization, e) investments in boosting general and regional manufacturing capabilities and f) its new regional method are resulting in regularly widening moats more than peers in Biscuits as nicely as in the broader Food category.
# Immense structural chance, exceptional track record, RoEs of more than 40% superior to most customer peers, and an eye-catching threat reward ratio on FY23E earnings, lead us to be positive on Britannia. Maintain Buy.
4. Sun Pharma CMP-633 TP-740
# SUN Pharma delivered larger-than-anticipated profitability on: a) greater traction in Specialty portfolio/US Generics, and b) extended advantage of decrease opex.
# SUNP filed 10 ANDAs and received 15 approvals in 9MFY21. Its ANDA pipeline remains robust, with 90 approvals pending.
# We think SUNP’s RoE is at a trough and would increase with 22% earnings CAGR, led by 9%/7%/10% sales CAGR in DF/US/RoW and 340bp margin expansion more than FY20-23E.
# We are positive on SUNP due to: a) continued advantage of decrease opex in the Branded segment, b) additional ramp-up in the Specialty portfolio, c) robust ANDA pipeline and d) marketplace share obtain in the US Generics segment. Maintain Buy.
5. Aurobindo Pharma CMP-915 TP-1100
# Aurobindo Pharma delivered an operationally in-line 3QFY21 functionality. A gradual revival is noticed in worldwide injectable sales and enhanced traction in the Oral Solids portfolio. ARBP is progressing nicely on a) the vaccine chance, b) enhancing the Injectables portfolio, and c) creating the Biologics portfolio.
# We stay positive on ARBP on the back of a) complicated injectables, supported by manufacturing capabilities/capacity, b) healthful business enterprise prospects for APIs more than 3–5 years, c) the enhancing profitability of the Europe business enterprise, d) its superior position to cater the vaccine chance more than the medium term, and e) lowered monetary leverage. Maintain Buy.
6. Cadila Healthcare CMP-505 TP-550
# Cadila Healthcare (CDH) posted in-line 3QFY21 benefits, led by a superior functionality in India/EM, partly offset by a dip in US sales. Cadila (CDH) and Celgene (innovator) have reached an agreement to settle the litigation pertaining to g-Revlimid in the US.
# We stay positive on CDH on account of its robust ANDA pipeline (comprising injectables), NCE portfolio, and outperformance in DF.
# The vaccine chance may well be a prospective trigger more than the medium term. We worth CDH at 22x (in line with its 3-year typical) 12M forward earnings to arrive at TP of INR550. Maintain Buy.
7. SAIL CMP-93 TP-106
# We see Steel Authority of India (SAIL) as the ideal play on larger steel costs as it: 1) is backward integrated with captive iron ore, 2) has a larger operating leverage due to higher conversion expense, and 3) has a larger monetary leverage.
# With restricted capex, larger pricing really should drive substantial deleveraging and enhance equity worth. We estimate net debt to decline by INR232b (INR56/sh, 76% of CMP) more than FY20-23E to INR305b. We also count on larger dividend payouts going forward (implying ~5% yield), supported by robust FCF of INR19/sh (25% yield).
# We are raising our FY22E/FY23E EBITDA estimate by 34%/37% and TP by 28% on expectation of larger realization and volumes. Maintain Get.
8. JSPL CMP-414 TP-452
# JSP accomplished its highest ever quarterly EBITDA/PAT in 3QFY21 supported by a robust pricing atmosphere. Net debt fell QoQ to INR256b, implying a net debt/ EBITDA of 2.35x.
# We count on margin to be very robust in the close to term (INR23,300/t in 4QFY21E) supported by higher costs and advantage of Sarda inventory.
# We raise our FY21E/FY22E EBITDA estimates by 11%/4%, to aspect in robust pricing trends. JSP is the least levered Indian steel enterprise and we count on net debt to fall additional to INR183b (1.6x of EBITDA) by Mar’22, which really should drive a re-rating. Reiterate Buy.
9. Cyient CMP-687 TP-780
# Cyient’s 3QFY21 income development at 4.7% QoQ in USD terms (v/s our estimate of 3%) was led by a 24.8% enhance in DLM. Spends in verticals like Communication and Energy and Utilities have began choosing up.
# We count on a rebound in ER&D spending. The management’s method to leverage these spends, led by a refreshed GTM method and improved concentrate on huge deal wins, really should dwell nicely with its development functionality.
# We count on CYL to provide 12% income CAGR more than FY21-23E. Supported by a greater-than-anticipated income and margin outlook, we upgrade our FY21E/FY22E/FY23E EPS estimate by 4.5%/14.2%/6.5%. Upgrade to Buy.
10. Mphasis CMP-1700 TP-2020
# Impressive deal wins more than the final two to 3 quarters and a healthful deal pipeline would probably drive close to term development. Strong traction in Direct International really should continue to drive general functionality.
# Guidance on its potential to defend margin is a crucial positive. The potential to win various huge digital transformation offers proactively and beneath vendor consolidation scenarios indicates strength in its sales and delivery capabilities.
# Higher exposure to largely steady verticals (BFSI – ~63% of income) really should also assistance mitigate dangers to some extent. We worth the stock ~21x FY23E EPS. Maintain Buy.
(By Motilal Oswal Financial Services)
Disclaimer: These stock suggestions have been produced by Motilal Oswal Financial Services. Readers are advised to seek advice from their monetary planner prior to generating any investment.