After hitting record highs in mid-February, the market has been trading in a broad range of 14,300-15,300 levels on the Nifty50, despite strong momentum among global peers. The fast-rising second wave of COVID-19 infections and its likely impact on earnings and the economy in the first quarter of FY22 could be capping the upside for the market.
The March quarter earnings season started off on a positive note by IT companies as earnings were largely in line with analysts’ estimates, but India continued to report record daily infections every day in April, leading to strict restrictions by several states.
Hence, experts largely expect the current year to be volatile, unless there is better-than-expected earnings and economic growth. In FY21, the market had reported a 70 per cent rally.
“Post bounceback and disproportionate returns last year, we expect FY22 to be a more normalised return year. We have witnessed more than 20 per cent earnings upgrades in FY21. Earnings trajectory during 2HFY22, once the low base is over, would decide the outcomes this year,” Shridatta Bhandwaldar, Head of Equities, Canara Robeco MF, told Moneycontrol.
“Also, the intensity of the second wave of COVID, monsoon etc. will be key factors. We expect the year to be constructive but volatile with a lot of time and price consolidation, with sectoral rotations playing a more important role," he said.
Stock-specific opportunities are expected to continue, given the likely rally in the broader space. Moneycontrol collated a list of 10 stocks on which brokerages have initiated a buy coverage:
Deepak Fertilisers: Buy | Target: Rs 282
Ashika Stock Broking initiated its coverage on Deepak Fertilisers and Petrochemicals Corporation (DFPC) as the company has capacities in the manufacturing of both chemical and fertilizers like isopropyl alcohol (IPA), nitric acid (concentrated & dilute), methanol, liquid CO2, ammonia, technical ammonium nitrate (TAN), bentonite sulphur, NP and NPK fertilisers.
“DFPC is the leading manufacturer of IPA, NP prill 24:24:0 fertiliser and TAN in India, catering to agriculture, pharmaceuticals, mining, chemicals and infrastructure in India. At the CMP, the company is trading at 4.5x FY23 EPS and 4.4x FY23 EBITDA, we value the company with an average of P/Ex and EV/ EBITDA assigning a multiple of 6x and 5x, respectively, and arriving at a price target of Rs 282. Thus, we have a ‘buy’ rating on the stock,” said the brokerage.
Brookfield India Real Estate Trust: Buy | Target: Rs 285
“Brookfield India Real Estate Trust is India’s institutionally owned pure office REIT spread across four main office markets in India. BIRET offers a FY22 distribution yield of 8.4 per cent (230bps spread over sovereign yield) and a growing rental portfolio,” said HSBC, which initiated coverage on the stock with a buy and a target price of Rs 285.
Fine Organic Industries: Buy | Target: Rs 3,232
“With growing awareness about the use of green additives, the demand for oleochemical-based additives is set to surge, going forward. FOIL, being the largest player in India, will be at the forefront of this surge. Over the last seven years, the company has been able to report a net profit CAGR of around 34 per cent, along with double-digit growth in revenues,” said LKP Securities.
“However, during FY20-21, the company has faced certain headwinds such as COVID-19 and rise in raw material costs. We believe that oleochemicals is a multi-year growth story with FOIL being a key player. We expect the company to grow its revenue, EBIDTA and PAT at a CAGR of 15 percent, 16 percent and 19 percent, respectively, during FY20-26E. We initiate coverage on FOIL with a buy recommendation and a DCF-based target price of Rs 3,232,” the brokerage added.
Share India Securities: Buy | Target: Rs 395
“Share India Securities Limited (SIS) is a new-age financial service provider offering bespoke capital market solutions by leveraging technology. We expect SIS to maintain its focus in its prop trading niche by leveraging its rich experience and expertise as it gives the company a competitive advantage in a market where the products and services are largely commoditised,” said Khambatta Securities.
“The SIS stock currently trades at an attractive forward P/E level of 9.0 FY23E EPS. Assigning a target multiple of 12.0x FY23E EPS, our valuation generates a price target of Rs 395, informing a buy rating,” the brokerage added.
Blue Star: Buy | Target: Rs 1,200
Sharekhan initiated coverage on Blue Star, with a target of Rs 1,200, given its high net earnings growth trajectory for FY2021-FY2023 and favourable relative valuation.
