A handful of brokerages have come out with updates on select stocks namely Tech Mahindra Ltd (TechM), Mahanagar Gas, Godrej Consumer Products) and Pidilite Industries Ltd. TechM intends to more than double its P&P business over next three years. Pidilite’s margins are seen improving in coming quarters due to falling VAM prices. Mahanagar Gas’ acquisition of Unison Enviro is seen addressing growth concerns. Meanwhile, Godrej Consumer Products is seen as a key beneficiary of the sharp reduction in raw material costs, especially palm oil, from the peak over the next few quarters.
Tech Mahindra | Nomura | Buy | Target Rs 1,260
Nomura India attended TechM’s analysts’ meeting held on March 3. During the meet, the CEO noted five key executive focus areas. The first was maintaining the growth momentum by focussing on large deals and areas where clients are spending. The second was focusing on productivity improvement and efficiency, leading to margin improvement on a sustained basis.
The third included increased focus on Product and Platform (P&P) business. The fourth was value creation through M&As, synergy from portfolio companies, and joint ventures. The last focus area was performance-led culture along with talent development, engagements and new inductions.
“TechM focussed on competency building (through both organic and inorganic initiatives) and spends on new-age technologies and transformation initiatives during FY22 and FY23. In FY24, the company intends to increase its investments in the P&P business and co-investments with customers and partners, both organically and inorganically. TechM intends to more than double its P&P business from $450 million a year revenue to at least $1 billion over next three years driven by a focus on cross-selling these offerings to existing and new customers,” it said.
Nomura has a ‘Buy’ rating on the stock with a target price of Rs 1,260, set at an unchanged 16 times FY25F EPS of Rs 79.
Pidilite | Nuvama | Buy | Target Rs 2,855
Nuvama Institutional Equities said it recently met Pidilite’s Managing Director Bharat Puri. Post the meeting, expects Pidilite’s margins to improve in coming quarters due to falling VAM prices. Pidilite’s presence in niche, under-penetrated and high-growth categories with limited competition, high barriers to entry, strong brand equity and mass acceptance are key positives, it said.
“In our view, the scenario hereon is optimistic for Pidilite, given significant input cost reductions, increased construction activity along with governmental initiatives in capex (a fair amount of focus of government in affordable housing is acting as a tailwind for Pidilite). The company’s dominant position, vast reach (4 million outlets) and strong connect with intermediaries and consumers act as strong entry barriers,” it said.
The brokerage has a target of Rs 2,855 on the stock.
Mahanagar Gas | Kotak | Buy | Target Rs 1,100
Mahanagar Gas Ltd has acquired a 100 per cent stake in Unison Enviro (UEPL, an entity owned by Ashoka Buildcon and Morgan Stanley India Infra Fund) for Rs 531 crore. UEPL is the authorised entity for Ratnagiri and Latur/Osmanabad geographical areas (GAs) in Maharashtra and Chitradurga/Davanagere GA in Karnataka.
Kotak Institutional Equities said the acquisition will address growth concerns for Mahanagar Gas.
“Ratnagiri seems the most promising and is contiguous to MGL’s Raigad GA, which could lead to potential synergy benefits. MGL’s volume growth has been weaker (versus IGL/Gujarat Gas) and UEPL acquisition provides Mahanagar Gas an opportunity to expand its operations beyond Mumbai and should help address growth concerns. The transaction is likely to close after September 2023 (5 years after the award of license),” it said.
The brokerage has reiterated its ‘Buy’ rating on Mahanagar Gas with revised target of Rs 1,100 from Rs 1,080 earlier on improved long-term growth outlook.
Godrej Consumer | Motilal Oswal | buy | Target Rs 1,080
Motilal Oswal Securities said Godrej Consumer Products’ domestic businesses had demonstrated strong sales growth in the first half of the last decade, before losing steam in the second half. Domestic and consolidated sales growth crossed double digits in the last two years and appears to do so in FY23 as well, far better than the 4.1 per cent sales CAGR between FY16 and FY20, it said.
The brokerage expects Godrej Consumer Products Ltd to be the key beneficiary of the sharp reduction in raw material costs (especially palm oil) from the peak over the next few quarters.
“With the new CEO focusing on improving growth in the high-margin, high-RoCE domestic business, as highlighted in our recent CEO meet note, GCPL’s medium-term earnings growth outlook is strong. The valuation at ~34x FY24E EPS is inexpensive and is at a steep discount to peers. We maintain our BUY rating with a target of Rs 1,080 (based on SoTP valuation: 50x domestic business, 20x Indonesia business, 15x GAUM and other business),” it said.
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