INVESTPRO TOP IDEA PICKS SEPTEMBER 2020
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InvestPro Top Idea Picks September 2020
Investment Ideas:
High Conviction Stocks Idea Attributes
• Company: a) Sound / resilient business; b) Consistent strong financials; c) High growth potential; and d) High return on invested capital
• Industry: a) Market leaders / Strong brand value; b) High growth opportunities; c) Strong entry barriers
• Management: a) Visionary Leadership; b) Strong & Effective Management; and c) High corporate access, including promoters and CXOs
• KRChoksey Differentiators: a) Analytics that predicts market movements; and b) High quality actionable research
UPL Ltd. Aurobindo Pharma Ltd. Cipla Ltd.
Evolving as global leader in complete US growth momentum to continue Leader in respiratory therapies,
crop solution offerings comprehensive COVID-19 portfolio
BUY | Target Price: 622| Upside: 22% BUY | Target Price: 1,027| Upside: 27% BUY | Target Price: 894| Upside: 23%
Read Report Read Report Read Report
Hindustan Unilever Ltd. Axis Bank Ltd. Bandhan Bank Ltd.
Resilient business with strong brand Well capitalized to absorb any shocks; Consistent performance
presence to withstand near term Advance/Deposit growth intact
COVID-19 challenges
BUY | Target Price: 2,556| Upside: 20% BUY | Target Price: 612| Upside: 34% BUY | Target Price: 431| Upside: 37%
Read Report Read Report Read Report
Note: Prices as on 4 September 2020
Source: KRChoksey Research
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQUPL Ltd.
Evolving as global leader in complete crop solution offerings
CMP Target Potential Upside Category Market Cap (INR Mn) Recommendation Sector
INR 508 INR 622 22% Large Cap. INR 388,852 BUY Agrochemicals
Despite COVID-19 pandemic, UPL reported good first quarter in FY21 with record margin Key Financials
improvement. Management expects EBITDA margin improvement to also reflect in full FY20 FY21E FY22E
Particulars (INR Mn)
year numbers going forward and will be in the range of 23-25% in the next few years
(from 18.9% in FY20). UPL today is the number one bio solutions company and the Revenue 357,560 390,038 425,629
largest supplier of organic portfolio of products in the world. EBITDA 67,730 83,858 95,766
Low material cost facilitated EBITDA margin improvement in Q1FY21 despite low Adjusted PAT 23,990 28,013 35,338
volume due to pre-buying in Q4FY20 Adj EPS (INR) 31.3 36.5 46.1
• Revenue was flat YoY in Q1FY21 due to stagnant volume with pre-buying in the US in EBITDA Margin 18.9% 21.5% 22.5%
Q4FY20 (at trade channel level) owing to supply chain led fears, while prices were Adjusted NPM 6.7% 7.2% 8.3%
slightly down (-1.0% YoY). PE (x) 16.3 13.9 11.0
• But with lower material costs, company was able to improve GPM/EBITDA margin by Source: Company, KRChoksey Research
785bps/679bps YoY, respectively. EBITDA margin was further supported by better
portfolio mix and reduced travel cost on account of COVID-19.
Robust proprietary pipeline; exciting opportunities to arise from products going off- Shareholding Pattern
patent in next few years
Particulars (%) Jun-20 Mar-20 Dec-19
• UPL has 38 early stage and 14 late stage proprietary active ingredients in its pipeline,
having peak sales valued at USD 1.0 - 1.5 bn with projects reaching sales maturity Promoters 27.9 27.9 27.9
progressively in 5 to 8 years. Including the existing off-patent active ingredient and FIIs 40.5 43.4 43.5
new mixtures/formulations, UPL’s total pipeline is well positioned to yield USD 2–2.5
billion in the next 5-8 years. DIIs 13.4 11.5 11.1
• Since our last update on the stock (at INR 487/share), the shares of UPL have Others 18.2 17.2 17.5
appreciated ~4.4% and trading at INR 508/share with a valuation of 13.9x/11.0x
FY21E/22E EPS. We continue to apply PE multiple of 13.5x on our FY22E EPS of INR Total 100 100 100
46.1/share and maintain Target Price of INR 622/share with a potential upside of 22%. Source: BSE/NSE
Accordingly, we maintain our “BUY” rating on the stock. Please check: KRChoksey_UPL_1QFY21_RU_20200813
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQAurobindo Pharma Ltd.
