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Diwali Picks: Sharekhan names these 15 stocks for Samvat 2078

State Bank of India, PVR, Titan Company, LIC Housing Finance, ICICI Bank and ITC among the top 15 Diwali picks of broking house Sharekhan.

October 26, 2021 / 12:03 PM IST
Samvat 2077 turned out to be a bumper year for investors with easy of liquidity, healthy economic recovery and well-supported by the surge in corporate profits. But there are near-term challenges like rising energy & commodity prices along with a limited margin of safety on the valuations front. However, broking firm Sharekhan retain its positive stance on the equity market and believe that any corrective phase would be healthy for the markets and should be used to accumulate quality companies.
Samvat 2077 turned out to be a bumper year for investors with easy of liquidity, healthy economic recovery and well-supported by the surge in corporate profits. But there are near-term macro challenges like rising energy & commodity prices along with a limited margin of safety on the valuations front. Broking firm Sharekhan retain its positive stance on the equity market and believes that any corrective phase would be healthy for the market and should be used to accumulate quality companies.
APL Apollo Tubes | Robust growth outlook (expect PAT to register 37% CAGR over FY21-FY24E), high RoE of 30%, strong balance sheet and superior business model (high market share and de-commoditised product portfolio) makes us constructive on APL Apollo Tubes. The key risks include lower demand from construction and infrastructure projects and a substantial rise in steel prices could hurt earnings outlook. Any rise in competition could impact volume growth.
APL Apollo Tubes | Robust growth outlook (expect PAT to register 37% CAGR over FY21-FY24E), high RoE of 30%, strong balance sheet and superior business model (high market share and de-commoditised product portfolio) makes us constructive on APL Apollo Tubes. The key risks include lower demand from construction and infrastructure projects and a substantial rise in steel prices could hurt earnings outlook. Any rise in competition could impact volume growth.
Balrampur Chini Mills | The company will be one of the key beneficiaries of reducing cyclicality in the sugar industry. Higher contribution from distilleries will help margins to improve and PAT to clock a CAGR of 19% over FY2021-24. • The company’s return ratios are expected to improve above 20% by FY2024; higher cash generation ability might lead to higher dividend payout in the coming years.
Balrampur Chini Mills | The company will be one of the key beneficiaries of reducing cyclicality in the sugar industry. Higher contribution from distilleries will help margins to improve and PAT to clock a CAGR of 19% over FY2021-24. • The company’s return ratios are expected to improve above 20% by FY2024; higher cash generation ability might lead to higher dividend payout in the coming years.
Divis Laboratories | Divis Laboratories sales and PAT are expected to clock a 24% and 30% CAGR over FY21-FY23E. Given the strong growth prospects, the rich valuations are expected to sustain. The key risks includes any adverse change in regulatory landscape and unfavorable forex movements could impact the earnings growth prospects.
Divis Laboratories | Divis Laboratories sales and PAT are expected to clock a 24% and 30% CAGR over FY21-FY23E. Given the strong growth prospects, the rich valuations are expected to sustain. The key risks includes any adverse change in regulatory landscape and unfavorable forex movements could impact the earnings growth prospects.
ICICI Bank | Overall business momentum is likely to increase further in the retail, CV and personal loan segments, which were sluggish but are likely to improve going ahead. Similarly, in the corporate loan segment, the bank is adopting a calibrated approach to target better rated corporates. Sharekhan believe that valuations are attractive, considering the overall franchise value as a whole, strong capitalisation and a high PCR are some of the key comforting factors.
ICICI Bank | Overall business momentum is likely to increase further in the retail, CV and personal loan segments, which were sluggish but are likely to improve going ahead. Similarly, in the corporate loan segment, the bank is adopting a calibrated approach to target better rated corporates. Sharekhan believe that valuations are attractive, considering the overall franchise value as a whole, strong capitalisation and a high PCR are some of the key comforting factors.
