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.