Stock market tips: Shares to buy to make money fast from Dalal Street – Check list

The stock market has been very volatile for quite some time and in such situation, it is not easy to take a BUY call. Information is wealth for stock market traders. However, small traders have little first-hand information, as they do not have much resources. Here are the analyses of five shares: 

Avenue Supermarts (Reduce):

Edelweiss said it analysed FY19 annual report of Avenue Supermarts (DMart) and concluded that DMart boasts all-round top-notch financial health: SSSG growth, cash conversion cycle, working capital, and EBITDA-to-Operating Cash Flow (OCF) conversion. Free cash flow to firm (FCFF), however, continues to be negative due to high capex incurred on store additions. The strategy of pursuing cluster-based store expansion and everyday low pricing (EDLP) model is on track too. DMart ready format continues to remain on experimentation mode with time-lines on achieving break-even bleak. Though DMart has industry-leading sales per square feet, rising competition in grocery retailing may pressure its margins in our view. Hence, the brokerage retained ‘REDUCE’.

"DMart is a play on the strong Indian retail story, and we estimate it would deliver CAGRs of 26%/25% in revenue and EBITDA over FY19–21. Intensifying competition however would make margin expansion an uphill task. Hence, we maintain ‘REDUCE/SU’ with a target price of INR1,353 (35x 12-month forward EV/EBITDA). The stock is trading at 33.6x FY21E."

UPL (BUY):

Strong 1QFY20 performance, but accounting adjustment impacts results, said a JM Financial report. UPL reported a 1Q FY20 revenue of Rs 79.06 billion (7% QoQ / 0%). Revenue was broadly in-line with the brokerage's estimates. UPL made purchase price allocation (PPA) adjustment to inventory and depreciation on back of Arysta acquisition. The PPA adjustment related to inventory resulted into Rs 4.12 billion lower contribution. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) was reported at Rs 12.46 billion but adjusting for the Rs 4.12 billion negative impact on contribution due to purchase price allocation (PPA), EBIDTA would have been at Rs 16.59 billion. 

The company's management indicated that the inventory purchased from Arysta is now sold and therefore, there will be no further PPA adjustments under inventory head. There was also a PPA adjustment related to depreciation and corresponding tax saving (refer Exhibit 1). "We continue to like the geographically de-risked strategy and presence across value chain business model of UPL and maintain BUY with a revised target price of 780. 

Cholamandalam Investment and Finance Co (BUY):

Brokerage JM Financial said Cholamandalam Investment and Finance (CIFC) reported in-line numbers with 1QFY20 net profit of Rs 3.1 billion, up 10 percent YoY/ 8 percent QoQ, 2% below estimate - due to higher other expenses. 

Key highlights: i) healthy disbursement growth of 22 percent YoY with an asset under management (AUM) growth of 26 percent YoY led by benign competitive environment, branch expansion and deeper rural penetration, ii) calculated margins (NII/AUM) compressed 34 bps YoY/9 bps QoQ to 5.9 percent impacted by higher funding costs and negative carry from excess BS liquidity. However, rate hikes of recent months are expected to reflect in yields starting 3Q, iii) seasonal deterioration in assetquality with absolute Gross S3 assets growing 16 percent QoQ with the GS3 ratio (on AUM basis) jumping 26 bps QoQ to 2.9 percent. Coverage ratio stood at 36 percent. 

"We forecast earnings CAGR of17% over FY19-21E with RoA/RoE of 2.2%/20% by FY21E. We value CIFC at 2.4x Mar’21EBV, implying a target price of Rs 270. Maintain BUY."

PNB Housing Finance

PNB Housing Finance (PNBHF) reported 1QFY20 PAT of Rs 2.8 billion, up 11 percent YoY, impacted by slower growth and higher credit costs, said a JM Financial report. 

Key highlights include, i) 22 percent YoY decline in disbursement driven by sharp slowdown in corporate disbursement, ii) AUM growth was healthy at 29 percent YoY supported by retail housing (33% YoY), LAP (42% YoY) and construction finance (36% YoY), iii) reported margins improved 40 bps YoY to 3.14 percent aided by 100 bps YoY jump in yields and healthy assignment income, and iv) deterioration in asset quality with absolute GS3 assets growing 82 percent QoQ impacted by a) movement of Rs 1.5 billion NCR corporate a/c (2.5x cover) from remedial to NPA and b) seasonal deterioration in retailloans. Additionally, PNBHF is monitoring 4 other corporate loans (~ 2.0x cover) flagged byEWS, the brokerage said. 

Given adequate collateral, PNBHF remains confident of resolving these accounts with aminimal haircut, it said. Tier-I improved 104 bps QoQ to 12 percent in 1QFY20 led by reduction in resident welfare association (RWAs). The brokerage forecast AUM compound annual growth rate (CAGR) of 18 percent over FY19-21E given a) franchise strength, b) diversified borrowing mix – share of deposits at 18 percent, and c) widespread distribution. 

"In light of the macro-headwinds and liquidity focus, the brokerage said it builds in PAT CAGR of 10 percent over FY19-21E with ROA/ROE of 1.4 percent /15 percent by FY21E. The company will do an equity raise of upto Rs 20 billion in FY20. We value the company at 1.5x Mar’21E BV, implying a TP of INR 880 (without factoring dilution)."

Eicher Motors (HOLD):

Eicher Motors (EIM) in 1QFY20 reported an EBITDA margin of 25.9 percent (-640bps YoY, -190bps QoQ), 180 bps below consensus estimate, adversely impacted by portfolio migration to ABS variants, negative operating leverage and higher staff costs, a JM Financial report said. During the quarter, premium motorcycle demand remained subdued due to macro slowdown and increase in vehicle prices (ABS). 

Going forward, sales are likely to draw support from setting up of c.500 studio outlets in semi-urban areas and ‘Twins’. The company is ramping-up monthly capacity of ‘Twins’ to 5,000 units starting August 19, 2019. Recovery in demand environment remains contingent upon festive sales, normal monsoon and sales contribution from studio stores. 

"However, we believe the upcoming BS6 transition will limit margin recovery in the near-term. Maintain HOLD with a revised Mar’20 TP of INR 17,000. Faster than anticipated demand recovery and significant pick-up in new models are the key risks," the brokerage said.