It’s a great start to 2022! Sensex zoomed over 900 points and Nifty was trading above 17,600 on the first trading session of the week.
“At the onset of CY22, a sea change is expected in the way business operates and transforms itself given the innovations in the Digital and Tech world,” ICICI Direct said in its research report.
“On a one-year forward basis, Nifty trades at ~21x P/E that seems expensive vs. its past 10 years average at ~18.4x. A notable point, however, is that Nifty constituents have undergone a dramatic shift in favour of more capital efficient and earnings longevity names, which indeed command better valuations thereby lifting blended valuations at index level & making past comparison rather redundant,” it added.
The brokerage house is also bullish on a few stocks with a potential upside of over 50 per cent. Take a look:
1. Bharti Airtel
Target Price: Rs 860
“We expect the tariff hike to result in wireless revenues run rate increasing by 19 per cent. Furthermore, assuming conservative pass through of ~75 per cent to EBITDA, the wireless EBITDA is expected to rise by 29 per cent from current levels. Most importantly, it would push RoCEs to a decent double digit in FY23E,” the brokerage firm said.
It added that favourable industry structure of three players (two being strong), government relief – (moratorium on AGR/spectrum dues, lowering bank guarantee needs, rationalising AGR definition, increasing spectrum term, etc) along with tariff hike and fund raise puts Airtel in a sweet spot to maintain its relative strength among peers with a formidable digital ecosystem offering.
“Other triggers include relative market share gain from VIL, given its stressed balance sheet and long-term potential driven by growth opportunity from 5G,” it said.
2. The Phoenix Mills
Target Price: Rs 1,200
ICICI Direct expects retail rental income to grow at a CAGR of ~13.5 per cent to Rs 1,913 crore in FY20-25E led by strong addition to malls portfolio by ~6 million sq feet over the next four to five years. Furthermore, there is growth visibility beyond five years as the company continues to aim at the addition of ~1 million sq feet of retail area to its overall portfolio backed by strong liquidity and partnership/commitments with funds such as GIC/CPPIB.
“PML remains a quasi-play on India’s consumption story, given the quality of assets, healthy balance sheet & strategic expansion plans. The QIP fundraise and investments by GIC/CPPIB has boosted the liquidity & growth ammunition,” it said.
“With only five to six major retail mall developers currently in India, and given its USP of operating large format properties efficiently, PML remains a superior player in the medium to long term,” it added.
3. Minda Corporation Limited
Target Price: Rs 220
The brokerage house noted that the company has a largely EV immune product profile. Interestingly, MCL is already supplying its products to EV OEMs like Ola Electric, Ampere, Revolt among others. It has also developed products exclusively for EV viz. DC to DC converter, motor controller, telematics, battery charger, etc.
It said that the company is also well poised to play on the premiumisation theme with product capability in the MCH division in the form of smart key and content increase in the wiring harness segment due to BS-VI transition.
“With robust order wins, CV cyclical upswing, growth focus in aftermarket space and consolidation of JV partners stake, we build 25.4 per cent sales CAGR in FY21-23E. Corresponding RoCE and margins trajectory is expected to improve to 16.8 and 12.2 per cent, respectively, by FY23E,” it added.
4. Radico Khaitan
Target Price: Rs 1,450
“Gross margins are expected to remain range-bound at 48-50 per cent in FY22. However, for FY23E, the company expects a mix of price hikes (in some states) and premiumisation to kick in expansion in gross margins. The company aims to increase its share of recycled glass from 14% currently to 25 per cent (optimum) in a few years, which would help it to cushion gross margins,” the brokerage firm said.
It mentioned that Radico has the distinction of being among very few domestic players that have over the years entered and generated brand equity in the prestige and above liquor segment. The company is looking at expanding its whisky portfolio and is hopeful of getting a good hold in the premium whisky segment in two years.
5. eClerx Services
Target Price: Rs 2,900
ICICI Direct noted that the revenues in the past four to five years were subdued due to three to four large roll-offs, which took place during 2016-19. However, the company has been reporting strong growth in recent quarters and guided for 20 per cent+ growth in FY22.
It added that the company recently acquired Personiv, an outsourcing provider with over more than 35 years of experience with offices in the US, India and Philippines. The acquisition would leverage synergies in digital and customer experience services. It would add ~$32 million annual revenues to eClerx.
6. Tech Mahindra
Target Price: Rs 2,150
The brokerage firm mentioned that the company is seeing strong traction in healthcare and life science (HLS) vertical, which is on its way to reach US$1 billion (bn) revenues in two to three years from current annual run rate of ~$400 mn. BFSI has top three out of 10 clients of overall TechM’s portfolio.
The company indicated that replacing core banking solutions and upgrading them is the key growth opportunity. The vertical is currently around $800 million. The management indicated that it is trending to reach $1 billion in revenue in FY22 and $1.5 billion in two to three years.
7. Orient Cement
Target Price: Rs 250
“The company aims to become a 14.5 MT cement player by FY26E entailing total capex of Rs 3600 crore. However, the initial priority would be to reduce the debt significantly before moving into the next phase of expansion. In H1FY22, the company repaid total debt of Rs 240 crore and is aiming to bring down at debt levels to Rs 250 crore from Rs 783 crore in FY21,” ICICI Direct said.
“In the next phase of expansion, the company would add 3 MT clinker unit at Devapur, Telangana with likely capex of Rs 1600 crore. The company is also exploring opportunities to further enhance its capacity through greenfield projects in Rajasthan. This is dependent on transfer of mines from Orient Paper to Orient Cement. Large part of capex is likely to be incurred in FY24E only,” it added.
8. Dwarikesh Sugar
Target Price: Rs 110
The brokerage house said that the sugar industry has seen sugar inventory coming down from the peak of 14.5 million tonnes (MT) in September 2019 to 8.2 MT in September 2021. Higher global sugar prices in Brazil resulted in smooth sugar exports of ~4 MT in 2021-22 season. With the expected 6 MT of exports, 31 MT of production & 27 MT of consumption, sugar inventory levels are expected to come down to ~6 MT by September 2022. This would push up domestic prices to 37-38/kg by March 2022 and drive the profit growth for the industry.
“Considering higher sugar prices (domestic & global) & increasing distillery capacity (by 3x), we expect DSL to witness 39.5 per cent earning CAGR in FY21-24E. With increasing profitability & reduction in sugar inventory, we expect Rs 530 crore free cash flows in the next three years. It would completely de-leverage the balance sheet,” it added.
9. NRB Bearings
Target Price: Rs 220
ICICI Directs noted that NRB is planning to invest heavily in R&D as the bearings industry is seeing new opportunities from EV segments. The company will not only focus on products, which are EV based, but also expand to newer areas of business development which includes products for steering systems, hybrid and electrical transmission and other applications for EV and hybrid vehicles
It added that the company has also been chosen as the exclusive supplier for Ola’s two-wheeler segment and has been working on customised needle bearings it requires. NRB is also focusing on new products with adoption of BS-6 norms.
10. Aster DM Healthcare
Target Price: Rs 250
“Aster is now looking to expand its network following asset-light model in India but remains on firm footing due to FCF generation from GCC. We are positive on Aster’s integrated business model and expect gradual margins and RoCE improvement led by higher occupancy and capacity optimisation in new assets from FY22E onwards,” the brokerage house said in its report.