ISGEC Heavy Engineering | Strong order backlog with recent order booking, despite a challenging environment provides healthy revenue visibility. Order intake outlook is positive led by government-led infrastructure push and a revival in private capex. The key risks are a decline in revenue due to lower order book execution, or sizeable reduction in profit margins and cash flow generation on sustained basis.
ISGEC Heavy Engineering | Strong order backlog with recent order booking, despite a challenging environment provides healthy revenue visibility. Order intake outlook is positive led by government-led infrastructure push and a revival in private capex. The key risks are a decline in revenue due to lower order book execution, or sizeable reduction in profit margins and cash flow generation on sustained basis.
ITC | Company's core cigarette sales volumes are expected to grow by 12-13% in FY2022 (likely to reach COVID levels by Q2/Q3). Improving mobility and no tax rate hike on cigarettes in GST meet will help the cigarette sales volume to grow at good pace. • It has strong cash generation ability and has generated cumulative FCF of over Rs. 50,000 crore in the last five years.
ITC | Company's core cigarette sales volumes are expected to grow by 12-13% in FY2022 (likely to reach COVID levels by Q2/Q3). Improving mobility and no tax rate hike on cigarettes in GST meet will help the cigarette sales volume to grow at good pace. • It has strong cash generation ability and has generated cumulative FCF of over Rs. 50,000 crore in the last five years.
Larsen & Toubro | The management expects a domestic recovery with a focus on growth in both revenues and order inflows for FY2022. Hence, the management has guided for low to mid-teens growth in order intake and revenues for FY2022. OPM and working capital requirement (as a percentage of sales) are expected to remain same as FY2021 as in FY2022. Despite the second wave of COVID-19, the order prospects at 8.96 lakh crore are healthy.
Larsen & Toubro | The management expects a domestic recovery with a focus on growth in both revenues and order inflows for FY2022. Hence, the management has guided for low to mid-teens growth in order intake and revenues for FY2022. OPM and working capital requirement (as a percentage of sales) are expected to remain same as FY2021 as in FY2022. Despite the second wave of COVID-19, the order prospects at 8.96 lakh crore are healthy.
LIC Housing Finance | We believe that company is likely to benefit from healthy home loan disbursements going ahead, aided by strong demand for larger spaces and affordability. Further, with improved ECL coverage (stage 3 coverage 5.93% in Q1FY22 vs. 2.83% in Q1FY21) and recent capital infusion by LIC, the leverage concerns has been addressed. The key risks are any deterioration in the asset quality specifically developer book and its impact on profitability.
LIC Housing Finance | We believe that company is likely to benefit from healthy home loan disbursements going ahead, aided by strong demand for larger spaces and affordability. Further, with improved ECL coverage (stage 3 coverage 5.93% in Q1FY22 vs. 2.83% in Q1FY21) and recent capital infusion by LIC, the leverage concerns has been addressed. The key risks are any deterioration in the asset quality specifically developer book and its impact on profitability.
NOCIL | Improved pricing environment for rubber chemicals and ramp-up in capacity utilisation would expand margins by ~ 715 bps over FY21- 24E to 21.3%. Sharekhan expect a robust 3x rise in PAT to ~ Rs 291 crore over FY21-24E, considerable improvement in RoE to 17.5 and annual FCF generation of ~ Rs 200 crore. Potential market share gains, robust earnings growth outlook and better return ratios could aid re-rating of NOCIL.
NOCIL | Improved pricing environment for rubber chemicals and ramp-up in capacity utilisation would expand margins by ~ 715 bps over FY21- 24E to 21.3%. Sharekhan expect a robust 3x rise in PAT to ~ Rs 291 crore over FY21-24E, considerable improvement in RoE to 17.5 and annual FCF generation of ~ Rs 200 crore. Potential market share gains, robust earnings growth outlook and better return ratios could aid re-rating of NOCIL.
