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Bharti Airtel, SBI and Lupin among 15 stocks that Axis Securities is betting on this month

With an expectation of improved earnings for the broader market, the brokerage firm believes small and midcap companies could outperform largecaps in FY22

April 05, 2021 / 12:55 PM IST
The last fiscal year ended on a strong note for the equity markets with all the sectors delivering positive returns. As we embark on the new fiscal, the focus is clearly on earnings growth and sustenance of demand momentum. Mid and Small caps have outperformed the large caps by a significant margin in FY21 but we believe that this trend is likely to sustain in FY22 as well as earnings growth is expected to be very strong for the broader market. Here are the 15 stocks recommendation by Axis Securities for the month of April 2021 with an upside between xx-xx percent. (Disclaimer: The views and investment tips expressed by 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.)
The financial year 2021 ended on a strong note for the equity market with all the sectors delivering positive returns. As we enter the new fiscal, the focus is clearly on earnings growth and sustenance of demand momentum. Mid and Smallcaps have outperformed the largecaps by a significant margin in FY21. Axis Securities said we believe that this trend is likely to sustain in FY22 as well as earnings growth is expected to be very strong for the broader market. Here are 15 stocks recommendation by Axis Securities, in its latest report, for April 2021 with an upside of 9-30 percent from the closing prices of April 1, 2021. (Disclaimer: The views and investment tips expressed by 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.)
ICICI Bank | Higher loan growth, improving operating profits, strong provision buffer coupled with strong deposit franchise will help ROAE/ROAA expansion over FY22-23E for the bank. We believe valuation wise it has further scope for expansions vis-a-vis its peer banks. We maintain buy on the stock with a revised target price of Rs 720 (SOTP basis core book at 2.3x FY23E and Rs 160 Subs. Value). The key risks are significant deterioration in retail asset quality and delay in the resolution of stressed assets.
ICICI Bank | CMP: Rs 594.40 | Upside: 21 percent | Higher loan growth, improving operating profits, strong provision buffer coupled with strong deposit franchise will help ROAE/ROAA expansion over FY22-23E for the bank. We believe valuation-wise, it has further scope for expansions vis-à-vis its peer banks. We maintain buy on the stock with a revised target price of Rs 720 (SOTP basis core book at 2.3x FY23E and Rs 160 Subs. Value). The key risks are significant deterioration in retail asset quality and delay in the resolution of stressed assets.
State Bank of India | Among PSU banks, SBIN remains the best play on the gradual recovery in the Indian economy, with a healthy PCR, robust capitalization, a strong liability franchise and an improved asset quality outlook. Subsidiaries’ performance was also stable in Q3FY21. We believe lower credit costs will aid better asset quality outlook, leading to double-digit ROEs of 13-15% by FY22-23E. We recommend buy on the stock with a target price of Rs 477 (SOTP basis core book at 1.1x and subsidiaries at Rs 151). The key risk is slower than expected recovery cycle.
State Bank of India | CMP: Rs 370.65 | Upside: 28 percent | Among PSU banks, SBIN remains the best play on the gradual recovery in the Indian economy, with a healthy PCR, robust capitalization, a strong liability franchise and an improved asset quality outlook. Subsidiaries’ performance was also stable in Q3FY21. We believe lower credit costs will aid better asset quality outlook, leading to double-digit ROEs of 13-15% by FY22-23E. We recommend buy on the stock with a target price of Rs 477 (SOTP basis core book at 1.1x and subsidiaries at Rs 151). The key risk is slower than expected recovery cycle.
Federal Bank
Federal Bank | CMP: Rs 78.85 | Upside: 18 percent | We believe that key positives are increasing retail focus, strong fee income, adequate capitalisation (Tier-1 at 13%), and prudent provisioning. Given strong underwriting standards, changing loan mix and strong retail deposit franchise, we expect the valuation to improve from current levels if asset quality trends maintain and ROA improvement keeps on track. We maintain Buy with a revised target price of Rs 93 (1x FY23E ABV). Key risk is asset quality trends in coming quarters.
