In the midst of volatility in stock markets globally, domestic stocks have relatively outperformed peers by a good margin in the last one year.
Economic parameters such as capex spend, discretionary consumption and pick-up in banking activity are all reflecting in the performance of domestic stocks, even as concerns stays over geopolitical tensions, higher inflation and hawkish central banks, said brokerage ICICIdirect in a note.
India Inc, said ICICIdirect, could deliver earnings growth in excess of 15 per cent over the next two years. This brokerage feels India may offer plethora of investing opportunities going ahead.
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Any medium-term volatility that may arise due to sticky global inflation, hawkish central banks and weak global liquidity flows volatility could offer buying opportunities for investors, it said. While suggesting a one-year forward Nifty target of 19,425, the brokerage said it is biased towards banks, capital goods, infrastructure and automobile stocks. The brokerage is avoiding sectors with more global exposure such as IT, oil & gas and metals.
Here are ICICIdirect’s 10 top Muhurat picks for investor this Diwali:
Axis Bank | Buying range: Rs 780-815 | Target 970
ICICIdirect said Axis Bank is focusing more on the retail segment, which has a share of nearly 60 per cent (primarily mortgage loans). More than 80 per cent of its unsecured loans are given to the salaried segment, the brokerage said.
“We believe pedaling business growth with higher share of unsecured loans in incremental business
will continue to aid margin uptick. The bank has cumulative provisions of 134 per cent of gross non-performing NPA, which provides comfort on asset quality and earnings volatility,” it said.
Robust business growth, improving operational efficiency and synergy benefits from the Citi acquisition would reflect positively on the earnings trajectory and price performance, it said while expecting Axis Bank to deliver an return on asset (RoA), return on equity (RoE) of 1.5 per cent, 15 epr cent, respectively, over FY22-24.
City Union Bank | Buying range: Rs 170-185 | Target 215
For this bank, ICICIdirect said asset quality hiccups seem to be fading away and that the incremental stress formation remains under control. The management, the brokerage said, has guided that recoveries and upgrades will be higher compared to fresh slippages in FY23E. However, higher slippages from the restructured book can be a spoilsport, it pointed out.
“A revival in MSME is expected to benefit credit offtake as well as recoveries in stressed asset pool. Steady margins at 4 per cent and healthy business growth will aid operational performance and return ratios. With healthy CRAR at 20.5 per cent (tier I at 19.4 per cent), the bank is expected to
continue higher business growth in FY22-24E without any significant dilution,” the brokerage said.
Apollo Tyres | Buying range: Rs 260-275 | Target Rs 335
ICICIdirect said Apollo Tyres may benefit from cyclical upswing in the commercial vehicle (CV) space coupled with double digit growth in passenger vehicle (PV) domain driven by greater consumer preference for SUVs. Natural rubber and crude derivatives form a majority (65-70 per cent) of raw
material costs for tyre manufacturing. Both these commodities have witnessed a healthy correction with natural rubber down 15 per cent from April levels and are now hovering around the Rs 150-155 per kg
from the highs of Rs 170 per kg.
“Even crude is down 20 per cent from June levels and is currently hovering at $90-95/barrel. This bodes well for all tyre manufacturers with Apollo Tyres as a key beneficiary
Eicher Motors | Buying range: Rs 3,400-3,450 | Target Rs 4,170
ICICIdirect said Eicher Motors has recently launched Hunter 350 at an ex-showroom price of Rs 1.5 lakh per unit to address the customer need of an affordable RE product. With the launch, Royal Enfield (RE) reported its highest ever monthly dispatches in the recent past with September wholesales at 82,097 units, up 17.1 per cent MoM. With continued focus on rebalance strategy, minimal EV risk in near future, shift of consumer preference towards premium motorcycles and healthy response to Hunter 350, the brokerage expects sales volumes at RE to grow at a CAGR of 25 per cent in FY22-24E.
“With operating leverage gains and decline in key raw material prices (largely metals and plastics), margins at Eicher Motors are seen improving to 26.1 per cent with consequent RoCE at 21 per cent by FY24E. It is currently trading at inexpensive valuations of 28 times P/E on FY24E amid high double digit growth prospects,” ICICIdirect said.
Coforge | Buying range: Rs 3,520-3,680 | Target Rs 4,375
The global digital services and solutions provider has guided for at least 20 per cent constant currency (CC) revenue growth in FY23, backed by continued strong deal wins.
