A handful of brokerages have come out with updates on five stocks namely Grasim Industries, Mahindra & Mahindra (M&M), Cipla, The Phoenix Mills and Mahanagar Gas. While the brokerages largely maintained their ‘buy’ ratings on the stocks, Nomura India has cut Cipla’s target price post Indore facility inspection by the USFDA. Sharekhan, on the other hand, has revised its price target upward for Mahanagar Gas after the announcement of acquisition of Unison Enviro Private Limited (UEPL).
Cipla| Nomura | Buy | Rs 1,036
Since the announcement of Indore facility inspection by the USFDA on February 18, the Cipla Ltd stock has corrected 14 per cent against a 1 per cent fall for Nifty. Nomura said the Indore inspection led to
eight Form 483 observations that relate to risk of contamination in the aseptic manufacturing process, data safety and inadequate response to customer complaints.
It said there is high risk that the facility could be classified as OAI (Official Action Indicated).
“This could adversely impact new launches from the site, including gAdvair (annualised revenue potential of $35-60 million). We think the stock reaction is now adequately factoring in the risk. The impact could, to an extent, get negated by upside in gRevlimid, gAbraxane (in the case of a successful site transfer) and lanreotide vs current estimates. The market will now watch to see whether the US FDA grants gAdvair approval on the target action date in Apr’23,” it said.
The market, Nomura said will further await an Indore inspection classification by end-May 2023. For now, the brokerage has lowered its target on the stock to Rs 1,036 from Rs 1,195.
Mahindra & Mahindra | Motilal Oswal | Buy | Rs 1,525
Motilal Oswal Securities said it met with the Mahindra & Mahindra Ltd management to gauge the overall environment – both at macro and company levels. The management, it said, indicated that demand environment for the auto business has been stable in general but it expects slower growth for tractors in FY24 due to high base and three Navratras in FY23.
“While chip supply is improving, it is still not adequate enough to ramp-up production meaningfully. Chip supply is the only restricting factor to reach full capacity for production of SUVs. Profitability of both businesses should improve though ramp-up of new businesses (EVs and farm equipment) would dilute expansion. However, commodity cost inflation visible from the lows of Q3FY23 is the primary risk of M&M’s business,” Motilal Oswal Securities said.
The brokerage has cut its FY24E EPS estimate for M&M by 8 per cent to factor in a lower tractor/SUV volumes and the adverse impact of losses from new businesses. It, however, reiterated its ‘BUY’ rating as it still expect 20 per cent EPS CAGR and 2 percentage points RoCE improvement for M&M over FY23-25.
Phoenix Mills | Nuvama | Buy | Target Rs 1,820
Nuvama Institutional Equities said that ongoing consolidation in the realty space and Phoenix Mills’ leadership in retail realty and unique understanding of the consumer’s psyche, coupled with the structural story of urban consumption growth, has enabled it to weather the Covid-19 storm. Its entry in new cities and operationalisation of under-construction/planned assets are some triggers for the stock that the brokerage expects to play out over the next few years.
“Revival of consumption at malls and occupancy at hotels, and liquidation of ready inventory in the housing segment are likely to culminate in robust cash flows,” it said while maintaining a ‘BUY/SN’ rating on the stocm with a target of Rs 1,820.
Mahanagar Gas | Sharekhan | Buy | Target Rs 1,100
Mahanagar Gas Ltd has announced acquiring of 100 per cent stake in Unison Enviro Private Limited (UEPL) for Rs 531 crore. UEPL is implementing CGD network in Ratnagiri, Latur & Osmanabad in Maharashtra and
Chitradurga & Devengere in Karnataka. Sharekhan said that EV/sales of 6 times and EV/BV of 6.4 times are expensive compared to valuation of large listed CGD players, but is structurally important for Mahanagar Gas, as it provides growth opportunities beyond Mumbai and expands its total GAs to six (versus three currently).
“Inorganic foray is expected to allay the concern of weak volume growth versus peers and sustained strong volume growth could drive valuation re-rating for MGL (cheapest CGD stock). Ratnagiri GA seems be a strategic fit for MGL, as it is adjoining to its Raigad GA, which could provide synergy benefit of faster ramp-up of Ratnagiri GA,” it said.
The brokerage has maintained its ‘Buy’ on Mahanagar Gas with a revised target of Rs 1,100, given inexpensive valuation of 10.7 times FY2025E EPS and expectation of strong earnings recovery, given supportive government policies.
Grasim | Motilal Oswal | Buy | Rs 1,525
At Grasim’s analyst meet, the management highlighted growth opportunities in core businesses, near-term challenges, strengths and market positioning, diversified chemical portfolio, sustainability initiatives and progress in high-growth businesses.
Motilal Oswal Securities said it has a ‘BUY’ rating on the stock with a target of Rs 1,900, as it values Grasim’s holding in subsidiary companies by assigning a discount of 35 per cent; standalone business at 6.5 timers EV/Ebitda and investments in the paints business at 1 time of investments.
Motilal Oswal said Grasim is investing in two high-growth businesses, Paints and B2B e-commerce. The company has committed a total capex of Rs 10,000 rcore for Paints (including working capital) and Rs 2,000 crore for B2B e-commerce. Plant construction in Paints is progressing across six locations and the commissioning should start from 4QFY24. Grasim expects all capacities to become operational by FY25-end, Motilal Oswal noted.
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