PVR | PVR is well-placed to capitalise on the strong pent-up demand and is expected to report strong revenue growth over FY2022E-FY2024E. Further, PVR is expected to add screens aggressively post normalisation, which would aid revenue growth. A strong recovery in occupancy rates with the release of big-starrer movies and anticipated improvement in profitability and return ratios are expected to re-rate PVR’s multiples going ahead.
PVR | PVR is well-placed to capitalise on the strong pent-up demand and is expected to report strong revenue growth over FY2022E-FY2024E. Further, PVR is expected to add screens aggressively post normalisation, which would aid revenue growth. A strong recovery in occupancy rates with the release of big-starrer movies and anticipated improvement in profitability and return ratios are expected to re-rate PVR’s multiples going ahead.
Radico Khaitan | Efficient working capital management and improved profitability would help company generate high free cash flows in the coming years. With no major capex on books, the higher cash generated will be utilised for developing more premium brands and potential higher payouts to shareholders. The company is well-poised to achieve strong revenue and earnings CAGR of 17% and 22% over FY21-24.
Radico Khaitan | Efficient working capital management and improved profitability would help company generate high free cash flows in the coming years. With no major capex on books, the higher cash generated will be utilised for developing more premium brands and potential higher payouts to shareholders. The company is well-poised to achieve strong revenue and earnings CAGR of 17% and 22% over FY21-24.
State Bank of India | State Bank of India (SBI) is better-placed with respect to asset quality, capitalisation and underwriting strengths. It expects the asset quality to normalise from H2FY22 onwards. Additionally, recent developments on Vodafone-Idea debt are positive for the bank and are likely to provide comfort on one-time provisions. On the credit growth front, the pick-up is gradual and we expect improvement in momentum going ahead, specially on the improving corporate credit cycle.
State Bank of India | State Bank of India (SBI) is better-placed with respect to asset quality, capitalisation and underwriting strengths. It expects the asset quality to normalise from H2FY22 onwards. Additionally, recent developments on Vodafone-Idea debt are positive for the bank and are likely to provide comfort on one-time provisions. On the credit growth front, the pick-up is gradual and we expect improvement in momentum going ahead, specially on the improving corporate credit cycle.
Tata Elxsi | We believe company's growth is likely to remain strong in the coming years, as it focuses on high-growth sectors (media and healthcare) and emerging technology areas (connected, autonomous, OTT, digital health, and medical devices, etc.), where the client allocates a higher budget.
Tata Elxsi | We believe company's growth is likely to remain strong in the coming years, as it focuses on high-growth sectors (media and healthcare) and emerging technology areas (connected, autonomous, OTT, digital health, and medical devices, etc.), where the client allocates a higher budget.
Tata Motors DVR | The company is expected to become earnings’ positive in FY2022E and a 64.8% y-o-y PAT growth in FY2023E, driven by a 16.7% revenue CAGR during FY2021E-FY2023E and a 120-bps improvement in EBITDA margin to 13.4% in FY23E from 12.2% in FY21. The key risks are higher-than-expected delay in easing of semiconductor chips’ shortage may further affect our earnings estimates
Tata Motors DVR | The company is expected to become earnings’ positive in FY2022E and a 64.8% y-o-y PAT growth in FY2023E, driven by a 16.7% revenue CAGR during FY2021E-FY2023E and a 120-bps improvement in EBITDA margin to 13.4% in FY23E from 12.2% in FY21. The key risks are higher-than-expected delay in easing of semiconductor chips’ shortage may further affect our earnings estimates.
Titan Company | Opening up of malls, improved mobility, introduction of new products would help watches and eyewear businesses to post consistent improvement in the performance in the near to medium term. This will also help profitability of these businesses to consistently improve in the coming years.
Titan Company | Opening up of malls, improved mobility, introduction of new products would help watches and eyewear businesses to post consistent improvement in the performance in the near to medium term. This will also help profitability of these businesses to consistently improve in the coming years.
Rakesh Patil
first published: Oct 26, 2021 12:03 pm

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