IIFL diwali dhamaka 2019

Top 10 Stock Recommendations Top Stock Recommendations Stock Recommendations Sr No Stock CMP (`) Target Price (`) Upside (%) 1,606 1,850 15 Large Caps Kotak Mahindra Bank Axis Bank 693 814 17 ICICI Bank 435 505 16 Reliance Industries 1,372 1,594 16 Larsen & Toubro 1,424 1,875 32 ABB India 1,520 1,747 15 Gujarat Gas 175 229 31 Deepak Nitrite 302 408 35 Atul Ltd 3,967 4,791 21 Mid Caps *CMP as on October 16, 2019 Kotak Mahindra Bank BUY CMP: ` 1,606 • • • • TP: `1,850 Upside: 15% Kotak Mahindra Bank (KMB) is expected to register strong loan growth at 20% CAGR over FY19-21E largely due to growth in corporate and retail segment lending KMB is expected to deliver 26% earnings CAGR over FY19-21E led by a well-capitalized balance sheet, granular book, controlled opex through digitalization and superior asset quality Also, the bank’s SMA-2 balance is lowest in the banking industry KMB is armed with capital (17.9% tier CAR standalone, as of Q1FY20), liabilities (50.7% CASA, 105.2% LDR) and healthy asset quality (2.0% GNPA, 65.5% PCR) These parameters put KMB in a strong competitive position to acquire market share KMB is well positioned vs peers due to higher capitalization, a strong liability franchise and benign asset quality, which will allow it to gain further market share We estimate ~26% consolidated EPS CAGR over FY19-21E We value core banking business at 4.5x P/BV (`1,390/share value and `460/share value from subsidiaries) and arrive at the target price of `1,850 Financial Summary Consolidated (` Cr) NII PPOP EPS (`) EPS growth (%) P/BV (x) RoA (%) RoE (%) FY20E 17,750 14,230 43.9 16.4 4.6 2.0 13.4 FY21E 21,020 17,120 60.1 36.9 4.0 2.1 14.9 *Price and valuations ratios as on October 16, 2019 Axis Bank BUY CMP: `693 • • • • TP: `814 Upside: 17% Axis Bank’s strengthened capital position coupled with strong liability franchise keeps it well placed to sustain its growth trajectory Sharp drop in credit costs, improvement in margins and reduction in cost ratios will be the key drivers of RoE We expect the bank’s RoE to improve by 960bps to 16.4% over FY19-21E Improving asset quality (with rising coverage), better risk practices, focus on high yielding retail products and cost consciousness will drive earnings Moderation in cost ratios and lowering credit cost will lead to 77% EPS CAGR over FY19-21E The stock is trading attractively at 1.8x FY21E P/BV We recommend Buy with target price of `814 (2.2x FY21E BV) Financial Summary Standalone (` Cr) NII PPOP EPS (`) EPS growth (%) P/BV (x) RoA (%) RoE (%) FY20E 26,060 24,230 27.8 52.7 2.1 0.9 9.9 FY21E 29,770 28,580 56.7 104.0 1.9 1.6 16.4 *Price and valuations ratios as on October 16, 2019 ICICI Bank BUY CMP: `435 • • • • TP: `505 Upside: 16% ICICI Bank’s, focus on improving margins, lower credit cost and initiatives to bring down operating costs will help to achieve 13.4% RoE in FY21E from 3.2% in FY19 We believe that the Bank is witnessing the end of recognition of stressed loan cycle, which along with improving PCR clearly denotes moderation in credit cost, going forward With strong liability franchise, superior customer outreach across business segments and a healthy capital position, we expect the Bank to continue to grow its retail portfolio which now constitutes 60% of the bank’s advances Also, its healthy capitalization will likely support loan growth Improving cost-income ratio and declining slippages to likely aid profitability and drive re-rating Improving momentum in fees & operating leverage to drive earnings over FY19-21E The stock is trading attractively at 2.1x FY21E P/BV We recommend Buy with target price of `505 (2.5x FY21E BV) Financial Summary Standalone (` Cr) NII PPOP EPS (`) EPS growth (%) P/BV (x) RoA (%) RoE (%) FY20E 32,080 28,090 19.4 454.3 2.4 1.1 9.8 FY21E 36,450 32,500 28.6 47.4 2.2 1.4 13.4 *Price and valuations ratios as on October 16, 2019 Reliance Industries BUY CMP: `1,372 • • • • TP: `1,594 Upside: 16% Reliance Industries (RIL), is expected to re-rate on account of its overall de-leveraging drive (~`1.1 lakh cr via fiber/tower asset sale, 20% O&C sale to Armco and roping investor for consumer business) coupled with solid traction in Retail and Telecom (Jio) business We expect favorable diesel & petrol crack spreads led