INSUBCONTINENT EXCLUSIVE:
Keep your eyes and ears open
Chances are, you might just spot some big winners on Dalal Street
And take this, they may be even from the lot that has trailed benchmark indices so far!
Look at Morgan Stanley, which recently added three
underperformers from different sectors to its portfolio
The global brokerage has suddenly taken a fancy to India's biggest lender State Bank of India (SBI), which just about doubled investor money
in the past 10 years even as the benchmark Sensex rallied over 180 per cent during the same period
Leading super-specialty hospital Apollo Hospitals and real estate developer Prestige Estates are the two other favourites of Morgan Stanley
after the latest correction.
For the short-list, the third-largest wealth management firm in the world in terms of total client assets
focussed on stocks that have underperformed the market over the past 12 months whose business fundamentals have been weak with slow earnings
growth and RoEs below the standard deviation from the average
Prospects of these companies are now looking robust in terms of RoE and earnings growth, Morgan Stanley said
“We choose stocks rated ‘overweight’ by Morgan Stanley and where our analysts expect a positive change in RoE (return on equity),
along with EPS growth in excess of 10 per cent over the next two years,” Morgan Stanley said in a report.
SBI stock has rallied 6 per cent
in the last 12 months till September 14 whereas the benchmark BSE Sensex has advanced 18 per cent.
Morgan Stanley believes that the
government’s recapitalisation move enabled the state-owned banks (SOE) to recognise problematic corporate loans as non-performing loans
(NPLs) and increase provisioning.
“We expect an improvement in overall provisioning and NPL slippages to drop sharply during the second
However, loan loss charges are likely to remain high as banks take coverage towards 60 per cent with Ind-AS rolling in from April 1, 2019
Core pre-provision operating profit (PPOP) growth should start picking up from H2FY19 as NPL formation slows and higher rates help margins
Given its strong liability franchise and technology, SBI is better positioned relative to other SOE banks to sustain growth and ROE,”
Morgan Stanley added.
Japanese brokerage Nomura in August gave a ‘buy’ rating to SBI with a target price of Rs 360
“Valuations at 0.9 times are not undemanding
We maintain a buy rating as the corporate cycle and core PPOP improve,” said Nomura
The state-owned lender suffered a major loss of Rs 4,876 crore for the first quarter to June, caused by higher provisioning on account of
accumulated non-performing assets (NPAs), or bad loans
In a stock exchange filing, SBI said it earned Rs 2,005.5 crore net profit for the same period of last financial year.
Shares of Prestige
Estates and Apollo Hospital have climbed 9 per cent and 5 per cent, respectively, during the period.
Prestige Estates has a balanced
portfolio of developmental and rental projects, both of which have good scale-up potential
Presence in healthy South Indian cities (Bengaluru, Chennai and Hyderabad), will be complemented by diversification to NCR and MMR markets
“Valuations appear reasonable at 51 per cent discount to our March 2019 NAV,” Morgan Stanley added.
The company is also looking to
acquire malls across major cities to expand its rental income base
In the case of Apollo Hospitals, Morgan Staley believes that valuations seem inexpensive at 15x F20 EV/Ebitda
Operational improvement in the ensuing quarters would be driven by all the three revenue segments, including hospitals, steady growth in
standalone pharmacies and narrowing of AHLL retail losses, for the target to break even in the first half of 2020.
Apollo Hospitals is also
one of the top picks of IDFC Securities
In a report in August, the brokerage firm maintained ‘Outperformer’ rating on Apollo with a target price of Rs 1,483
The domestic brokerage firm further said a leadership position, national footprint and multi-pronged healthcare delivery model make Apollo
one of the stronger EM healthcare models
“Post a prolonged weak earnings phase emanating from an aggressive expansion plan, earnings recovery is visible from H2 FY18 onwards,
driven by improvement in mature hospital profitability
The new hospital cluster has begun to contribute positively, led by improvement in Navi Mumbai unit
While the ASAP business will sustain growth momentum, reduction in operating losses at the retail health platform too should aid growth in
consolidated profitability,” IDFC Securities said in a report.
Morgan Stanley has upped its target price for the Sensex to 42,000 for
September 2019 from 36,000 in June.
Asian Paints, ICICI Bank, ITC, MM Financial and UltraTech Cement are other underperformers that made
their way to the Morgan Stanley list.
Motilal Oswal Financial Services has ‘Buy’ rating on ICICI Bank with a target price of Rs 355
while it has ‘Neutral’ call on Asian Paints with a target of Rs 1,405.
Brokerage firm JM Financial is positive on MM Financial with a
“We expect earnings CAGR of 53 per cent over FY18-20E with RoA and RoE expanding to 2.9 per cent and 19 per cent, respectively, by FY20E.
