Top Stock Picks by Arihant Capital Market

Mahindra & Mahindra (CMP Rs 1295, TP Rs 1586)

New Launches and transformation to electric vehicles to boost M&M revenues Mahindra & Mahindra August sales were up 3.75% at 42,116. Its tractor sales were up 22% at 16,516 in August. With the move towards developing all electric vehicles till 2030, M&M launched first e - rickshaw, named e-alfa. M&M is expected to improve on its sales with all new segments of EV's. To reduce the cost of batteries which accounts for 40-50% of vehicles cost, M&M is seeking a JV with another company this will further reduce the price of the vehicles and improve on margins. Mahindra & Mahindra (M&M) has called it quits in the mass market two-wheeler category, nine years after it entered the segments, this move will help reducing its losses as two-wheeler was a loss making business.

Outlook: We expect strong bounce back in Q2FY18 onwards on account of expected demand revival from rural India, Government's strong focus on rural economy, EV vehicles and favourable monsoon helping agri industry and rural UV sales. Though present product pipe line is lean, company plans strong product pipeline over FY18 & FY19. Economic revival with new launches would help company clock double digit growth in FY18 & FY19. Our Estimates for FY19, Net standalone revenues to be Rs. 54,898 cr, operating margins to be 12.7% and PAT to be Rs. 4,436cr with the EPS of Rs. 74.7.

We value the core business at Rs. 1195 per share, based on 16 (x) FY19E PE(x) based on EPS of Rs. 74.7. We have valued total investments (listed and unlisted) at Rs. 391 per share, with a holding company discount of 30%. Our SoTP value for stock comes at Rs. 1,586 per share.

DCB Bank (CMP - Rs. 195 ; Target Price - Rs.218)

Strong CASA growth & Focus on better asset quality to boost Profitability. Development Credit Bank Ltd (DCB) is one of the emerging private sector banks in India. The services offered by the bank include Personal Banking, Corporate banking & NRI Banking.

DCB Bank Ltd. reported strong growth for Q1FY18 quarter. Operating Profit came in at Rs.136 Cr. for Q1 FY18 as against Rs. 93 Cr. in Q1 FY17 registering robust growth of 47%. Net profit increased to Rs 65 Cr up by 39% YoY and growth of 23% sequentially. Deposits for the bank grew at 22% YoY. NIM for the quarter came in at 4.23. We believe bank is in growth trajectory with continued focus on retail and SME segment customers. On back of strong CASA growth and better asset quality ahead we believe bank will be able to maintain its current NIM levels. Company has set target to bring down Cost to Income ratio to 55% by end of next FY. Company's top Business priorities are improving staff quality & focus on internal training, keeping NPA's intact and focusing more on fee based income. Company has set target to achieve fee based income with a growth of around 14% -16% YoY.

Outlook: Our Estimates for FY19, Net interest Income at Rs.1218 Cr & PAT at Rs. 313 Cr. We have pegged a multiple of 2.4(x) to FY 19E ABV & arrived at a fair value of Rs 218 per share.

TATA Global Beverages Ltd: Positive on restructuring activity (CMP: 214 target Price: 280)

Tata Global Beverages Ltd has a portfolio of five brands in the domestic market namely Tata Tea,Tetley, Kanan Devan, Chakra Gold and Gemini. Tetley offers customized products to each country ranging from black, green, fruit and herbal teas, iced ready-to-drink teas and an extensive range of exotic speciality tea.

Q1FY18 reported a sale of Rs 1704Cr which is down by 2% due to lower growth in overseas market and PAT grew by 15% Y.O.Y to Rs 142Cr.

After N Chandrasekaran took over as chairman of the Tata Sons and restructuring activity started with the selloff of loss-making operations in China and Russia. Total debt is 785cr and company can directly reduce its debt with cash that received from stake sell.

Outlook: Inter-company stake selloff will lead to huge cash inflow which will be used for debt reduction and margin will improve and expected robust growth in overseas market is likely to lead to P/E re-rating. Present TTMEPS is 6.5 and company can grow its earning at the rate of 15% for next 2 years and EPS for FY 19 is expected to be Rs. 8.6. We have valued the stock at PE multiple of 33 of projected earnings of FY 19 and arrived at a price Target of 280.

L&T Finance Holdings Ltd: Growth in focus and ROE target of 20% by 2020 (CMP: 210 and target price: 260)

L&T Finance Holdings Limited is a holding company. The Company offers a range of financial products and services across the corporate, retail and infrastructure finance sectors.

L&T Finance Holdings Total Revenue this year stood at Rs 8340Cr with PAT margin of 12.5%.Range of offerings across diversified book: LTFH's lending operations are focused on three primary segments. Rural 15%, Housing 19% and Wholesale finance 62% of the total loan book with loan book of Rs 10,000Cr, 2,000Cr and 41,000CR respectively.

Housing Finance grew by 28% YoY in FY2017 and it is most growing among three segments and LTFH has the potential to become a valuable player in the housing finance segment in the years to come.

Outlook: Management focuses on restructuring the business model to downsize the loss making businesses loan book growth to remain fairly strong and likely to above 15% which will push ROE to 20% by 2020. Housing finance loan book of 12,534Cr is growing at 28%. We estimate for FY19, total loan book will increase to 88,141cr with adjusted book value of 58.19. We have valued the stock a multiple of 4.5X & arrived at a fair value of 260.

Source : Equity Bulls

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