Month: August 2021

Power Grid – Dividend Yield of 7% to 8%

According to Motilal Oswal Power Grid has won Rs 90-100 billion of awards during the past 8-9 months, which is a positive sign, given a declining order book.

“The capital expenditure trajectory is on a decline, and with proceeds from InvIT, we see strong scope for higher dividends. Valuations at 1.6x FY22E P/BV and a 7-8% FY22E dividend yield remain attractive for a company with a steady return on equity of 18%. We maintain our Buy rating with a DCF-based target price of Rs 205 per share,” the brokerage has said.

Power Grid’s standalone net rose 3 times year on year to Rs 60.8 billion due to one-offs related to a Rs 31.7 billion gain from the sale of assets to InvIT and Rs 2.3 billion of income – difference in final and provisional tariff, and Rs 0.8 billion impact of a rebate in 1QFY21,” the brokerage has said.

Government distribution reform scheme may help Power Grid

According to Motilal Oswal the company is looking at opportunities ushered by the government’s distribution reform schemes. The company sees an incremental Rs 2 trillion of funding/investment needs for power distribution companies for upgrade of their distribution network and Smart Meters. It is looking to engage with power distribution companies for the same and provide technical solutions and investment support.

Power Grid expects capitalization in FY22 to be at Rs 150 billion, with a capital expenditure of Rs 75 billion. For FY23, it expects capitalization to be at Rs 120-150 billion, with a capital expenditure of Rs 75-100 billion, the brokerage has said.

Reasons to buy the stock of Power Grid

According to Motilal Oswal, the management sees Rs 108 billion of upcoming opportunities in inter- and intrastate works. Transmission schemes are being planned in Leh, Gujarat, and Rajasthan, with a total potential cost of Rs 400 billion. DPR for Transmission works at Leh has been prepared and submitted.

“We see additional distribution potential from share in dividends from Special Purpose vehicles of the InvIT, sale of 26% stake in five Special Purpose vehicles, and further transfer of assets to the InvIT.

Given a 7-8% dividend yield, backed by steady earnings growth (5-6% CAGR) and Return On Equity of 18%, Power Grid remains attractively valued at 1.6 times FY22E price to book value. We maintain our Buy rating with a DCF-based price target of Rs 205 per share,” the brokerage has said.

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article.

Spot gold prices 22 karats in select cities, Aug 12

(The gold prices mentioned are approximate, as prices fluctuate and hence investors should check with their local jewellers for accurate prices)

Gold begins trending higher

To begin with, we must understand that Indian imports gold and we must look for external factors that move gold, which leads to higher gold prices in India.

On Aug 12, gold prices rallied across the globe as US consumer price inflation data came in on lines as expected. US inflation is an important data point for gold, as it leads to gold prices going higher or lower. When inflation goes higher, the US Federal Reserve would be forced to hike interest rates, if CPI persists, which pushes bond prices higher.

When bond prices go higher, it leads to a fall in gold prices, as investors seek shelter in the higher yielding bonds. The second big factor that could happen in the future is that the US Federal Reserve could reduce its bond buying programme, which would suck money from the system and lead to a fall in gold prices. However, we tell you later whether that could play out.

“Technically, Gold bulls are stabilizing the market after prices hit a more-then-four-month low on Monday. The gold bears still have the overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at this week’s low of $1,676.40. First resistance is seen at this week’s high of $1,763.00 and then at $1,775.00. First support is seen at today’s low of $1,724.30 and then at Tuesday’s low of $1,716.50,” says Amit Khare, AVP- Research Commodities, Ganganagar Commodities, Limited

Why you can go ahead and buy gold now?

We believe that after a sharp drop of almost Rs 2,000 for 22 karats in the last 5-days, gold prices are unlikely to fall sharply. The globe is constantly plagued with worries over a new corona virus and inflation may also have peaked in the United States. However, what would be the single biggest factor for gold going ahead would be the Jackson Hole meeting later this month, where the US Fed Chair Person may provide some hints on whether the US would announce a gradual withdrawal of its tapering plans. If that happens we could see fresh pressure on gold. If no such announcement is made, gold would continue to move in a tight range, and the probability of it going higher from here is a possibility.

