Domestic benchmark indices S&P BSE Sensex and Nifty50 declined 2 percent in the past five days as investors took some money off the table amid rising geopolitical tensions and global bond yield volatility. So, how should investors tame this storm?
Moneycontrol brings you a special series featuring experts’ stocks that could offer good entry points in this ongoing market correction.
Ambareesh Baliga, independent market analyst, shared his top picks from niche sectors such as new technology, hospitality, water supply, and affordable housing segment given their visible growth trajectory. Here’s a compilation:
#1 Delhivery | CMP: Rs 419 | Target: Rs 625
Rationale: The company is India’s largest and fastest-growing express logistics player with focus on three core areas – express parcel, partial truck load, and third party logistics. With a 25-percent market share in India’s overall e- commerce express parcel market, the company is all set to grow by 30 percent on an annual basis. The Express Parcel segment of Delhivery brings 60 percent sales from e-commerce. We believe that given healthy festive season trends and strong virtual shopping trends, the company’s market share will command a dominant pie in India’s overall logistics market share.
Axle load norms, recent partnership with government-backed ONDC, and Gati Shakti program will also support the company’s growth going ahead. The management’s confidence of reaching net level profitability by FY25-26 also makes the stock a value investment at an early stage.
The stock is trading 11 percent below its 52-week high level, which makes a good entry point for investors to play on the new tech theme. In the next 12-15 months, we believe that the stock can rally as much as 53 percent at 25 percent CAGR.
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#2 Indian Hotels | CMP: Rs 382 | Target: Rs 480
Rationale: Investors can play this stock as the best bet in India’s luxury hotel theme. The company has brands such as SeleQtion, Vivanta, Ginger – a total of over 33,000 rooms across 270 properties (including pipeline). The company is set to cross 300-hotel mark by FY25. Given average room rents are at life-time highs and occupancy levels are over 70 percent, we believe that the company is a good bet from the hospitality industry after over decadal low growth wrecked by the Covid-19 pandemic.
The company, given it is a leader from the hotel industry, will derive maximum benefits after a post-pandemic life owing to demand uptrend and higher consumer spends.
Indian Hotels zero debt levels also assures investors of a good investment case. The company’s net debt to Ebitda ratio is 0:5, while that of listed peer Lemon Tree Hotels is 2:3.
Indian Hotels’ new line of businesses such as food delivery, Qmin, Taj Chambers Clubs, and homestay bungalows (AMA Stays and Trails) have also started to contribute to the company’s overall revenue.
Going ahead, the company’s revenue CAGR of 15 percent and Ebitda CAGR of 20 percent will translate into Rs 10 EPS for FY25. Though IHCL’s stock has declined 7 percent in the past month, the scrip has surged 18 percent so far this year. We see further upside of 25 percent in next 12-15 months.
#3 VA Tech Wabag | CMP: Rs 468 | Target: Rs 624
Rationale: A multi-national player in the water treatment industry, Va Tech Wabag has a strong execution track record (2,300 projects in last 3 decades) with excellent order book positioning. The company has 90 patents – desalination is their big opportunity. The company’s order-book position is Rs 12,500 crore – which is 3x of FY24 revenue and nearly 1/3rd of order-book constitutes high margin engineering and procurement orders. The management said that the company’s cash-flow will improve going ahead as they prioritise on improving intake of international orders and EP projects, which would sustain margins.
Given the growing attention of the government and multi-lateral funding agencies towards an escalating water shortage crisis, the water treatment player is well poised for a secular, long-term growth. Moreover, as ESG regulations get tightened, demand for water-related projects will rise, and this will benefit Va Tech Wabag.
At current price, the stock trades at 10x forward PE multiple, declining 9 percent in just 10 days, offering a good point to enter. By FY25, EPS will increase to Rs 52 from Rs 8 in June 2023. That said, we see an upside of 33 percent in the next 12-15 months.
#4 Arihant Superstructures | CMP: Rs 174 | Target: Rs 240
Rationale: The company is a leader in the affordable housing segment, with 11 micro-markets in Navi Mumbai and Jodhpur. With 1,100 units covering 17.3 million square feet, we see revenue potential of nearly Rs 10,000 crore by FY25-26 as free cash-flows from new markets and expansion into micro-markets will create value going forward. The company has been a consistent performer in the last decade, with area under development growing by 8x and net worth by 4.7x. In the next 3-4 years, HIGH growth is predicted as projects under construction will get delivered.
The company has delivered between 700 to 900 units in past years and expects significant deliveries going forward. The company has also forayed into plotted development segment, wherein it has acquired 76 acres of land to construct villas and 200-room resort. Out of 76 acres, 55 will be sold to buyers for constructing villas, and the remaining will be used for construction of gymkhanas, clubs, and resorts, indicating an addition stream of annuity.
Given strong order pipeline and deliveries, we see DCF-based valuation closer to Rs 480 – discounting it further by 50 percent, we arrive at a target price of Rs 240 for next 12-15 months (which is 42 percent higher). At current price, the stock trades at 14x PE multiple, much lower than industry average of 33x PE, signaling the fact that it has a long runway for growth. So quickly buy this stock while it still trades at an attractive price.
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#5 Mahindra Holidays | CMP: Rs 402 | Target: Rs 520
Rationale: The company, which has over 3.5 lakh members expects to be in the top-five largest vacation ownership companies in the world in the next two years. The company is in the process of adding 690 rooms and aims to double room inventory to 10,000 by FY30. The company has also embarked to cross 5,000-members per quarter-mark soon. As leisure travel is on an uptrend post-pandemic, Mahindra Holidays being one of India’s largest vacation ownership companies will be a key beneficiary.
We like Mahindra Holidays for its differentiated business model which ensures continuous asset creation along with positive cash flows. A positive trigger now is that the early assets would become free from service liability and new members could be enrolled without matching spend on capex. This makes a good investment case.
In just 10 days, the stock has crashed 15 percent, reflecting a good entry point. Investors can also be happy about the fact that the stock has given 36 percent RoE, which would make it a worthy bet.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions
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