The global economy is going through a churn as a result of macroeconomic and geopolitical factors, and talk of a recession or stagflation is rife as central banks around the world scramble to bring the situation under control. International agencies are jointly working to get growth back on track. The forecast for the Indian economy, too, has been revised downwards on many occasions but despite that, it is expected to be the world’s fastest growing major economy yet again.
Even though inflation continues to be a major challenge in the developed world, inflation in the domestic economy seems to be manageable. The majority of high-frequency indicators are trending upwards and the uptick from the pre-Covid levels is visible, indicating the resilience of the Indian economy.
The cumulative and rolling net profit of the NSE 500 universe for the last four quarters (till Q1FY23) touched an all-time high of Rs 10 lakh crore and loss-making sectors, too, have turned positive, return on equity for the broader market is improving, as is the asset quality of private and PSU banks compared to the levels seen a couple of years back.
In light of these positive attributes, experts firmly believe that the outperformance of Indian equities seems highly sustainable in Samvat 2079.
Based on this, analysts believe it would be beneficial for investors to focus on the following stocks this Diwali for investment with a one-year perspective.
Recommended by Kotak Securities : Target Price (TP) - Rs 960 per share; ICICI Direct : TP - Rs 970 per share. Potential upside - 18 percent
In terms of advances, the lender has reported about 13 percent compound annual growth rate (CAGR) in the last five years and according to experts, it is expected to grow at a CAGR of 16.3 percent in FY22-24.
Robust business growth, improving operational efficiency and synergy benefits from the acquisition of Citi’s consumer businesses should have a positive effect on the earnings trajectory and price performance while incremental provisions will be on the lower side resulting in lower credit cost, thereby boosting earnings of the bank, say experts.
“We believe Axis Bank will deliver a return on assets (RoA) of ~1.5 percent and a return on equity (RoE) of ~15 percent, over FY22-24,” said a report from ICICI Direct Research. It suggests a buying range of Rs 780–815 for the stock with a target price of Rs 970 over the next 12 months.
Brokerage Kotak Securities is also bullish on the stock as it sees the bank converging with its other frontline peers on various operating metrics. This provides comfort on net interest margins (NIMs), liability and asset quality, and cost structure. Kotak has set a target price of Rs 960 for the company.
Recommended by ICICI Direct : TP - Rs 215 per share; IDBI Capital Markets & Securities Ltd : TP - Rs 230 per share. Potential upside - 20 percent.
City Union Bank is an old private sector bank with a primary focus on micro, small and medium enterprises (MSMEs) and agri loans that form around 61 percent of overall advances. Almost 99 percent of its total advances are secure in nature. The bank has reported 10 percent CAGR in advances in the last five years and experts expect it to grow at a CAGR of 13 percent in FY22-24.
“Historically, the bank’s loan book growth has not only outperformed the overall banking industry, but is also in the top quartile among its peers, reporting loan growth at 16 percent CAGR (FY15-19),” said a report from IDBI Capital.
Revival in MSMEs is expected to benefit credit offtake as well as recoveries in its stressed asset pool. “Steady margins at ~4 percent and healthy business growth will aid operational performance and return ratios,” ICICI Direct Research analysts said in a report. “We believe City Union Bank will deliver RoA of ~1.5 percent and RoE of ~13 percent in FY22-24.” The brokerage has a target price of Rs 215 over a one-year horizon and a buying range of Rs 170-185.
According to IDBI Capital calculations, investors can aim for a target price of Rs 230 over the next year.
Computer Age Management Services (CAMS)
Recommended by JM Financial Services: TP - Rs 3,300 per share; GEPL Securities: TP - Rs 3,020 per share. Potential upside - 27 percent.
CAMS is India’s largest registrar and transfer agent (RTA) to mutual funds (MFs) and enjoys 70 percent market share of the country’s RTA industry.
Currently, MF penetration in India stands at a mere 16 percent compared to a global average of 63 percent. “Robust domestic inflows indicate rising penetration and CAMS to be the major beneficiary in the financialization of savings,” said analysts at GEPL Capital.
The company has also started serving solutions for alternative investment funds (AIFs) and portfolio management services (PMS) and in a short period of time (from April 2021) has cornered a 50 percent share of the AIF/PMS market.
“We believe the company's dominant position in the growing market to bear fruits for CAMS,” said a GEPL Capital report. “With revenue and PAT (profit after tax) CAGR of 13 and 14 percent each, CAMS is trading at forwarding PER (price-earnings ratio) (x) of 28.6 and we value it with 35(x) FY25 earnings to ‘buy’ with a target price of Rs 3,020.”
Analysts at JM Financial Services are of the opinion that the insurance repository business is also likely to witness strong momentum with the recent regulatory push to mandate the issuance of e-policies acting as a catalyst for the company. They suggest a ‘buy’ on the stock with a target of Rs 3,300.