by opportunistic sourcing and refinery complexity, which will aid in GRM improvement (US$9.2/bbl in FY19 to US$10.5/bbl), making up for weakness in petchem business We expect improvement in Jio’s EBITDA & cash flows (recovery of IUC) leading to higher EV for the business Further, subscriber additions and end of capex (in the near term) are key positives Robust same sales growth and geographic expansion is likely to aid retail EBITDA margins Overall, we expect consolidated revenue/EPS CAGR of 23%/19% over FY19-21E We recommend BUY with a SOTP based target price of `1,594, ascribing `763/`385 EV/Share to Jio/Retail and `859 EV/Share to others (net debt/share of `413) Financial Summary Revenue EBITDA Margin (%) EPS (`) EPS growth (%) P/E (x) RoE (%) RoCE (%) FY20E 8,05,332 11.7 76.8 22.5 17.9 11.9 9.1 FY21E 8,65,732 12.2 88.5 15.2 15.5 12.4 9.8 Consolidated (` Cr) *Price and valuations ratios as on October 16, 2019 Larsen & Toubro (L&T) BUY CMP: `1,424 • • • • • TP: `1,875 Upside: 32% L&T is India’s largest engineering and construction company, well placed to leverage the uptick in the investment cycle We believe that the government’s push on infrastructure and widening base of mid-size orders will aid faster execution L&T's strong order book of `2,94,014cr (2.8x TTM sales) at Q1FY20-end provides healthy revenue visibility for the next years Further, monetisation of non-core assets will help release capital and improve return ratios ROE of the company is expected to improve by 268bps over FY19-21E Aided by strong order book, we estimate the company to report revenue CAGR of 19% over FY1921E with a flat EBITDA margin PAT CAGR is estimated at 20% over the same period Enthused by the strong order book and its behemoth position, we recommend BUY on the company with a target price of `1,875/share, valuing it on SOTP basis (core business at `1,044/share (20x FY21E EPS) and other investments/subsidiaries are valued at `831/share) Financial Summary Revenue EBITDA Margin (%) EPS (`) EPS Growth (%) P/E (x) P/BV (x) ROE (%) FY20E 1,69,971 11.7 72.9 14.8 19.5 15.5 7.0 FY21E 2,00,403 11.7 91.4 25.5 15.6 17.4 7.6 (` Cr) *Price and valuations ratios as on October 16, 2019 ABB India BUY CMP: `1,520 • • • • • TP: `1,747 Upside: 15% ABB India is a diversified industrial play, with leadership in power and automation space The company’s base orders, which form 90% of the order mix, are growing at 13-14% yoy Moreover, the green shoots in industrial spends, rail electrification, thrust on renewables and subT&D investments with digitalization focus are expected to aid the near-term visibility The company has a steady order backlog of `10,100cr Additionally, increase in sourcing for products and services by the parent aids long term visibility for exports Hence, we expect the company to report revenue CAGR of 10% over CY18-20 Further, focus on short-cycle & product businesses, along with continuous localisation is expected to continue supporting the volumes and margins PAT CAGR is estimated at 27% over CY18-20E ABB has become debt-free in CY18 Given the company’s leadership position and strong earnings growth outlook, we value the company at 46x CY20E EPS and arrive at a target price of `1,750/share Financial Summary Revenue EBITDA Margin (%) EPS (`) EPS Growth (%) P/E (x) P/BV (x) ROE (%) CY19E 7,361 8.0 33.1 37.4 45.9 16.7 10.7 CY20E 8,102 9.4 38.8 17.2 39.1 17.8 12.4 (` Cr) *Price and valuations ratios as on October 16, 2019 Gujarat Gas BUY CMP: `175 • • • • TP: `229 Upside: 31% Gujarat Gas, India's largest city gas distribution company, is expected to post sector leading earnings growth over FY19-21 on the back of strong volumes Industrial volumes (70% of overall FY19 volumes) are likely to grow at 35% CAGR over FY19-21E on the back of strong Morbi volume growth (~51% CAGR) post regulatory orders coupled with benign LNG prices CNG (22% of overall FY19 volumes) and Domestic PNG (8%) are expected to post ~12% volume CAGR over the same period Hence we expect overall volume CAGR of 28% over FY19-21E We estimate EBITDA margin to expand by 283bps to 15.7% over FY19-21E (stable spreads) Lower spot LNG price leaves scope for further margin expansion as Gujarat Gas imports ~70% of its requirement via ST cargo Lower tax rate is expected to assist in EPS