US growth momentum to continue
CMP Target Potential Upside Category Market Cap (INR Mn) Recommendation Sector
INR 808 INR 1,027 27% Large Cap. INR 474,465 BUY Pharmaceuticals
We expect Aurobindo Pharma (ARBP) to post a CAGR of 12.1%/15.8% in Revenue/PAT,
Key Financials
respectively over FY20-22E on the back of new launches in the US (~50 launches/year over
next 2-3 years), increasing contribution from acquired businesses and territories in the Particulars (INR Mn) FY20 FY21E FY22E
EU. Revenue 230,985 259,801 290,327
Growth in Q1FY21 was led by the US and Antiviral sales; better product mix and lower
EBITDA 48,643 54,298 63,001
material cost helped in improving GPM
• Aurobindo Pharma reported in-line Q1FY21 results, with US and Antivirals leading the Adj PAT 28,968 32,719 38,821
growth. Pre-buying in the previous quarter in the EU resulted in 5.0% YoY decline (from EPS (INR) 48.32 55.84 66.26
double digit YoY growth in last 6 quarters). GPM improved due to better product mix EBITDA Margin 21.1% 20.9% 21.7%
and lower material cost, but higher employee and other expenses resulted in flat Adj. NPM 12.3% 12.6% 13.4%
EBITDA margin (+17bps YoY).
P/E (x) 16.7 14.5 12.2
• Company has completed Corrective and Preventive Actions (CAPA) and has requested
USFDA for a desktop audit for Unit-1, Unit-9 and Unit-11 while for Unit-7, the company Source: KRChoksey Research
has almost completed all CAPAs and is awaiting further direction from the USFDA.
US growth momentum to continue; higher R&D for complex opportunities
• The company has guided for good growth in the US with 50-60 launches/year over next
Shareholding Pattern
2-3 years (ex-injectables). R&D expenditure to go up slightly to 5.5% of sales in FY21 Particulars (%) Jun-20 Mar-20 Dec-19
considering complex opportunities like MDI inhaler (one US filing), depot and
biosimilars filing slated for H2FY21 and FY22, respectively. Promoters 52.0 52.0 51.9
Debt Reduction on track
• Aurobindo Pharma reduced its Net debt by USD 168 mn QoQ to USD 191 mn during the FIIs 22.6 22.3 21.4
quarter and is on track with regards to debt reduction guidance. Company had DIIs 12.6 12.5 13.2
indicated that it is aiming to reduce debt by USD 200-250 mn in FY21 and to be debt free
by FY22. Others 12.8 13.2 13.5
Shares of Aurobindo Pharma are currently trading at 14.5x/12.2x on FY21E/FY22E earnings, Total 100 100 100
respectively. In the wake of in-line performance in Q1FY21, faster than expected debt
reduction, stable margins and nearing of regulatory clearance, we maintain our target Source: Bloomberg
price at INR 1,027/share by applying a PE multiple of 15.5x on FY22E EPS of INR 66.3/share, Please check:
KRChoksey_Aurobindo Pharma_1QFY21_RU_17082020
an upside potential of 27%. Accordingly, we reiterate a “BUY” rating on the shares of
Aurobindo Pharma.
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQCipla Ltd.
