10 high risk-reward stocks for 2013

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India has a ‘least dirty shirt’ in a volatile world, with easing global commodity prices & liquidity in FY 14, says Axis Capital in its ‘India Strategy’ report.

According to the report, global liquidity and incremental domestic improvement are likely to provide a floor to the Sensex. However, further re-rating would depend on the government’s ability to contract the fiscal and kick-start capex. Axis Capital has identified 10 risk-reward bets which can give good returns in 2013:

Bharti Airtel

CMP: Rs 314

M-cap: USD 21,977 million

Target price: Rs 400

Bear case: Rs 285

Bull case: Rs 542

Rationale: Concerns easing on competition and regulation, post auctions. Axis Capital sees upside potential in Bharti’s African operations ahead.

Tata Motors

CMP: Rs 278

M-cap: USD 15,150 million

Target price: Rs 313

Bear case: Rs 256

Bull case: Rs 415

Rationale: Demand driven by China growth of 25 percent while flat growth in developed markets would require increased discounts. New product launches — new Range Rover and Sportsbrake in Q4FY13, F-Type in Q1FY14, new Range Rover Sports (2HFY14) – and dealership expansion to bring volume growth.

Infosys Ltd

CMP: Rs 2,294

M-cap: USD 24,272 million

Target price: Rs 2,400

Bear case: Rs 1,941

Bull case: Rs 3,390

Rationale: Infosys is likely to gain from its high operating leverage and RoI on cash reserves. There is also an uptick seen in the global IT spend and Infosys is likely to go in for higher capacity utilisation. On the flip side, its valuation is like a bond at 12x FY14E.

NTPC

CMP: Rs 154

M-cap: USD 23,441 million

Target price: Rs 203

Bear case: Rs 151

Bull case: Rs 227

Rationale: With private gencos stalling expansions, onus of capacity addition will shift to NTPC. Expect government to facilitate execution through faster clearances for captive coal mines and power projects.

Coal India

CMP: Rs 357

M-cap: USD 41,529 million

Target price: Rs 434

Bear case: Rs 360

Bull case: Rs 522

Rationale: Faster regulatory clearances on PMO’s directives to provide volume growth. FY13 YTD volume growth has been 8 percent versus expectation of 5 percent at the beginning of the year. Axis Cap expects FY12-18 volume CAGR of 5.5 percent.

Thermax

CMP: Rs 614

M-cap: USD 1,348 million

Target price: Rs 720

Bear case: Rs 545

Bull case: Rs 855

Rationale: Axis Cap expects Thermax’s FY14 order inflow of Rs 75 billion (up 35 percent YoY), which is ~30 percent higher than street. Higher order to result in higher sales growth in FY14 at 22 percent YoY versus street’s estimate of 10 percent.

Cairn

CMP: Rs 319

M-cap: USD 11,229 million

Target price: Rs 396

Bear case: Rs 316

Bull case: Rs 428

Rationale: Enhanced oil recovery project (results expected by mid CY 13) will increase recoverable reserves by 0.3 billion BOE from 1.1 billion, thus increasing production visibility to 300 kbpd from 175 kbpd.

Shriram Transport Finance

CMP: Rs 706

M-cap: USD 2,950 million

Target price: Rs 760

Bear case: Rs 616

Bull case: Rs 872

Rationale: Stable used CV growth (79 percent of AUM) at 20 percent despite new CV slowdown, led by new market of used light CVs, wider customer connect (auto mails). As leader (25 percent share), can keep taking share from private money lenders (65 percent share).

ICICI Bank

CMP: Rs 1,122

M-cap: USD 23,774 million

Target price: Rs 1,225

Bear case: Rs 975

Bull case: Rs 1,386

Rationale: The bank has successfully addressed the concerns of lower growth, weak asset quality and lower RoEs. Axis Cap expects RoE to improve led by increase in leverage, traction in NIM and non core income etc.

Reliance Industries

CMP: Rs 820

M-cap: USD 49,449 million

Target price: Rs 840

Bear case: Rs 742

Bull case: Rs 1,009

Rationale: Capacity expansion in petrochemicals and petcoke gasification by FY17 to increase EBITDA 1.6x over FY13-17. KG-D6 gas price hike imminent to support domestic E&P industry as deep-water field unviable at USD 4.2 mmbtu.

Article by Raviraj

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