Select brokerages have come up with updates on their tracked stocks following the recent stock-specific developments. They included Reliance Industries, JSW Steel, PB Fintech, Jubilant Food and Sundaram Finance have seen brokerages updating of late. Except for JSW Steel, brokerages retained their ‘Buy’ calls on the rest of the stocks.
Reliance Industries | Motilal Oswal Securities | Buy | Target Rs 16,750
RIL’s arm Reliance Retail Ventures (RRVL) recently announced the acquisition of 100 epr cent stake in METRO Cash & Carry India Private Limited (METRO India). Motilal Oswal noted that METRO India has been present in India since 2003, but it has not been able to significantly increase its footprint over the last five to seven years.
Over FY19-22, METRO India has grown revenue merely at 2 per cent per cent garnering about 11 epr cent gross margin and 2 per cent Ebitda margin (FY20-22) with a net loss of Rs 20-50 crore, it said.
Further, METRO has added only six stores in the last four years over FY18-22. While the format has remained closer to break-even levels, RIL can turn the segment profitable through improved scale and synergies/efficiencies across supply chain networks, technology platforms, and sourcing capabilities, the domestic bokerage said.
Assuming that Metro Cash and Carry can achieve about 7 oer cent (Pre IND-AS 116) EBITDA margin, under Reliance Retail’s fold, it could add enterprise value of Rs 16,750 crore at 40x EV/Ebitda (Reliance Retail SOTP) after adjusting for Rs 2,850 crore cash consideration, said Motilal Oswal Securities.
“This adds about 2 per cent to overall Reliance market cap. This could also add significantly to its improved reach and ability to serve customers,” Motilal Oswal said.
Jubilant FoodWorks | ICICI Securities | Buy | Rs 720
ICICI Securities said Jubilant FoodWorks’ change in stance from delighting customers by offering 20 minutes delivery silently (against promised delivery time of 30 minutes) to now advertising through banners on Domino’s app (highlighting 20-min delivery USP) is an incremental positive.
This (over 30 per cent improvement in convenience) along with simplicity of the loyalty programme (free regular size pizza after every sixth order with minimal conditions) should help Jubilant re-ignite consumer demand for its franchise, ICICI Securities said while expecting thec ompany to gain meaningful delivery market share from competition.
“As per our channel check, Jubilant enjoys structural strength which enables the company to provide fastest-delivery with lowest-cost compared to food aggregators. Also, it has outperformed the top 3 global markets of Domino’s in execution (on delivery time). Interestingly, we observe that in the US, Domino’s has gained market share despite doubling of competition in pizza-delivery over the last decade (we expect similar market share gains for Jubilant in India driven by superior execution),” the ICICI Securities said.
PB Fintech | Nuvama Institutional Equities | Buy | Rs 550
Nuvama Institutional Equities said that deeper online penetration, uptick in the appointments channel, and pickup in new initiatives should drive 34.8 per cent CAGR in PB Fintech’s platform business premium over FY22–27E. It sees revenue CAGR of 33.3 per cent during the same period.
“We expect renewal business, efficiency and scale benefits to drive Ebitda breakeven by FY25E. We forecast FY27 PBT would be Rs 880 crore (against management guidance of Rs 10,00 crore),” it said.
Following its recent stock price correction, PB Fintech is trading at a more acceptable EV/sales of 7.2 times for FY23E and 5.7 times for FY24E, Nuvama said.
“This implies minus 1 standard deviation relative to its short trading history; and is near median valuations when compared to domestic internet companies. We initiating with ‘BUY/SO’, valuing the company using a two-stage DCF model that yields an equity value of Rs 25,600 crore and works out to an FY24E TP of Rs 550,” it said.
Sundaram Finance | Axis Securities | Buy | Target Rs 2,605
Sundaram Finance reported a strong set of numbers in Q2FY23 which beat Axis Securities’ estimates across all fronts, except in other income. The management indicated that in the commercial vehicle (CV) segment, especially heavy and medium, people had postponed their replacement in the last 2 years on account of uncertainty and Covid-19 disruptions. However, demand has now revived as bulk operators have replaced their vehicles and consequently opportunity to finance them has come back. The management expects broad-based recovery across all segments in the upcoming quarters with recovery to normalcy which will support a pick-up in credit-offtake.
“With robust disbursement growth due to a pick up in heavy and medium CV, the company’s C/I ratio to normalise at 32-33 per cent, comfortable capital position and robust asset quality, will allow SUF to continue its growth momentum going forward. With the growth levers intact, We maintain our BUY rating with a revised target price of Rs 2,605/share (based on SOTP valuation),” Axis Securities said.
JSW Steel | ICICIdirect | Hold | Target Rs 725
ICICIdirect visited JSW Steel’s Dolvi plant in Maharashtra on the Indian west coast. It is 10 million tonnes per annum (MTPA) integrated steel plant connected to Dharamtar Jetty (cargo handling capacity of 28 mtpa. and has a total area of 1400-plus acres. ICICIdirect said the company plans to increase the capacity at Dolvi by further 4-4.5 mt. JSW Steel is currently working on project configuration & land acquisition, it said.
JSW Steel’s Dolvi plant is largely focused towards flat steel production (85 per cent). Of the total 10 mt capacity at Dolvi, 8.5 mt is for flat steel products and 1.5 mt is for long steel products. In terms of phase-wise breakup, out of Phase 1 capacity of 5 mt, 3.5 mt is for flat steel products (HRC) and balance 1.5 mt is for long steel products (TMT Rebars). Phase 2 capacity of 5 mt is for fully for flat steel products (HRC)
“The 5 mtpa phase II expansion at Dolvi commenced integrated steel operations in October 2021 while commercial production started in November 2021. Its Phase II expansion is more cost effective, wherein conversion cost for Phase II is ~| 4500/tonne lower than that of Phase I. For the JSW Steel standalone entity, going forward, we model Ebitda per tonne of Rs 8,000 per tonne for FY23E and Rs 12,500 per tonne for FY24E,” the brokerage said.
Share of JSW Steel have risen 19 per cent in the last one year from Rs 623 in December 2021 to Rs 740.ICICIdirect said it has maintained its HOLD rating on the stock.
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