HDFC Bank, Bajaj Finserv, Bharti Airtel among 11 buying ideas for up to 42% upside

Benchmark indices continued its winning streak for the fifth consecutive sessions on December 7 to end at record closing highs supported by financials, pharma and FMCG stocks. BSE Sensex was up 347.42 points or 0.77% at 45426.97, and the Nifty was up 97.30 points or 0.73% at 13355.80. Here are 11 stocks brokerages are bullish on despite the recent run-up:

Bharti Airtel | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 509 | Target: Rs 650 | Upside: 27 percent. Bharti acquired 4.94% stake in Bharti Infratel through its wholly-owned subsidiary Nettle for Rs 2,882 crore (Rs 217 per share). Motilal Oswal assign EV/EBITDA of 11x to the India business and 6x to the Africa business on FY22E basis. It expects Bharti to generate post-interest FCF of Rs 64 billion in FY22E after factoring in spectrum renewal cost of Rs 130 billion. This could subsequently be used for deleveraging, the brokerage said. Strong FCF, improving RoCE, and the expectation of an incremental price hike should garner a better valuation for Bharti Airtel, Motilal Oswal feels.

Coal India | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 136 | Target: Rs 193 | Upside: 42 percent. The broking house raised its FY21E adjusted EBITDA/PAT by 9%/11% given the higher off-take. With the normalisation of power demand, it expects Coal India’s off-take and profitability to recover in FY22. At 1.7x FY22E EV/EBITDA and 5.0x FY22 P/E, along with dividend yield of 9%, Coal Coal India remains attractively valued and implies PV of just nine years of its future cash flows.

NMDC | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 109 | Target: Rs 129 | Upside: 18 percent. The research house expects NMDC to restart operations in its Donimalai mine by December end and accordingly raised the FY21E/FY22E volume estimate by 3%/16% to 31.3mt/37mt. However, incremental EBITDA contribution from Donimalai mine would be lower due to levy of 22.5% premium. It expects EBITDA to grow 11% CAGR over FY20-22E despite a volume/realisation CAGR of 8%/5%. The government’s proposal to levy a premium on NMDC on its mining leases has emerged as a key overhang on the stock.

Emami | Brokerage: Prabhudas Lilladher | Rating: Buy | LTP: Rs 421 | Target: Rs 526 | Upside: 25 percent. The broking house believes Emami has hit a sweet spot for growth led by 1) Strong rural demand as it is 55% of sales for Emami; 2) strong demand for winter care products on early onset of winter; 3) low base for Q3 (5-year sales growth of 3.3%, 19.7% and 25.8% decline in Q4 and Q1); 4) Kesh king gaining market share in premium hair oil segment; 5) Strong demand for Immunity boosters like Chawyanprash and Kesari Jeevan; and 6) benign input costs of LLP and Mentha oil. The broking house believes the success of F&H re-launch and pick up in male grooming portfolio is key to sustaining growth beyond next 2/3 quarters. It believes the worst is over for the company and accelerated amortisation, net cash balance sheet (Rs2.5 billion in Q2FY21), 40-50% dividend payout, gradual reduction in promoter pledge (45%, likely to decline in Q4) are positives for Emami.

Voltamp Transformers | Brokerage: Prabhudas Lilladher | Rating: Buy | LTP: Rs 1,199 | Target: Rs 1,283 | Upside: 7 percent. Prabhudas Lilladher remains positive on the company due to its strong business model, debt-free status and consistent free cash flow generation (current cash + Investments of Rs6.5 billion). Going forward, the company expects sectors like infra, water, power, mining, oil & gas, ports, pharma, data centers etc. to be major growth drivers. The brokerage expects revenue/PAT to grow at CAGR of 6%/10% over the next two years.

UltraTech Cement | Brokerage: Dolat Capital | Rating: Buy | LTP: Rs 5,056 | Target: Rs 5,834 | Upside: 15 percent. The company will continue to witness healthy operating cash flow (average Rs 85.9 billion/year) and free cash flow (average Rs 59.2 billion/year) leading to further deleveraging. The company is the largest player in the Indian cement industry which is its biggest advantage.

J.Kumar Infraprojects | Brokerage: Prabhudas Lilladher | Rating: Buy | LTP: Rs 139.85 | Target: Rs 176 | Upside: 26 percent. The company has a strong track record of executing roads and bridges, structural buildings, urban infrastructure such as metro, railway, subways and skywalks. The company stands strong on the back of a) healthy order book with steadily increasing order ticket size; b) strong execution capabilities; c) controlled financial leverage; and d) strong EBITDA margins (15-16% over FY16-20). At CMP, the stock trades at a P/E of 14.7x/4.5x on FY21E/FY22E EPS and an EV of 4.2x/2.5x on FY21E/ FY22E EBITDA.

HDFC Bank | Brokerage: Motilal Oswal | Rating: Buy | LTP: Rs 1,372 | Target: Rs 1,500 | Upside: 9 percent. The bank has indicated that the recent RBI order will not have an impact on its existing credit cards business as well as its operations. However, this order could likely delay the launch of digital auto loan financing portal, which the management has guided for during Q2FY21. The timeline of lifting these orders would be a key monitorable and the brokerage remains watchful on future developments in this regard.

Mindtree | Brokerage: ICICIdirect | Rating: Buy | LTP: Rs 1,442 | Target: Rs 1,680 | Upside: 16 percent. Healthy order book, higher pipeline, strategy to drive large deals, hire tier 1 leaders to scale growth and expertise in digital technology bode well for the long-term growth of the company. This, coupled with ability to sustain healthy margins, prompts us to remain positive on the stock, ICICIdirect said.

Bajaj Finserv | Brokerage: ICICIdirect | Rating: Buy | LTP: Rs 9,052 | Target: Rs 10,500 | Upside: 16 percent. Pandemic led to incremental focus on product mix and business growth in insurance business that were earlier seeing healthy growth. However, concerns on asset quality and business momentum in lending business impacted earnings and perception in the recent past. Bajaj Finance has sailed through the headwinds and emerged stronger with a leaner operating model. Growth guidance of 25% for FY22E and opportunity to apply for banking licence have resulted in renewed interest from investors in the stock. This has led to expansion of valuation multiples, the broekrage said.

ICICI Bank | Brokerage: Prabhudas Lilladher | Rating: Buy | LTP: Rs 510 | Target: Rs 614 | Upside: 20 percent. With a strong capital base and relatively large COVID related issues moving behind, the bank will continue to invest heavily in technology. The broking house believes these initiatives will gradually help towards sustained double-digit return ratios of 14-15% by FY23. It maintains a buy rating on the bank with a revised target price to Rs 614 (from Rs 520).