Brokerages Pick Four Stocks With Potential Upside Between 12-23%

Credit Suisse initiated coverage on two metal and mining stocks—Hindustan Zinc Ltd. and Vedanta Ltd.—as it anticipates volume expansion-driven growth for both the companies.

Additionally, power generator JSW Energy Ltd. and logistics major Mahindra Logistics Ltd. received fresh ‘Buy’ recommendations from Axis Capital, with potential upsides to their current share prices.

Credit Suisse Initiates Coverage On Hindustan Zinc

• Credit Suisse initiated coverage on Hindustan Zinc with a 'Neutral' rating as the company is poised to expand its volume after a seven year lull.
• The company expects to achieve 1.2 million tonnes of mined metal production over the next two years.
• Despite planned output, zinc prices have peaked in the recent times, due to which the company is fully valued.
• Operating income per tonne is expected to stay healthy leading to 'decent' free cash flow generation estimates.
• Albeit the recent decline in the share price, stock trades at significant higher rates, than its historic levels.
• Silver prices have stabilised, far lower than prior surge, leading to an expected growth in output from silver content mines.
• Credit Suisse has put a target price of Rs 325 on the stock, reflecting a near 12 percent upside from Thursday’s closing price.

Credit Suisse Initiates Coverage On Vedanta

• Credit Suisse initiated coverage on Vedanta Ltd. with an ‘Outperform’ rating, driven by volume expansion in oil and zinc international, and improved profitability in aluminium.
• Aluminium business is most important for the company's incremental gains, said the brokerage, adding that global supply-demand function and surging raw material prices augurs well for aluminium prices too.
• Valuations wise, Vedanta is not expensive compared to global metal and mining conglomerates.
• Much of the estimated upside in the company is purely execution-dependent due to which Credit Suisse’s price forecasts remain conservative.
• The most significant risk to the rating stems from the brokerage expecting lower volume growth, relative to the company estimates and a potential unexpected diversification.
• Credit Suisse has put a target price of Rs 345 on the stock, reflecting a near 21 percent upside from Thursday’s closing price.

Axis Capital Re-initiates Coverage On JSW Energy

• Axis Capital re-initiated coverage on JSW Energy Ltd. with a ‘Buy’ rating. The brokerage had dropped coverage in Dec. 2014.
• Falling reliance on merchant power and rising share of power purchase agreements will increase earnings visibility.
• The company boasts of lowest capital costs as well as current replacement costs, compared to its peers in the market.
• JSW Energy has its assets strategically located, which results in high plant load factor.
• Going ahead, the company plans to substitute 50 percent of its imported coal needs with 40 percent cheaper domestic coal, which will improve its revenues.
• Under-leveraged balance sheet will aid the company’s inorganic growth.
• Axis Capital has placed a target price of Rs 100 on the stock, reflecting an upside of nearly 23 percent to Thursday’s closing price.

Axis Capital Initiates ‘Buy’ On Mahindra Logistics

• Axis Capital initiated 'Buy' on Mahindra Logistics Ltd. as its focus on non-automotive and reducing dependence on M&M group is likely to aid margin expansion.
• Going ahead, the M&M group contribution is expected to reduce to 38 percent by FY20 versus 54 percent in FY17.
• Growth is expected to be driven by better client mining and new client additions.
• Gross margin are anticipated to remain largely stable across supply chain management and people transport solutions business.
• Goods and services tax implementation to drive clients’ focus on improving supply chain efficiency (and not tax-based efficiencies) resulting in streamlining logistics across verticals.
• Expect 28 percent earnings growth in compounded annual growth terms and firm return ratios given limited capital expenditure.
• Axis Capital has placed a target price of Rs 525 on the stock, reflecting an upside of nearly 19 percent from Thursday’s closing price.