Leader in respiratory therapies, comprehensive COVID-19 portfolio
CMP Target Potential Upside Category Market Cap (INR Mn) Recommendation Sector
INR 725 INR 894 23% Large Cap. INR 583,892 BUY Pharmaceuticals
With increased demand for respiratory drugs due to COVID-19, Cipla was able to garner Key Financials
65% market share in Proventil market (in four weeks following the launch in Q1FY21)
Particulars (INR Mn) FY20 FY21E FY22E
with its newly launched Albuterol Sulfate. Approval for another promising ANDA,
Advair Diskus of GSK (having an addressable market of USD 2.9 bn) is also expected Revenue 171,320 190,161 203,796
soon. Cipla’s domestic business is on track after disruption in trade generics. EBITDA 32,060 42,406 48,503
Broad based topline growth; highest ever EBITDA margin in Q1FY21 PAT 15,465 23,056 29,411
• Cipla posted good set of numbers in Q1FY21 driven by growth in all regions. Domestic EPS (INR) 19.2 28.6 36.5
market saw a strong growth across prescription (+9.0% YoY) on the back of strong
EBITDA Margin 18.7% 22.3% 23.8%
traction in chronic therapies despite lockdown challenges. EM sales rose 63.8% YoY
(up 10.1% QoQ, 11% of sales) driven by strong demand and the base effect from last NPM 9.0% 12.1% 14.4%
year. Cost optimization resulted in EBITDA margin improvement of 965bps QoQ and PE (x) 37.7 25.3 19.9
145bps on YoY basis with lower other expenses and lower employee costs. Source: Company, KRChoksey Research
Leader in respiratory therapies
• Cipla is de-facto leader in respiratory therapies in India with a market share of 25.7%
(rank 1). In inhalation category, Cipla’s market share stands at 68.9% (rank 1). It also Shareholding Pattern
has a significant market share in therapies like Urology with a market share of 16.3%
(rank 1) and Cardiology with a share of 5.5% (rank 4). Particulars (%) Jun-20 Mar-20 Dec-19
Near term growth drivers
Promoters 36.7 36.7 36.7
• Key factors to watch out for Cipla in near term are approval of Advair Diskus, ramp-up
in albuterol and contribution of COVID-19 drugs. Cipla’s comprehensive COVID-19 FIIs 18.6 20.3 20.3
portfolio consists of Cipremi (Remdesivir), Actemra (Tocilizumab), and Ciplenza
(Favipiravir). As of 30th June 2020, Cipla had 66 ANDAs awaiting USFDA approval. DIIs 21.3 20.8 20.8
We expect Cipla’s topline to grow at a CAGR of 9.1% over FY20-22E period and net profit Others 23.4 22.2 22.2
to grow at a CAGR of ~38%. Since our last update on the stock (at INR 779/share), the
shares of Cipla have corrected ~7% and are currently trading at a P/E of 25.3x/19.9x on Total 100 100 100
FY21E/22E earnings. We are optimistic of company’s growth prospects and continue to Source: BSE/NSE
apply a P/E multiple of 24.5x on FY22E EPS of INR 36.5/share and maintain our target
price at INR 894 per share; an upside potential of 23%. Accordingly, we reiterate a “BUY” Please check: KRChoksey_Cipla_1QFY21_RU_20200812
rating on the shares of Cipla.
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQHindustan Unilever Ltd.
Resilient business with strong brand presence to withstand near term COVID-19 challenges
CMP Target Potential Upside Category Market Cap (INR Mn) Recommendation Sector
INR 2,125 INR 2,556 20% Large Cap. INR 4,984,970 BUY FMCG
We expect Hindustan Unilever Ltd (HUL) to achieve a relatively sustainable volume and Key Financials
value growth going forward on the back of superior branding, debt-free strong
balance sheet and the company’s focus on innovation . Recent merger on April-20, with Particulars (INR Mn) FY20 FY21E FY22E
GlaxoSmithKline Consumer Health care (GSKCH) will help propel its growth prospects Net Revenue 397,830 461,270 492,950
by housing well established brands such as Horlicks, Boost, Maltova and Viva while EBITDA 98,610 118,780 131,130
simultaneously providing synergy benefits. The company expects double-digit growth
PAT 67,560 83,570 91,840
in the GSKCH business (Nutrition business) and a further 550-700bps margin
improvement over HUL’s base EBITDA margin of 31.3%. EPS Diluted (INR) 31.3 35.6 39.1
OPM 24.8% 25.8% 26.6%
• In Q1FY21, Hindustan Unilever Ltd. registered a moderate growth of 4.4% YoY in
revenue primarily on account of acquisition of GSKCH and higher sales of foods & NPM 17.0% 18.1% 18.6%
refreshment. Excluding the impact of merger, Domestic consumer growth declined P/E (x) 67.9 59.7 54.3
7% due to pandemic and lockdown. EBITDA Margin was impacted by 113 bps YoY due Source: KRChoksey Research
