State Bank of India: Key beneficiary of any pick up in GDP growth and reduction in lending rates. Stress on asset quality at near-peak levels. Pick up in loan to deposit ratio in Q4FY13 and re-pricing of residual bulk deposits would support NIM. Strong liability franchise marked by high CASA would support NIMs in the long term. Valuations are still lower than five-year average.
UltraTech Cement: Company enjoys strong brand equity with geographical diversification. Expect 8-9% dispatch growth over next two years. Plans to expand capacity by 9.2mtpa by 2014 and explore both organic and inorganic growth opportunities. It would be a key beneficiary of an expected pick-up in cement volumes in the next 2-3 years.
Larsen & Toubro: Well-diversified infrastructure portfolio. Revenue growth expectation of 15-20% backed by strong order book (Rs 1,53,000 crore) and healthy order inflows as guided at Rs 80,500-84,000 crore in FY13E. Valuation provides downside support. Rate cuts, pick up in capex, traction in Middle East along with unlocking in L&T IDPL (likely in CY13) will lead to outperformance.
United Spirits: Diageo's acquisition of a controlling stake would help re-rate. Diageo will pay Rs 5,720 crore for a 27.4% stake. Part of this will be used towards servicing its debt leading to improvement in debt equity and return ratios. Upgraded earnings estimates for the company by 50% each for FY14/FY15 post the deal factoring improvement in leverage and margins.
Cairn: Cairn remains the cleanest play on any upswing in crude prices. Triggers include higher realisations, ramp-up in production to 185kbpd by end-FY13, further to 200kbpd by FY14. Also the recent in-principle approval for exploration in the Rajasthan block poses a significant step in that direction.
Motilal Oswal Securities
ICICI Bank: Core RoA has improved decisively to 1.5% plus. Strong capitalisation of Tier I at 12.8% will enable it to deliver dilution-free growth at least till FY16. Led by increase in leverage, core RoE to improve to 16.5% (average of 11% over FY08-12). Uptick in economy will lead to re-rating. It trades at near 5-year average valuation.
LIC Housing Finance: It continues to deliver well on growth and asset quality. Well positioned to leverage strong growth opportunities (expect 25% loan CAGR over FY12-15E). Spreads have bottomed and should improve, led by higher spreads on new business, lower interest rates and increase in developer loan portfolio. Earnings will grow at a 25%+ CAGR during FY13-15E.
Tata Motors: JLR's volume momentum would remain strong driven by significant upgrades of its flagship Range Rover and Sport models coupled with other product actions and China sales. Improvement in economy would drive recovery in M&HCV business in FY14 and FY15. It is expected to be zero net debt (excl NBFC) in 2 years.
NMDC: Volume growth of 13% CAGR over FY12-15 led by easing bottlenecks, CEC permission for forward sales in Karnataka, and increase in capacity to 47 mtpa by FY14. Investments in pelletisation will lead to acceleration in demand and higher prices for iron ore fines. Strong demand, coupled with lower supply, has improved fundamentals.
Tech Mahindra: Organic growth prospects at the combined entity (ex-BT) remain healthy in the near-to-medium, despite nearly half the revenues from the challenged telecom vertical after the merger. Its revenue from the second largest customer continues to grow. There is room to increase the wallet share further. Ramp-ups in deals won will facilitate growth.
Bank of Baroda: At 1 time forward book value, it is the only credible large-cap public sector bank that merits a buy. Strengths include its prudent and disciplined approach to underwriting, its ability to generate consistent high return ratios on the back of higher-than-system-average growth and superior efficiency ratios.
Sadbhav Engineering: At 1.5 times its FY14 book value, it trades at a premium to other developers. The premium on the stock is justified given its prudent business strategy and consistent financial performance. Expect rising cash flows (nearly doubling every year over next three years) and recovery in earnings FY14 onwards to further widen premium.
Ashok Leyland: Expectation of an improvement in economy and hence corporate spending bodes well for India's second largest commercial vehicles maker. Given its cyclical properties, this would mean a pick-up in MHCV segment volumes from 2HFY13. With its high operating leverage and attractive valuations, it remains the best play.
Torrent Power: On price to book, Torrent trades at 33% discount to its peers. Given Torrent's superior free cash flow yield (FY13 FCFF yield 11%), higher FY13 RoE (13.3% vs 11.8% for peers) and improving visibility on the project pipeline, it deserves to trade at a premium versus peers and provides attractive entry point for investors currently.
Sobha Developers: Sobha is the only leveraged listed developer, with operating cash flows comfortably in excess of debt servicing related interest outflow. It has a strong brand built around quality and speed of execution. Its incremental cash flows from a possibly improved macro environment will flow towards building the launch pipeline and timely execution of ongoing projects.
ICICI Bank: Focus on CASA, NIM and asset quality likely to continue. Management focuses on stable growth with improving profitability. Earnings to grow 22.4% CAGR during FY13-14E and expect bank to focus on liability franchise (CASA mix) and profitability (RoE is likely to improve further with increase in leverage in the next 2-3 years).
Engineers India: According to Ministry of Petroleum and Natural Gas, domestic crude oil refining sector is likely to add significant capacity in twelfth Plan. Company will benefit from this as it enjoys good relationship with PSU majors like HPCL, BPCL and IOC. In order to widen its offerings, company has entered into various favourable joint ventures with domestic as well as international players.
Marico: Leader in branded coconut oil and premium refined oils. It has made significant headway in high-growth categories (deodorants, body lotions and breakfast cereals). On improving gross margins, expect 22% CAGR in earnings through FY12-FY15E. Longer term, it has built a platform to deliver strong revenue growth.
Arshiya: FTWZ (Free Trade & Warehousing Zones) is a unique business model. The company is also ramping up its container rail business, which will effectively complement its FTWZ business. The business model is completely integrated and a one-stop-shop to cater to the point-to-point logistics requirement of the customers.
Petronet LNG: It is investing Rs 3,000 crore on Dahej RLNG capacity expansion by 50% to 15 mmtpa. Second jetty will lead to higher utilisation by 20-25%. Setting up another LNG terminal (5 mn MTPA investment of Rs 4,000 crore) at Kochi, to come online Q4FY13E. With strong demand, the volumes are expected to improve.