Equitas Small Finance Bank |We believe company is eligible for re-rating given its improving profitability, asset quality and return ratios. The bank’s plan to apply for a reverse merger with Equitas Holdings in Sep’21, on completion of 5 years of commencing banking operations, coupled with its application for a universal banking license further supports our re-rating rationale. We recommend buy with a target price of Rs 72 (1.9x FY23E ABV). The key risk is asset quality stress due to 2nd wave of COVID-19.
Equitas Small Finance Bank | CMP: Rs 61.85 | Upside: 16 percent | We believe company is eligible for re-rating given its improving profitability, asset quality and return ratios. The bank’s plan to apply for a reverse merger with Equitas Holdings in Sep’21, on completion of 5 years of commencing banking operations, coupled with its application for a universal banking license further supports our re-rating rationale. We recommend buy with a target price of Rs 72 (1.9x FY23E ABV). The key risk is asset quality stress due to 2nd wave of COVID-19.
Varun Beverages | We expect company to register Revenues/Earnings CAGR of 11%/31% respectively over CY19-22E. This growth will be driven by 1) consolidation in newly acquired territories, 2) distribution led market share gains, 3) margin tailwinds from cost efficiencies. Given the healthy outlook for the upcoming season and tie-ups with leading and fast-growing QSR players in India could propel VBLs growth into a new orbit. We value VBL at a premium of 17x its CY22 EV/EBITDA to arrive at our upgraded target price of Rs 1,230.
Varun Beverages | CMP: Rs 1,009 | Upside: 22 percent | We expect company to register Revenues/Earnings CAGR of 11%/31% respectively over CY19-22E. This growth will be driven by 1) consolidation in newly acquired territories, 2) distribution led market share gains, 3) margin tailwinds from cost efficiencies. Given the healthy outlook for the upcoming season and tie-ups with leading and fast-growing QSR players in India could propel VBLs growth into a new orbit. We value VBL at a premium of 17x its CY22 EV/EBITDA to arrive at our upgraded target price of Rs 1,230.
Relaxo Footwear | Relaxo has maintained healthy operating cash flows, asset turns (~3x) and EBITDA Margins over the years making it a capital-efficient business. We believe a strong balance sheet with a D/E ratio of 0.1x and efficient working capital should help Relaxo sail through the current situation comfortably. We expect the company to be the beneficiary of market share gains as most players in the unorganized segment mainly dominant in the mass and value category would be facing liquidity constraints. We remain positive on the stock from a long term perspective given immense growth potential. We expect the company to register revenue/EBITDA/PAT CAGR of 16/21/25% over FY20-23E. Target price Rs 1,013.
Relaxo Footwear | CMP: Rs 904.35 | Upside: 12 percent | Relaxo has maintained healthy operating cash flows, asset turns (~3x) and EBITDA Margins over the years making it a capital-efficient business. We believe a strong balance sheet with a D/E ratio of 0.1x and efficient working capital should help Relaxo sail through the current situation comfortably. We expect the company to be the beneficiary of market share gains as most players in the unorganized segment mainly dominant in the mass and value category would be facing liquidity constraints. We remain positive on the stock from a long term perspective given immense growth potential. We expect the company to register revenue/EBITDA/PAT CAGR of 16/21/25% over FY20-23E. Target price Rs 1,013.
Camlin Fine | The company will restart Palghar manufacturing unit on March 2.
Camlin Fine Sciences | CMP: Rs 139.70 | Upside: 18 percent | Company's strategic focus on expansion and having a worldwide presence, expected growth in blends segment, increasing demand of vanillin worldwide, strategic vertical integration, step up in innovation/new launches, healthy margin profile and improving balance sheet are some of the key features from a long term perspective that are likely to support and strengthen the business. We expect the company to register Revenue/EBITDA/PAT CAGR of 23/31/68% over FY20-23E. Target price Rs 165.