Recommended by JM Financial Services: TP - Rs 382 per share; Axis Securities - Rs 380 per share. Potential upside - 12 percent.
ITC has created a large fast-moving consumer good or FMCG business from scratch starting early 2000s. From a zero base, the segment has been scaled up to Rs 12,900 crore in FY20 (revenue). FMCG business revenues are expected to exceed Rs 15,800 crore and EBITDA or earnings before interest, taxes, depreciation and amortisation of Rs 1,500 crore.
“Notably, this business has been created at sub-2x price-to-sales and addresses market opportunities that are larger than even HUL’s (Hindustan Unilever Ltd) size of markets and more than 3x that of Nestle India’s,” said analysts at JM Financial Services.
The hospitality segment is expected to register strong revenue growth and margin recovery with leisure and business travel improving the overall occupancy rate. Furthermore, “a revival in the end-user industries and exports is expected to drive paperboard sales moving forward”, a report from Axis Securities said.
The stock is currently trading at 18 times FY25 earning per share (EPS) and its 4-5 percent dividend yield provides a huge margin of safety compared to its peers. Moreover, according to Axis Securities, “the recovery in the cigarette business and uptick in agri, hotels, and paperboard in the near term makes ITC a better play in the entire FMCG pack where valuations are high”. The brokerage is looking at a target price of Rs 380 for the stock over the 12-month time frame while the target price set by JM Financial is Rs 382.
Recommended by Kotak Securities: TP - Rs 1,500 per share. Potential upside - 20 percent.
The automotive segment of the company is expected to deliver a strong performance in the coming quarters on the back of a robust order book given its successful recent launches. The company is also strengthening its electric vehicle (EV) portfolio. Analysts expect mid-single-digit growth in tractor segment volumes, given normal monsoons and healthy reservoir levels while its international farm equipment subsidiaries continue to deliver steady performance despite a challenging macro environment.
Kotak Securities finds the company’s valuations attractive and given its reasonable growth prospects, the brokerage has assigned a ‘buy’ rating for the stock with a SoTP (sum-of-the-parts)-based fair value of Rs 1,500 per share.
Recommended by JM Financial Services: TP - Rs 3,100 per share. Potential upside - 17 percent.
According to JM Financial Services, growth, better product mix and resultant costs leverage are driving earnings growth for the company. Given the strength across segments, the management re-emphasised its bullish overall outlook with the jewellery growth guidance of 2.5 times over five years, i.e., 20 percent CAGR over FY22-27E, with near-term margin expected at 12-13 percent. Other business segments like watches, wearables and eyewear are also becoming growth drivers.
The Titan management sees potential to nearly double the store footprint of its Tanishq brand to nearly 500 cities from 237 cities currently in the medium to long term. It has guided for 40-45 stores/year expansion for Tanishq while also expecting robust store additions across the Caratlane, Mia and Zoya brands.
The company’s focus on in-house brands, domestic sourcing, and channel mix is further improving margin outlook. Analysts at JM Financial Research have arrived at a target price of Rs 3,100 per share.
Recommended by IDBI Capital Markets & Securities Ltd; TP - Rs 767 per share. Potential upside - 28 percent.
Jubilant Foodworks is India’s largest foodservice company and holds exclusive master franchise rights from Domino’s Pizza Inc. It has an extensive network of 1,625 Domino’s stores across 349 cities in India and is aiming for 3,000 Domino’s restaurants across India in the medium term. It is also targeting 250-300 Popeyes stores across the country.
IDBI Capital forecasts the company’s revenue to grow at a two-year CAGR of 26 percent during FY22-24 and EPS to grow at a 42 percent two-year CAGR during this period. It expects ROE to improve to 29 percent in FY24 (versus 25 percent in FY22) and has a target price of Rs 767 per share.
Recommended by ICICI DIrect: TP - Rs 675 per share. Potential upside - 32 percent.
Laurus Labs operates in the segment of generic APIs & FDFs (formulations), custom synthesis and biotechnology. Its major focus in APIs is on ant-retroviral, oncology and other APIs.
Analysts at ICICI Direct believe that in custom synthesis //contract research and manufacturing services// (or CRAMs) business, the company is now well-positioned to meet fast growing global demand for new chemical entity (NCE) drug substances and drug products with ongoing supplies for seven commercial products.
Formulations are expected to do well on account of product launches in the anti-diabetic (FY23) and cardiovascular portfolios (FY24) in the US and Europe. “Laurus has multiple planned capacity expansions in its portfolio based on complexity and scale towards strengthening and diversifying business by an increased focus on non-ARV APIs and formulations and high growth CRAMS segments.” said ICICI Direct analysts. “Calibrated focus on CRAMs, stable API order book, increasing reactor volume, expansion of the biologic CDMO (contract development and manufacturing organisation), product launches and capacity expansion are some key levers.”
The brokerage recommends a ‘buy’ with a target price of Rs 675, i.e., 25 times FY24 EPS of Rs 27.
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