CAGR of 59% over FY19-21E Valuation at 11.5x FY21E PE is at significant discount (~50%) to IGL despite better earnings CAGR and superior ROE profile Value at 15x FY21E EPS, recommend BUY Financial Summary Revenue EBITDA Margin (%) EPS (`) EPS growth (%) P/E (x) RoE (%) RoCE (%) FY20E 10,057 15.5 12.3 102.7 14.2 33.6 20.9 FY21E 11,468 15.7 15.2 24.2 11.5 32.2 21.8 Consolidated (` Cr) *Price and valuations ratios as on October 16, 2019 10 Deepak Nitrite BUY CMP: `302 • • • • TP: `408 Upside: 35% Deepak Nitrite (DNL) is one of India's leading chemical companies and is on the track for a sharp jump in earnings in FY20E The newly-commissioned phenol capacities are operating at more than 85% utilization levels Additionally, the non-phenol business is likely to report a strong year, boosted by a spike in DASDA price and growth in the specialty chemical portfolio Thus, we expect the company to report revenue and PAT CAGR of 29% and 51% over FY19-21E, respectively Additionally, strong growth in EPS will lead to substantial improvement in RoCE (to ~26% in FY21E), lower Net Debt/Equity (to 0.4x in FY21E) and strong free cash flow (of `305cr in FY21E) The company is trading at an attractive valuation of 10x FY21E EPS Given the strong growth outlook, we value the stock at 14x FY21E EPS and arrive at a target price of `408/share Financial Summary Revenue EBITDA Margin (%) EPS (`) EPS Growth (%) P/E (x) P/BV (x) ROE (%) FY20E 4,184 21.5 32.3 152.6 9.4 34.4 32.2 FY21E 4,520 18.7 29.1 -9.7 10.4 24.0 26.4 (` Cr) *Price and valuations ratios as on October 16, 2019 11 Atul Ltd BUY CMP: `3,967 • • • • TP: `4,791 Upside: 21% Atul Limited, an integrated chemicals company, is likely to benefit from industry tailwinds owing to its diversified business portfolio and strong chemistry skills FY19 revenue growth (21% yoy) was largely realisation led while volume growth was modest ~3% owing to two non-operational plants (to meet environmental norms) Expected rebound in volumes led by crop protection, better mix and de-bottlenecking are expected to drive 13% revenue CAGR over FY19-21E Operational efficiencies (incl performance of JVs and Subsidiaries) and better product mix are expected to drive earnings CAGR of 25% over FY19-21E Moreover, Atul being a significant net exporter and full tax payer stands to benefit from INR depreciation and corporate IT cuts Atul is debt free and generates strong operating cash flows which will be utilized for its current capex plan worth `412cr (with a revenue potential of ~`850cr) Stock trades at 17.4x its FY21E EPS We recommend Buy with target price of `4,891; valuing at 21x FY21E EPS Financial Summary Revenue EBITDA Margin (%) EPS (`) EPS growth (%) P/E (x) RoE (%) RoCE (%) FY20E 4,592 20.3 188.9 28.5 21.0 19.0 18.7 FY21E 5,189 21.6 228.1 20.8 17.4 19.4 18.9 Consolidated (` Cr) *Price and valuations ratios as on October 16, 2019 12 Top Mutual Funds Recommendations 13 Top Recommended Mutual Funds Scheme Name Fund Manager AUM (₹cr) 1M (%) 6M (%) 1Y (%) 3Y (%) 5Y (%) Nippon India Large Cap Fund(G) Sailesh Raj Bhan 12,531 2.1 (7.3) 5.7 8.8 9.5 ICICI Prudential Midcap Fund(G) Mrinal Singh 1,767 0.2 (8.1) (0.9) 4.1 8.3 HDFC Small Cap Fund(G) Chirag Setalvad 8,845 (1.7) (15.4) (8.8) 6.4 10.5 SBI Magnum Multicap Fund(G) Anup Upadhyay 8,073 2.7 1.3 12.3 9.0 12.3 Mirae Asset Hybrid Equity Fund(G) Neelesh Surana 2,590 0.6 (1.5) 8.8 9.3 Note: Returns less than year are absolute; Returns greater than year are CAGR; AUM as on September 2019; Returns as on October 15, 2019 Source: ACE MF 14 Nippon India Large Cap Fund Fund Basic Details Fund Benchmark S&P BSE 100 - TRI AUM (₹cr) 12,531 Inception Date Aug 2007 Exit Load Nil upto 10% of units within 1Y and 1% for more than 10% of units within 1Y, Nil after 1Y Fund Manager Sailesh Raj Bhan Expense Ratio 1.9%  It is an equity based fund that primarily invests (at least 80% of AUM) in top 100 companies by market capitalization  The key objective of this scheme is to generate long term capital appreciation by investing predominantly into equity and equity related instruments of large cap companies Asset Allocation 3% 3% Large Cap 15% Mid Cap Small Cap  The scheme also aims to generate consistent returns by investing in debt, money market securities, REITs and InvITs Others 79%  As of