to increase in raw material cost partially offset by savings and synergies of GSKCH
merger
• COVID-19 to benefit Hindustan Unilever Ltd. in short term on back of higher share of Shareholding Pattern
essentials; majority of the company’s products (~75%) is defensive and able to
withstand slowdown in consumption. The company will benefit through high demand Particulars June-20 Apr-20 Mar-20
for hygiene products such as hand sanitizers, hand wash, soaps etc. which constitute
Promoters 61.90 61.90 67.18
~25% of the revenue mix along with other FMCG products such as laundry detergent
(~28% of revenue) and Tea & coffee (~11%) FIIs 14.80 12.04 12.10
• We believe in Hindustan Unilever Ltd.’s long term prospect on account of its market
DIIs 8.35 6.33 6.67
leadership position in ~85% of its categories, cost management initiatives and strong
distribution network. We foresee slight impact on FY21E sales due to weak H1FY21E Others 14.95 19.73 14.05
on the back of supply and distribution disruption during the pandemic and weak
consumer sentiments particularly in the discretionary segment Total 100 100 100
We expect Revenue/PAT CAGR to grow by 11.3%/16.6% FY20-22E, respectively. We apply Source: Bloomberg
a P/E multiple of 65x (to reflect the resilient nature of the business amid COVID-19 and Please check:
benefits derived from GSKCH merger) to the FY22E EPS of INR 39.1 to arrive at a target KRChoksey Research_Consumer_Essentials_Q1FY21 Post
Earnings Review_30072020
price of INR 2,556 per share, an upside of 20%.
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQAxis Bank
Well capitalized to absorb any shocks; Advance/Deposit growth intact
CMP Target Potential Upside Category Market Cap (INR Mn) Recommendation Sector
INR 455 INR 612 34% Large Cap. INR 1,362,382 BUY Banking
Axis Bank’s Q1FY21 results reflected a decent NII growth performance (19.5% YoY /+2.6% Key Financials
QoQ) despite challenging macro environment with stable NIMs (3.4%). With new CEO
and strong capital in place and focus on secured retail portfolio, Axis Bank would see Particulars (INR Mn) FY20 FY21E FY22E
better revival in growth within the sector. We expect double digit growth in its retail NII 252,062 284,823 321,883
portfolio (especially Personal loans & Credit Cards) to continue over the next couple of PPOP 234,381 273,571 299,659
years.
PAT 16,272 49,493 76,843
Granular deposits in focus; offers security on advances EPS 5.97 17.54 27.24
• The bank continues to focus on building a granular deposit franchise on the back of NIM 3.5% 3.6% 3.6%
strong digital capabilities (recently launched a full power Digital Savings Account with
Advances Growth (%) 15.5% 12.5% 14.5%
250+ banking service online and virtual debit card named as “E-debit card”)
P/ABV (x) 2.1 1.8 1.6
• Total advances stood at INR 5,61,341 Cr (12.9%+ YoY) led by Retail portfolio growth of
16.1% YoY. Retail advances (~53% share in total lending) growth was broad-based. Source: KRChoksey Research
• Amid tough climate, the bank has tightened credit underwriting standards and almost
80% of the retail portfolio is secured. Retail Unsecured portfolio is 84% salaried which
has a very low default rate. The bank is preferring to be cautious and increased their Shareholding Pattern
risk filters. TLTRO participation helped loan growth and disbursements.
Particulars (%) Jun-20 Mar-20 Dec-19
Strong balance sheet with double-digit growth in deposits and recent fund raise
• Deposit mobilization remains strong registering 16.2% YoY in Q1FY21. CASA deposit Promoters 15.99 16.00 16.08
share stood at 41% implying rise of 200 bps QoQ / 101 bps YoY. FIIs 45.96 45.49 48.35
• In Aug’20, the bank raised INR 10,000 Cr through QIP; which increases its CAR to 18.5%
DIIs 24.41 24.95 23.11
from 17.3% as on Jun’20. This will help the bank to bear any shocks from any
unforeseen events amid slowdown Others 13.64 13.56 12.46
Strong balance sheet, cost efficiencies through digital initiatives, and recent fund raise Total 100 100 100
are the key positives for Axis Bank. We are applying P/B multiple of 2.2x (previous
multiple 2.0x) to FY22E Adj. BVPS of INR 282 and arrive at a target price of INR 612 per Source: Bloomberg
share; implying an upside of 34% over the CMP. Accordingly, we reiterate our rating on Please check: KRChoksey_Private Banks_ Q1FY21_Post
Earnings Review_20200729
the shares of Axis Bank to a “BUY” rating.
