Share Market Tips For August 2018

Jet Airways (NSE: JETAIRWAYS) (Share Price: Rs.281): Avoid

Valuation: Negative earnings impacted valuation.

Reasons to avoid: The company has left with no extra cash to run operation not more than 60 days. Employees have been laid off, provision to cut salary by 25%, higher fuel price, rising market share of the competitor like indigo, etc factors are not in favour of the company.

Financial: In FY18, revenue grew to Rs 23,286 crores but operating profit tanked to Rs 23 crores and posted negative earnings.

Dredging Corporation India Ltd (NSE: DREDGECORP) (Share Price: Rs.471): Avoid

Valuation: Overvalued stock with PE of 78.86x.

Ashok Leyland (NSE: ASHOKLEY) (Share Price: Rs.130): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation: Fairly valued with trailing PE of 20.96x as compared to close peers.

Reasons to consider: The company posted healthy numbers in FY18. The management expects to continue its strong growth over FY19, on the back of domestic infra-led M&HCV demand, hub & spoke model doing well and international markets performing well. Overloading restrictions seem to have eased only in UP and Rajasthan, where Ashok Leyland has a relatively lower presence. Hence, overloading ease can have only ~1-2% impact on the company.

Drivers: Scrappage policy expected to come in by Apr-20 will be a major growth driver for the CV industry. Increased government focus on infrastructure spending, pre-buying ahead of BS VI implementation, scrappage policy, shift towards the hub and spoke model and pickup in mining activities would lead the growth momentum to continue for the M&HCV segment. Order from defence sector fuels topline of the company.

Financial: Net revenue increased by 30% to Rs 26,170.3 cr in FY18. EBITDA rose by 23.4% to Rs 2711.2 cr in FY18. PAT is up by 25.5% to Rs 1534.8 cr in FY18.

Kalpataru Power Transmission Ltd (NSE: KALPATPOWR) (Share Price: Rs.373): Potential Buy

Valuation: Slightly overvalued as compared to close peers with trailing PE of 26.83x.

Reasons to consider: The company posted healthy numbers in last five years. Revenue grew at an approximate 10% CAGR in the last five years. The company has a strong order book of Rs.12,404 crore in FY18. Significant improvement in utilization levels averages utilization over 80% for FY18.

Financial: Revenue grew by 18% in FY18 to Rs.2,756 crore. EBITDA margin expanded to 11.5% by 300 bps. PAT is up by 110% to Rs.34 crore.

Pincon Spirit (NSE: PINCON) (Share Price:Rs. 7.95): Avoid

Valuation: Undervalued stock with TTM PE of 0.81x.

Anant Raj (NSE: ANANTRAJ) (Share Price: Rs. 44): Avoid

Valuation: Undervalued stock with TTM PE of 19x.

Suzlon Energy (BSE: SUZLON) (Share Price: Rs.7.17): Avoid

Valuation: Expensive stock.

Amara Raja Batteries (NSE: AMARAJABAT) (Share Price: Rs.858): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation: Overvalued with trailing PE of 30.37x.

Reasons to consider: Revenue grown at five year CAGR of 17.6%. The company posted healthy numbers in FY18. The company have ROCE of 30% and ROE of 20%. Excellent track record and robust CapEx plan led to preferred supplier to majority of OEM's.

Drivers: Strong automotive growth drives the growth of the company. Capacity expansion by major OEM's and favourable macro opportunities creates a good platform for the company.

Financial: In FY18, the company recorded sales of Rs 6059 cr vs Rs 5317 cr in FY17. Operating profit stood at Rs 883 cr vs Rs 849 cr in FY17. The company recorded PAT of Rs 471 cr in FY

Lycos Internet Ltd (NSE: LYCOS) (Share Price: Rs. 4.45): Avoid

Valuation: The company has lower valuation as compared to peers.

IG Petrochemical (NSE: IGPL) (Share Price: Rs.505): Avoid

Valuation: Undervalued with trailing PE of 10.68x.

Reasons to avoid: IG Petrochemical is one of the dominant players in Phthalic Anhydride (PA). Anti-dumping duty on PA, which was in force from December 2012 to December 2017, is under review as of now. In the interim, this duty safeguard has been extended till December 24, 2018. But the Directorate General of Trade Remedies has started the sunset review investigation concerning imports of PA originating in or exported from Asian countries like Korea, Taiwan and Israel. In recent, import from Asian countries have increased at CAGR of 30% over FY15-18; which can impact company's business in long run.