September 2019, the fund had invested 79% of AUM in large cap stocks while 15% was invested in mid cap stocks The fund had highest allocation to Banks (29.9%) followed by refineries (7.7%)  Its top stock holdings comprise of ICICI Bank (7.6%), HDFC Bank (6.9%) and SBI (6.7%)  Investors who prefer to invest in a diversified portfolio of blue chip stocks can invest in this fund to create wealth in the long term  This open ended fund is suitable for investors who have moderately high risk appetite with investment horizon of at least years Returns (%) 10.5 8.4 8.8 9.5 9.1 5.7 Year Years Years Fund Benchmark Note: Returns less than year are absolute; Returns greater than year are CAGR; AUM as on September 2019; Returns as on October 15, 2019 Source: ACE MF 15 ICICI Prudential Midcap Fund Fund Basic Details Fund Benchmark Nifty Midcap 150 – TRI AUM (₹cr) 1,767 Inception Date Oct 2004 Exit Load 1% on or before 1Y, Nil after 1Y Fund Manager Mrinal Singh Expense Ratio 2.3%  It is an equity based fund that aims to generate capital appreciation by actively managing a diversified portfolio of a mid cap stocks (at least 65% of AUM in companies ranked from 101st to 250th by market capitalization)  The fund looks to identify and invest in growing companies that have significant room for value unlocking Management integrity is also a key criteria while screening stocks for investing Asset Allocation 11% 4% Large Cap 19% Mid Cap Small Cap 66%  As of September 2019, the fund had invested 66% of AUM in mid cap stocks, while 19% was invested in small cap stocks The fund had highest allocation to Hotels (7.6%) followed by Banks (6.5%) Returns (%)  The scheme’s top holdings comprise of Indian Hotels Company (5.8%), PI Industries (4.7%) and Tata Chemicals (4.4%) 8.3 10.3 4.1 4.3  Investors who prefer to invest in mid cap stocks and are looking for relatively higher returns in the long run can invest in the scheme  This open ended fund is suitable for investors who have moderately high risk appetite with investment horizon of at least years Others -0.9 -1.9 Year Years Fund Benchmark Note: Returns less than year are absolute; Returns greater than year are CAGR; AUM as on September 2019; Returns as on October 15, 2019 Source: ACE MF Years 16 HDFC Small Cap Fund Fund Basic Details Fund Benchmark Nifty Small Cap 100 - TRI AUM (₹cr) 8,845 Inception Date Apr 2008 Exit Load 1% on or before 1Y, Nil after 1Y Fund Manager Chirag Setalvad Expense Ratio 1.8%  The scheme predominantly invests equity and equity related instruments of small cap companies (at least 65% of AUM in companies ranked 251st and beyond by market capitalization) Asset Allocation 4% 18%  It focuses on the companies which have reasonable growth prospects, sound financials, sustainable business model and acceptable valuations that offer scope for capital appreciation  As of September 2019, 64% of its AUM was invested in small cap stocks while 18% was invested in mid cap stocks The fund has highest allocation to Banks (9.5%) followed by IT (6.4%) Mid Cap Small Cap Others 64% Returns (%)  The fund’s top stock holdings comprise of Sonata Software (3.3%), DCB Bank (3.1%) and NIIT Technologies (3.1%) 10.5 6.4  Investors who are seeking to invest in a diversified portfolio of small cap stocks and desire for superior returns in the long run can invest in this scheme  This open ended scheme is relevant for investors who have high risk appetite with investment horizon of at least years Large Cap 14% 3.0 -3.7 -8.8 -10.6 Year Fund Note: Returns less than year are absolute; Returns greater than year are CAGR; AUM as on September 2019; Returns as on October 15, 2019 Source: ACE MF Years Years Benchmark 17 SBI Magnum Multi Cap Fund Fund Basic Details Fund Benchmark S&P BSE 500 AUM (₹cr) 8,073 Inception Date Sep 2005 Exit Load 0.10% on or before 30D, Nil after 30D Fund Manager Anup Upadhyay Expense Ratio 2.1%  The scheme focuses to generate long term growth in capital through active management of investments in a diversified basket of large cap, mid cap and small cap companies  Thus the fund can invests at least 65% of its AUM in equity and equity related instruments across the market capitalization and rest in debt and money market instruments Asset Allocation 2% 16% Large Cap Mid Cap Small Cap 19% 