“Expectation of strong summers, focus on technology, in-house manufacturing, introduction of new products and a recovery in project segment will be near-term growth drivers. The company would focus on clocking higher-than-industry growth rates, improving profitability through scale and backward integration, deepening distribution reach and pursuing profitable adjacencies," said the brokerage.
"Revenue and earnings to clock a 27 per cent and 71 per cent CAGR, respectively, for FY2021-2023, driven by core UCP segment along with improvement in OPM while return ratios are expected to improve," the brokerage added.
CSB Bank: Buy | Target: Rs 316
Arihant Capital Markets initiated coverage on the stock with a buy rating and a target price of Rs 316 per share based on 2.0x FY23E ABV.
“With improving business execution capabilities, growing advances book after consolidation in SME/Corporate book, decline in NPA from its peak level, improving funding profile and high margin business, we believe the bank is well poised to deliver RoA and RoE of 1.4 per cent and 15 per cent by FY23. Q4FY21 business update of the bank was quite good with strong deposits and advances growth driven by gold loan,” said the brokerage.
HG Infra Engineering: Buy | Target: Rs 380
“Healthy operating margin of over 15 percent, comfortable balance sheet position (net debt equity of around 0.1x at standalone levels), controlled working capital cycle (driven by apt mix of private/government projects coupled with efficient project management) and healthy return ratios remain the key positive features of HG Infra,” said ICICI Direct.
“Furthermore, valuation at 7.6x FY23E standalone P/E is at a discount to peers. We initiate coverage on HG Infra with a buy rating and an SoTP-based target price of Rs 380 per share. Key risks to our call include increase in competitive intensity, which may impact ordering and margins, and execution delays that may impact overall topline and profitability growth,” the brokerage added.
Narayana Hrudayalaya: Buy | Target: Rs 517
“Narayana Hrudayalaya operates 47 healthcare facilities, including hospitals, clinics and heart centres with 6,656 capacity beds and 30+ specialities. The company has a strong track record of providing quality healthcare services at an affordable cost,” said Geojit Financial Services.
“Over the last five years, NH has focussed on increasing its presence at Tier 1 cities by setting up premium multi-specialty hospitals in New Delhi, Gurugram and Mumbai. We expect revenue to grow at a CAGR of 21 per cent over FY21-FY23E and EBITDA margin to expand to 14.5 per cent in FY23 as share of revenues from new hospitals and Cayman Islands increase,” the brokerage added.
Geojit initiated coverage on Narayana Health with a buy rating based on 20x FY23E EV/EBITDA, with a target price of Rs 517.
Power Mech Projects: Buy | Target: Rs 727
“Power Mech Projects has an order backlog of Rs 7,353 crore (as on February 16, 2021), which shows revenue visibility for the next three years. The company enjoys market leadership position in power O&M (Operations and Maintenance) and erection business with a market share of 55-60 per cent,” said Geojit Financial Services.
“Diversification of business to non -power segment, especially civil (including railways, petrochemicals, water etc) has helped the company to be on the growth track. We expect the order backlog to grow at 14 per cent with an average order intake of Rs 3,500-4,000 crore per year. Revenue is expected to grow at a CAGR of 30 per cent during FY21-23 and ROE to be at 16.3 per cent by FY23,” the brokerage added.
Geojit initiated coverage on Power Mech with a buy rating based on 6x FY23E earnings with a target price of Rs 727.
V-Mart Retail: Buy | Target: Rs 3,500
“Over the last few years, V-Mart has been able to fund its business growth through internal accruals and IPO proceeds. Barring FY20, the company has, over the years, consistently generated free cash flow-FCF (cumulative FCF in FY15-19: around Rs 86 crore) leading to virtually debt-free status. Given the inherent strength of the business model, it has withstood pandemic challenges with revenues recovering to around 84 per cent pre-COVID levels in Q3FY21,” said ICICI Direct.
“While the pandemic may cause near-term challenges, we like V-Mart as a structural long-term story to play the unorganised to modern retail shift. We pencil in revenue CAGR of 46 per cent in FY21-23 (on a favourable base), with square feet addition CAGR of 20 per cent in the same period," the brokerage added.
“We expect EBITDA margins to remain range-bound around 9 per cent (pre-IndAS) as the company focuses on enhancing market share by passing on the benefits on margin. We initiate coverage on the stock with a buy recommendation and target price of Rs 3,500,” said ICICI Direct.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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