Disclaimer

Investing in gold poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article.

Buy Sudarshan Chemical, Says ICICI Securities

Sudarshan Chemical, which was founded in 1951, is a major participant in the Indian colour pigment sector, with a 35 percent market share, and is also one of the top four companies globally.

ICICI Securities believes that the revenue growth of specialty pigments is expected to be aided by upcoming capex. To improve the business’s margin profile, a higher share of value-added business portfolio is required. Allocating additional FCF to organic and inorganic growth is anticipated to expand return ratios even more.

Sudarshan Chemical: Upcoming capex offers strong visibility ahead

ICICI Securities has retained a Buy on the stock with a revised price target of Rs795. “The stock appreciated at 30% CAGR in last three years. We retain BUY rating on the back of better growth outlook from speciality pigments Target Price and Valuation: We value Sudarshan Chemical at 25x P/E FY23E EPS to arrive at a revised target price of Rs 795/share.

Apart from Sudarshan Chemical, we also appreciate Neogen Chemical in our chemical coverage. Future revenue growth for Neogen Chemical is projected to be driven by more bespoke synthesis opportunities,” the brokerage has said.

Buy Motherson Sumi: ICICI Securities

Motherson Sumi (MSS) principally services the global PV industry with essential product lines such as wiring harnesses, vision systems (mirrors), and plastic body parts.

According to ICICI Securities, they expect a 12.6 percent net sales CAGR from FY21 to FY23E, backed by a healthy expected revival in global OEM client volumes and a strong orderbook. Minimal EV risk, with EV share of orderbook at 25% (FY21). Focus on higher content per vehicle to gain traction. Margins seen rising to 10.8 percent by FY23E, backed by higher capacity utilisation at greenfield plants and gene.

Target price of Rs 270 on the stock

“MSS’ stock price has grown at ~10% CAGR from ~Rs 145 levels in August 2016, widely outperforming the Nifty Auto index. We retain BUY rating on global PV premiumisation play, EV neutral products Target Price and Valuation: We value MSS at 30x P/E on FY23E basis for a revised target price of Rs 270 (earlier Rs 300).

Apart from MSS, we favour Apollo Tyres in our ancillary coverage.

India’s CV resurgence is centred on debt reduction and greater return ratios. BUY with a target price of Rs 275,” the brokerage has said.

Buy Trent, Says ICICI Securities

Trent is India’s largest retailer, having 400+ outlets and a presence in a variety of consumer sectors. Trent is one of the fastest growing companies in our retail coverage universe, because to the inherent power of its brands (Westside, Zudio, Star, Zara) and expedited store openings.

ICICI Securities believes that for FY22-23E, we estimate 175 new stores between Westside and Zudio. Expect revenue recovery to pick up speed from H2FY22 onwards, with revenue and profits CAGRs of 17 percent and 36 percent in FY20-23E, respectively. The company wants to expand its sales at a CAGR of 25%+ in the long run.

Buy Trent with target of Rs 1100

“Trent has been an exceptional performer with the stock price appreciating at ~36% CAGR in the last five years. We maintain our BUY recommendation on the stock Target Price and Valuation: We value Trent at Rs 1100 based on SOTP valuation.

Apart from Trent, we also like Aditya Birla Fashions (ABFRL). ABFRL has charted out growth strategies to become a ~US$2.8 billion entity (Rs 21000 crore) by FY26E, translating to 15% CAGR in FY20-26E. BUY with a target price of Rs 265,” the brokerage has said.

Disclaimer

The 3 stocks or mentioned above are taken from the brokerage report of ICICI Securities. Investments mentioned here need not be construed as investment advice, the company and the author shall not be responsible for any decisions taken based on the above report. Investors are advised to caution as the markets are now at a new historic peak.