63%  The scheme follows bottom-up approach to stock picking and selects companies across sectors and styles  As of September 2019, the fund had invested 63% of AUM in large cap stocks while allocation to mid cap and small cap stocks was 19% and 16% respectively The fund had highest allocation to Banks (27.9) followed by IT (9.1%)  The fund had the highest allocation to HDFC Bank (8.9%) followed by Infosys (6.9%) and ICICI Bank (5.9%)  Investors with moderately high risk appetite with a time horizon of at least years, can look to invest in this open ended scheme to accumulate wealth in the long run Other Returns (%) 12.3 12.3 9.0 7.6 7.9 Year Years Fund Benchmark Years 5.0 Note: Returns less than year are absolute; Returns greater than year are CAGR; AUM as on September 2019; Returns as on October 15, 2019 Source: ACE MF 18 Mirae Asset Hybrid - Equity Fund Fund Basic Details Fund Benchmark CRISIL Hybrid 35+65 - Aggressive Index AUM (₹cr) 2,590 Inception Date Jul 2015 Exit Load 1% on or before 1Y(365D), Nil after 1Y(365D) Fund Manager Neelesh Surana Expense Ratio 2.0%  It is an equity-oriented hybrid fund that invests 65%-80% of AUM in equity and equity related instruments, 20%-35% in debt and money market instruments and up to 10% in the units of REITs and InvITs  For equities, it focuses to identify high growth companies available at a reasonable valuations while for debts the key focus is on Government securities and highly rated PSUs and corporates Asset Allocation 2% 29% Large Cap 8% Mid Cap Small Cap  As of September 2019, the fund had invested 71% of the total AUM in equities and rest in debts It had invested 61% of the equity AUM in large cap stocks, while 8% was invested in mid cap stocks Others 61% Returns (%)  Within equities, the funds had highest allocation to Banks (22.1%) followed by IT (6.5%) It had highest allocation to HDFC Bank (6.8%) followed by ICICI Bank (5.1%) and Reliance Industries (4.9%)  Aggressive investors who prefer a balanced approach (growth + capital protection), can invest in this scheme  This (aggressive) Hybrid category fund is suitable for investors with moderately high risk appetite with at least years of investment horizon 9.9 9.3 9.1 8.8 Year Fund Note: Returns less than year are absolute; Returns greater than year are CAGR; AUM as on September 2019; Returns as on October 15, 2019 Source: ACE MF Years Benchmark 19 Disclosure Mutual Fund investments are subject to market risks, read all scheme related documents carefully Nothing in this document constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to the investor's specific circumstances The details included are based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed Investors should consult their financial advisers if in doubt about whether the product is suitable for them The fund may or may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs This document may not be taken in substitution for the exercise of independent judgment by any investor The investor should independently evaluate the investment risks India Infoline Ltd or any of its director/s or principal officer/employees and associate companies (IIFL) does not assure/give guarantee for accuracy of any of the facts/interpretations in this document, and shall not be liable to any person including the beneficiary for any claim or demand for damages or otherwise in relation to this opinion or its contents The aimed returns mentioned anywhere in this document are purely indicative and are not promised or guaranteed in any manner Returns are dependent on prevalent market factors, liquidity and credit conditions Instrument returns depicted are in the current context and may be significantly different in the future The group company of India Infoline Limited, IIFL Wealth Management Limited is the Sponsor of IIFL Mutual Fund and holding company of the Investment Manager & Trustee Company of IIFL Mutual Fund IIFL or its subsidiaries & affiliates may be holding all or any of the units of the scheme(s), referred in the document The information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of IIFL While due care has been taken in preparing this document, IIFL and its affiliates accept no liabilities for any loss or 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