It won 11 large deals in FY22 including a one large deal of $ 100 million-plus deal and three $50 million deals.
“It provides visibility for near to medium term growth momentum. The revenue run rate in TTH vertical is already better than pre-Covid level and the company expects further growth in this vertical to be driven by contact less solutions across airports, cloud transformation and automation,” ICICIdirect said.
Besides, the company reported one of the lowest attritions in the industry. Coforge does not expect it to increase materially from here on. “We bake in 19.1 per cent revenue CAGR over FY22-24E while 220 bps margin expansion, continued offshoring focus will drive margin expansion,” it said.
Lemon Tree Hotels | Buying range: Rs 78-88 | Target Rs 110
ICICIdirect noted that hotel sector outperformance in FY22 was significantly driven by Indian leisure tourists. With the opening of international borders to foreign tourists, it said, hotel business in key cities like Mumbai and Delhi may also improve significantly, adding that Lemon Tree is likely to be the key beneficiary of the same.
“The company is well positioned to capture the unorganised market share due to slowdown in the upcoming room supply in the wake of ongoing distress. We have a buy rating on this stock with an SOTP based target price of Rs 110 per share i.e. at 28 times FY24E EV/Ebitda,” it said.
Healthcare Global Enterprises | Buying range: Rs 285-305 | Target Rs 345
HCG operates one of the largest private cancer care networks in India with end-to-end solutions available under a single corporate entity. ICICIdirect said the company is focused on consolidating its existing network through cost optimisation measures to improve margin and ramping up patient’s footfall by engaging in direct-to patient promotion strategies.
De-leveraging of balance sheet (debt reduction from Rs 900 crore to Rs 650 crore by FY24E), reduction of losses across new centres have substantially eased legacy overhangs, it said.
The brokerage values HCG’s existing centres and new centres at 12 times FY24E EV/Ebitda and Milann centres at 1 time FY24 EV/sales.
Laurus Labs | Buying range: Rs 485-510 | Target Rs 675
ICICdirect noted that Laurus Labs has acquired Richore Life Sciences to diversify in the area of
recombinant animal origin free products, enzymes as well as building biologics CDMO. In custom synthesis (or CRAMs) business, the company has rigorously been working for the past many years and is now well-positioned to meet fast growing global demand for NCE drug substance, it said.
“Laurus has multiple planned capacity expansions in portfolio based on complexity and scale towards strengthening and diversifying business by an increased focus on non-ARV APIs and formulations and high growth CRAMS segments. Calibrated focus on CRAMs, stable API order book, increasing reactor
volume, expansion of the biologic CDMO, product launches and capacity expansion are some key levers,” it said.
Container Corp | Buying range: Rs 685-715| Target Rs 890
The Concor management is expecting to incur a capex in the range of Rs 8,000-10,000 crore each year for the next three to four years. The capex would be primarily utilised in developing infrastructure, purchasing containers, rolling stocks and electrical equipment. It has also guided for clocking 6.5-7 million TeUs volumes in the next three to four years and subsequent doubling of revenues over the period.
ICICIditect said newer initiatives (3PL, distribution logistics, cement and food grain transport, higher terminal utilisation, etc) are expected to diversify Concor’s offerings to customers and thereby capture higher wallet share.
“Driven by higher volume growth and incremental revenues from new initiatives, we expect Concor to register revenue and PAT CAGR of 22 per cent and 46 per cent, respectively, in FY22-24E. The stock is trading at reasonable valuation of 19 times FY24E earnings. We expect it to be a major beneficiary
of the modal shift of freight volume share from road in favour of rail as envisaged in the new National Logistics Policy,” ICICIdirect said.
Havells India | Buying range: Rs 1,220-1,320 | Target Rs 1,650
ICICIdirect said Havells is constantly working on improving its market share across its product segments through new product launches and increasing penetration in tier II and tier III cities.
The company plans to spend Rs 700- 800 crore in FY23 to expand manufacturing capacities of air conditioner, washing machines and wire & cables
“We believe Havells will report strong revenue CAGR of 16 per cent over FY22- 24E led by new product launches, dealer expansion. We believe softening of raw material prices and launch of premium products will result in a strong Ebitda margin recovery for the company from H2FY23 onwards (from its lowest Q1FY23 Ebitda margin of 8.5 per cent). As result, PAT will register a strong CAGR of 20 per cent over FY22-24E,” it said.