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQBandhan Bank Ltd.
Consistent performance
CMP Target Potential Upside Category Market Cap (INR Mn) Recommendation Sector
INR 314 INR 431 37% Large Cap. INR 506,352 BUY Banking
Bandhan Bank Ltd (BBL) is a leading bank in micro banking segment with 11.2 mn Key Financials - Consolidated
active micro borrower base across 34 states. As on Jun’20, loan portfolio of INR 743.3
bn has grown by 17.7% YoY. We expect housing and MSME segment growth to pick up; Particulars (INR Mn) FY20 FY21E FY22E
while micro credit growth to be sustained, led by its established operating structure.
NII 63,239 70,985 92,351
Deep geographic penetration to expand business with stable asset quality
PPOP 54,466 62,334 75,209
• Total business has grown by 46.9% at INR 1,289.3 bn during FY16-20. As on Jun’20,
deposits/advances were at INR 606.1 bn/ INR 743.3 bn and 35.3%/17.7% YoY growth, PAT 30,237 30,091 42,544
respectively. Deposits growth was primarily driven by CASA which stood at 37.1%. EPS (INR) 18.8 18.7 26.4
• With strong presence in eastern areas, it will continue to diversify north, west and ABV (INR) 91.9 99.1 119.7
southern regions for financial inclusion to serve similar borrower profile.
• Bank’s asset quality levels were at 1.43% of GNPA and 0.48% of NNPA as on Jun’20 P/E (x) 16.7 16.8 11.9
which are at best in the industry. 26.5% of CRAR is expected to be sufficient for P/ABV (x) 3.4 3.2 2.6
funding requirements of future growth prospects.
Source: KRChoksey Research
Positive on the back of steady collections and disbursements amid COVID-19
• By end of Jun’20, bank’s overall collection efficiency in value terms stood at 76%
which includes 68%/85%/82%/100% from micro/mortgage/SME/NBFC segments, Shareholding Pattern
respectively. Also, launch of micro housing credit and gold loans expansion across
500+ branches has observed demand. Particulars (%) Aug-20 Jun-20 Mar-20
• In micro banking segment, the bank is looking to convert eligible micro borrowers Promoters 40.0 60.9 60.9
to SMEs where it follows individual loan assessment with monthly collections at
branches. For month Jun’20, it has observed normalcy in disbursements, closer to FIIs 27.3 14.5 13.1
pre-COVID levels. DIIs 4.9 2.4 3.6
Provision of INR 14.4 bn on account of COVID-19 has dented its profitability for both
FY20 and Q1FY21. Bank’s strong capital & operating structure, recovery in collections, Others 27.8 22.1 22.4
and liability franchise is expected to support overall business growth. Reduction in
Total 100.0 100.0 100.0
Promoters holding to 40% has eliminated overhang while making it more attractive.
CAGL is trading at a multiple of 3.5x of consolidated adjusted book value of INR Source: Bloomberg
91.9/share. Accordingly, we assign P/ABV multiple of 3.6x to FY22E consolidated Please click to read: KRChoksey_Bandhan Bank_Initiating Coverage
adjusted book value of INR 119.7/share to arrive at a target price of INR 431/share. KRChoksey Bandhan Bank Q1FY21 Result Update
ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Priyanka Baliga, priyanka.baliga@krchoksey.com, +91-22-6696 5408 is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQDISCLAIMER
ANALYST CERTIFICATION:
We, Parvati Rai (MBA-Finance, M.com), Head Research and Priyanka Baliga, Research Associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s)
or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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Parvati Rai, head-research@krchoksey.com, +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com
Priyanka Baliga, priyanka.baliga@krchoksey.com, +91-22-66965408 Thomson Reuters, Factset and Capital IQYou can also read
