Union Budget 2021 likely to focus on infra, healthcare; analysts see these 10 stocks gaining

D-Street is counting on key reforms in the Budget that could push growth and kicks tart the capex cycle in the economy.

January 24, 2021 / 09:41 AM IST
 
 
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The Union Budget 2021 to be presented on February 1 will decide the market direction for the next few days. It comes at a time when the coronavirus pandemic has changed the economic landscape materially.

There is euphoria on D-Street on key reforms that could push growth and kickstart the capex cycle in the economy. “We expect positive announcements on reforms viz key reforms in labour laws and judicial reforms, which will support a recovery and re-ignite animal spirits,” domestic brokerage firm Sharekhan said in a note.

For 2021-22, Finance Minister Nirmala Sitharaman has said the budget will see a massive public sector investment and expenditure push, including in infrastructure and health sectors. Alon with these two sectors, real estate, construction and railways,too, are expected to be in focus in the budget.

Analysts believe stocks from infra, healthcare and manufacturing could witness traction after the budget announcements. Here are 10 stocks recommended by analysts that you can buy for the short term:

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Analyst: Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities

Varroc Engineering (VEL)

VEL has a diversified product portfolio spread across India, China, the Americas and Europe and caters to various auto original equipment manufaturers (OEM) globally. In India, it supplies to most two-wheeler makers. It has a strong global lighting system business based in Europe, the Americas, China and India.

VEL is the sixth-largest Tier-1 automotive exterior lighting manufacturer globally. It supplies to global companies like Tesla, Audi, JLR, Bentley and Volkswagen.

"Increased penetration within the existing key customers and addition of new customers will drive revenue growth for its global lighting business. This business could be less impacted in the future as lighting would be used in both Fuel driven vehicles and electric vehicles," said the analyst.

Kalpataru Power Transmission (KPTL)

On a consolidated basis, KPTL has a good mix of business coming from transmission and distribution (T&D) and infrastructure (ie railways, roads & logistics).

In T&D, the orders are well-diversified within and outside India. As of September 2020 quarter, it had consolidated order book of Rs 26,500 crore.

It has been monetising its power transmission assets and reducing debt. With the cash flows coming from the sale of Alipurdar Transmission assets to Adani Transmission it should be a debt-free company in FY22.

"Expect valuations to inch-up in future as the promoters reduce the borrowing against pledged shares and company generates healthy free cash flows in future," the analyst said.

Larsen & Toubro (L&T)

L&T is the best proxy to play the infrastructure theme in India.

The last three years of healthy ordering has strengthened the backlog of L&T and the sector. The past three years have seen support on large-sized orders (more than Rs 2,500 crore) spanning across most key business segments of L&T—transport infrastructure, power, hydrocarbon and water.

The large order wins over a three-year period should ideally set L&T up for a sweet two-three year period of execution.

The focus should now shift on L&T’s ability to execute and reap pricing gains more than on the impending plateauing of new orders.

"We envisage pricing gains from incremental order wins for L&T as peers of L&T are high on the backlog and are going slow of expanding capacities. We look forward to L&T’s ability to scale up its Rs 1 lakh crore FY20 revenues to Rs 1.4 lakh crore by FY24," said the analyst.

PNC Infratech

PNC had a strong order book of Rs 15,800 crore at the end of Q2FY21. The current order book is about 3.2 times of FY20 revenue and gives strong revenue growth visibility for the next two to three years.

The management targets to add about Rs 9,000-10,000 crore of order inflows in FY21 of which it has already secured nearly Rs 4,200 crore of work (till Q2FY21 result) while the balance is expected in H2FY21.

PNC does not see any challenge in meeting about Rs 970 crore equity commitment in the HAM project based on its expectation of strong internal accruals in the next three years, robust balance sheet with net cash at the standalone level and asset monetization plans.

"PNC’s robust order backlog, strong execution track record, net cash balance sheet in EPC business and the long-term growth opportunity in the sector gives comfort for maintaining growth in the financials on a long-term basis," said the analyst.

Dalmia Bharat

Cement is also one of the good proxy play on revival in capex cycle, housing and higher infrastructure spending.

The ongoing inorganic and organic expansion projects of Dalmia are progressing towards completion by FY22E.

The company is on track to become the third-largest cement company by capacity (37 mtpa) by FY22E.

"We are not concerned with Dalmia’s high exposure to East (over 65 percent of sales). Despite weak prices in the East, Dalmia is able to sustain industry-leading margins due to its superior cost structure," said the analyst.

"Strong free cash flows despite growth CAPEX would help Dalmia become net cash in FY23E. We expect Dalmia Bharat's volume to grow at the rate of 9 percent over FY2021E-23E. The stock offers one of the best risk-reward matrices in the cement sector," the analyst added.

Analyst: Ashis Biswas, head of Technical Research at CapitalVia Global Research

Aurobindo Pharma (target price: Rs 1,153)

Expanding its market share through acquisition and approvals, Aurobindo Pharma is an integrated pharmaceutical company.

The company acquired commercial operations in seven western European countries from Actavis. The company has acquired personnel, commercial infrastructure, products, marketing authorization, and dossier license rights in these seven countries.

The acquisition brought in a pipeline of about 1,200 products from different segments and an additional pipeline of over 200 products under its foray.

The company has forayed into the nutritional OTC business in the US and other international markets. The company is gaining share in new markets of Belgium, Poland, and Czech and would be integrating the Netherlands over the near-term.

Sun Pharmaceutical Industries (target price: Rs 730)

Sun Pharmaceutical Industries will benefi from two types of FDI available in the pharma sector, brownfield and greenfield Investments. Both are in line with the initiative of Make in India.

The company reported a net profit after tax of Rs 1,948.38 crore in the latest quarter.

Technically, a breakout from its weekly consolidation surpassing resistance of Rs 560-565 zones is also a positive for the stock.

JSW Steel (target price: Rs 477)

With its recent win of iron ore mines in Odisha, the company is better placed in the long-term regarding its raw material security.

"We expect any sharp increase in iron ore prices, like the one witnessed in Q3, would add to its margins when captive mines get operational," said the analyst.

The stock has witnessed a strong buying interest and strong consolidation. Momentum indicator RSI has taken support at 60 levels and reversed from this level, which is positive supporting technical evidence.

Glenmark Pharmaceuticals (target price: Rs 670)

Glenmark Pharmaceuticals has received final approval from the USFDA for Tadalafil tablets USP in the strengths of 2.5 mg, 5 mg, 10 mg, and 20 mg, the company said in a recent regulatory filing.

Robust growth across segments, improving cash flows, controlled debts, and several cost efficiencies measures saw Glenmark delivere better-than-expected earnings growth led by domestic formulation (DF), ROW, EU, and API segments.

HUDCO (target price: Rs 58.90)

HUDCO plays a crucial role in various government schemes to develop Indian housing and urban infrastructure.

A massive shortage in housing with about 4.4 crore units in rural and about 1.9 crore in urban areas coupled with the government's push towards housing through various schemes and subsequent infrastructure development, enables ample growth opportunity.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Jan 22, 2021 10:00 am

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