Amber Enterprises | We expect Amber to register Revenue/Earnings CAGR of 15.4%/21.8% respectively over FY20-23E. The near term order outlook remains strong for RAC as well as mobility solutions. Healthy build-up for the upcoming season, government policy measures and support through the PLI scheme makes us believers in this structural long term story. Hence, we raise our multiple to 41x, which is at a premium to consensus and historical multiples. We value Amber at 41 x FY23 E EPS of Rs 89.2 arriving at a target price of Rs 3,658.
Amber Enterprises | CMP: Rs 3,247.55 | Upside: 12 percent | We expect Amber to register Revenue/Earnings CAGR of 15.4%/21.8% respectively over FY20-23E. The near term order outlook remains strong for RAC as well as mobility solutions. Healthy build-up for the upcoming season, government policy measures and support through the PLI scheme makes us believers in this structural long term story. Hence, we raise our multiple to 41x, which is at a premium to consensus and historical multiples. We value Amber at 41 x FY23 E EPS of Rs 89.2 arriving at a target price of Rs 3,658.
Minda Corporation | Given the product basket and market share of Minda Corporatio, we expect the profitability of the company to improve over FY21 to FY23 on the back of operating leverage and new product addition. We expect the company to post excellent growth in profitability by FY23 on the back of improved content per vehicle and higher indigenous content. Return ratios would improve by FY23 led by improvement in profit margins and asset turnover crossing 2x (peak of 3x seen between FY13-16). We value the company at 12x FY23E to arrive at a target price of Rs 121 and maintain buy.
Minda Corporation | CMP: Rs 101.35 | Upside: 19 percent | Given the product basket and market share of Minda Corporatio, we expect the profitability of the company to improve over FY21 to FY23 on the back of operating leverage and new product addition. We expect the company to post excellent growth in profitability by FY23 on the back of improved content per vehicle and higher indigenous content. Return ratios would improve by FY23 led by improvement in profit margins and asset turnover crossing 2x (peak of 3x seen between FY13-16). We value the company at 12x FY23E to arrive at a target price of Rs 121 and maintain buy.
Steel Strip Wheels | Being in an oligopoly market, SSWL commands leadership with a market share of around 55% in steel wheel rims and around 20% in alloy wheels; we expect SSWL to outperform the industry given its sticky relations with OEMs across all the auto segment viz., 2/3W, PV, CV, and Tractors. We have pencilled in Revenue/EBIDTA/PAT CAGR of 20%/28%/96% over FY20-23E vis-a-vis 7%/9%/(1)% CAGR for FY13-20 on back of operating leverage playing out backed by better capacity utilization riding the domestic auto recovery and exports. Target price Rs 877.
Steel Strip Wheels | CMP: Rs 720.15 | Upside: 21 percent | Being in an oligopoly market, SSWL commands leadership with a market share of around 55% in steel wheel rims and around 20% in alloy wheels; we expect SSWL to outperform the industry given its sticky relations with OEMs across all the auto segment viz., 2/3W, PV, CV, and Tractors. We have pencilled in Revenue/EBIDTA/PAT CAGR of 20%/28%/96% over FY20-23E vis-a-vis 7%/9%/(1)% CAGR for FY13-20 on back of operating leverage playing out backed by better capacity utilization riding the domestic auto recovery and exports. Target price Rs 877.
Lupin | Lupin has taken several steps to improve overall EBITDA margins 1.) launch of value-added products including biosimilars could improve gross margins 2.) alternate vendor strategies to bring down the overall procurement costs, 3) bring down manpower costs to rationalize expenses for launch of new products 4) rationalization of R&D costs to have more focus on complex products (8% R&D costs over the long term) 5) lower cost in Solosec promotions could improve EBITDA margins by 590 basis points over the period FY20-FY23E. Target price Rs 1,225.