Financial: In FY18, the company recorded total income of Rs 1541.5 crores vs Rs 1234 crores in FY17. EBITDA stood at Rs 279.2 crores. The company recorded PAT of Rs 147.4 crores and EPS of Rs 35.53/ share.

Zicom Electronic Security Systems Ltd (NSE: ZICOM) (Share Price: Rs.12.65): Avoid

Valuation: Poor valuation with negative earnings.

Escorts (NSE: ESCORTS) (Share Price: Rs.908): Potential Buy (10 Steps To Pick The Best Stocks)

Valuation: Overvalued stock with trailing PE of 27.71x.

Reasons to consider: The company expanded margin by 330 bps to 11.2% in FY18 driven by higher sales, price hike, and cost control initiatives. Escorts achieved tractor volume growth of 26% in FY18 which is more than industry growth rate of 24%.

Drivers: New product launch and gain in market share fuels companys growth. Government initiatives towards increasing farm productivity via more state subsidiary for doubling the agricultural growth and normal monsoon is expected to drive demand for tractors and also reflected in Escorts growth.

Financial: The company has grown at CAGR of 5% in last five years. ROCE of the company improved to 21% in FY18 from 12% in FY14. ROE of the company also improved to 14% in FY18 from 9% in FY14. The company management is expected to improve ROCE to 25-30% by FY22. Also, aims to expand EBITDA margin to 13-14% by FY22.

Indiabulls Housing Finance (NSE: IBUHSGFIN) (Share Price: 1365): Potential Buy

Valuation: Undervalued stock with trailing PE of 14.29x.

Reasons to consider: The company posted robust numbers in Q1FY19. Also, maintains track record of posting healthy numbers. Management targets to gradually increase the share of securitization in its loan book from 10 percent currently to 20 percent over medium to long term; which fuels its growth. Company has also planned to mitigate pressure with a hike in lending rates and higher growth in commercial lending.

Drivers: Healthy growth in AUMs and QoQ expansion in spreads. Healthy growth would drive compounding-led returns.

Financial: In Q1FY19, the company has reported a rise of 30% YoY in consolidated net profit at Rs 1,048.68 crore. Net interest income (NII) was up by 22.1% at Rs 1,690 crore, from Rs 1,400 crore in the year-ago quarter.

Jet Airways (NSE: JETAIRWAYS) (Share Price: Rs.303): Avoid

Valuation: Negative earnings impacted valuation.

Nocil (NSE: NOCIL) (Share Price: Rs.173): Potential Buy

Valuation: Undervalued stock with TTM PE of 15.57x.

Reasons to consider: The company reported heathy numbers in Q1FY18. Its a cash rich and debt free company. The company has ROE and ROCE of 16.3%/ 24.5% respectively. 1. Capex- Rs 170 cr. The company has completed phase I of New Mumbai capex is commissioned and operational. Expansion at Dahej is ex[ected to commission by Q3FY19. Considering high demand, the company has announced capex plan of Rs 255 crores in phase II; which is expected to commission by H1FY20.

Drivers: The company is in business of rubber chemicals which has application in tyre and rubber product industry. Tyre industry is growing led by growth in auto industry and imposition of anti-dumping duty on radial Tyres.

Financial: In Q1FY19, revenue grew by 24.7% YoY to Rs 268 crores. EBITDA margin expanded by 449 bps YoY to 29.9%. Net profit grew by 46.7% YoY to Rs 51 crores. EPS stood at Rs 3.08/ share.

Ashok Leyland (NSE: ASHOKLEY) (Share Price: Rs.113): Potential Buy

Valuation: Fairly valued with trailing PE of 18.18x as compared to close peers.

Reasons to consider: The company posted healthy numbers in FY18. The management expects to continue its strong growth over FY19, on the back of domestic infra-led M&HCV demand, hub & spoke model doing well and international markets performing well. Overloading restrictions seem to have eased only in UP and Rajasthan, where Ashok Leyland has a relatively lower presence. Hence, overloading ease can have only ~1-2% impact on the company.

Drivers: Scrappage policy expected to come in by Apr-20 will be a major growth driver for the CV industry. Increased government focus on infrastructure spend, pre-buying ahead of BS VI implementation, scrappage policy, shift towards hub and spoke model and pickup in mining activities would led the growth momentum to continue for the M&HCV segment. Order from defense sector fuels topline of the company.

Financial: Net revenue increased by 30% to Rs 26,170.3 cr in FY18. EBITDA rose by 23.4% to Rs 2711.2 cr in FY18. PAT is up by 25.5% to Rs 1534.8 cr in FY18.

Financial: In FY18, revenue grew to Rs 23,286 crores but operating profit tanked to Rs 23 crores and posted negative earnings.