Lupin | CMP: Rs 1,027| Upside: 19 percent | Lupin has taken several steps to improve overall EBITDA margins 1.) launch of value-added products including biosimilars could improve gross margins 2.) alternate vendor strategies to bring down the overall procurement costs, 3) bring down manpower costs to rationalize expenses for launch of new products 4) rationalization of R&D costs to have more focus on complex products (8% R&D costs over the long term) 5) lower cost in Solosec promotions could improve EBITDA margins by 590 basis points over the period FY20-FY23E. Target price Rs 1,225.
Tech Mahindra | We expect initial traction and pipeline build-up to aid network and core modernization for 5G within Communications in FY22. We see 5G for Enterprise as a long term opportunity and expect it to pick up in FY23 and beyond. We believe Tech Mahindra has a resilient business structure from a long term perspective. We recommend buy and assign 14x P/E multiple to its FY23E earnings of Rs 81, which gives a target price of Rs 1,116 per share.
Tech Mahindra | CMP: Rs 992.15 | Upside: 12 percent | We expect initial traction and pipeline build-up to aid network and core modernization for 5G within Communications in FY22. We see 5G for Enterprise as a long term opportunity and expect it to pick up in FY23 and beyond. We believe Tech Mahindra has a resilient business structure from a long term perspective. We recommend buy and assign 14x P/E multiple to its FY23E earnings of Rs 81, which gives a target price of Rs 1,116 per share.
Bharti Airtel | CMP: Rs 520.80 | Upside: 30 percent | We maintain our ARPU assumptions and forecast a 13%/17% CAGR for Revenue/EBIDTA over the period FY20-23E. We value the company based on SOTP valuation at Rs 673. The value could increase by a further Rs 40/share if Vodafone-Idea shuts down. Our SOTP valuation implies an EV/EBIDTA of 9.5x on FY22E EBIDTA. Target price Rs 676.
Bharti Airtel | CMP: Rs 520.80 | Upside: 30 percent | We maintain our ARPU assumptions and forecast a 13%/17% CAGR for Revenue/EBIDTA over the period FY20-23E. We value the company based on SOTP valuation at Rs 673. The value could increase by a further Rs 40/share if Vodafone-Idea shuts down. Our SOTP valuation implies an EV/EBIDTA of 9.5x on FY22E EBIDTA. Target price Rs 676.
HCL Technologies | We believe that the COVID outbreak will create huge opportunities across geographies and services for HCL Tech to post strong organic growth over different verticals. We believe HCLT has a resilient business structure from a long-term perspective. We recommend buy and assign 16 x P/E multiple to its FY23E earnings of Rs 59.8, which gives a target price of Rs 1,136 per share.
HCL Technologies | CMP: Rs 1,002.60 | Upside: 13 percent | We believe that the COVID outbreak will create huge opportunities across geographies and services for HCL Tech to post strong organic growth over different verticals. We believe HCLT has a resilient business structure from a long-term perspective. We recommend buy and assign 16 x P/E multiple to its FY23E earnings of Rs 59.8, which gives a target price of Rs 1,136 per share.
ACC | With the revival of cement demand both in trade and non-trade segment in its key markets of East and South and increasing sell of value-added products, we believe the company is well-positioned to grow its revenue and profitability going forward. Further, the recent budget announcement on infra development also augurs well for the company. Stock is currently trading at 8.3x CY22E and 7.14x CY23E EV/EBITDA. We recommend to buy with a target price of Rs 2100/share valuing the company at 10x of its CY22E EV/EBITDA. The key risk is lower than expected volume growth and rise in input prices.
ACC | CMP: Rs 1,913.35 | Upside: 9 percent | With the revival of cement demand both in trade and non-trade segment in its key markets of East and South and increasing sell of value-added products, we believe the company is well-positioned to grow its revenue and profitability going forward. Further, the recent budget announcement on infra development also augurs well for the company. Stock is currently trading at 8.3x CY22E and 7.14x CY23E EV/EBITDA. We recommend to buy with a target price of Rs 2100/share valuing the company at 10x of its CY22E EV/EBITDA. The key risk is lower than expected volume growth and rise in input prices.
Rakesh Patil
first published: Apr 5, 2021 12:36 pm

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