ICICI Direct bets on these 12 stocks post Q3 earnings for 12-44% returns

NRB Bearings, Dalmia Bharat Sugar, Somany Ceramics, Hero MotoCorp and Sumitomo Chemicals are among top 12 buying picks by the broking house ICICI Direct.

February 09, 2021 / 10:58 AM IST
Sensex
Market maintained the upward momentum on the sixth consecutive day on February 9 with benchmark indices rising more than 1 percent each. We have collated a list of 10 long-term buying ideas from the broking house ICICI Direct, with an upside of 12-44 percent calculated from the closing of February 8, 2021.
Sumitomo Chemicals | Rating: Buy | LTP: Rs | Target: Rs 360 | Upside: percent. We believe the strategy of the company would improve margins through changes in the product mix. The speciality business revenue share increased to 34% for 9MFY21 versus 31% in 9MFY20. This led an improvement in the OPM (up 497 bps YoY to 18.8%) for 9MFY21. This was partly due to a favourable pricing scenario along with higher share of speciality business. Going ahead, we expect increasing share towards CRAMS, PGR, AND & EHD would aid this mix further and thereby group operational performance. This should support group return ratios, FCF and thereby valuations.
Sumitomo Chemicals | Rating: Buy | LTP: Rs 305.30 | Target: Rs 360 | Upside: 18 percent. We believe the strategy of the company would improve margins through changes in the product mix. The speciality business revenue share increased to 34% for 9MFY21 versus 31% in 9MFY20. This led an improvement in the OPM (up 497 bps YoY to 18.8%) for 9MFY21. This was partly due to a favourable pricing scenario along with higher share of speciality business. Going ahead, we expect increasing share towards CRAMS, PGR, AND & EHD would aid this mix further and thereby group operational performance. This should support group return ratios, FCF and thereby valuations.
Brigade Enterprises | Rating: Buy | LTP: Rs | Target: Rs 320 | Upside: percent. The strong recovery in the residential segment aided the overall cash generation and debt reduction by ~ Rs 141 crore in residential segment while commercial leasing pick-up could be gradual, going ahead. Furthermore, full reopening of the economy is likely to boost retail and hospitality segment in FY22. BEL has comfortable debt-equity and sufficient liquidity from operational commercial assets (and likely operational assets in FY22).
Brigade Enterprises | Rating: Buy | LTP: Rs 285 | Target: Rs 320 | Upside: 12 percent. The strong recovery in the residential segment aided the overall cash generation and debt reduction by around Rs 141 crore in residential segment while commercial leasing pick-up could be gradual, going ahead. Furthermore, full reopening of the economy is likely to boost retail and hospitality segment in FY22. BEL has comfortable debt-equity and sufficient liquidity from operational commercial assets (and likely operational assets in FY22).
PNC Infratech | Rating: Buy | LTP: Rs | Target: Rs 300 | Upside: percent. PNC remains our preferred pick in the EPC space given its robust order book, healthy return ratios and lean balance sheet. Irrespective of its asset monetisation plan fructification, sufficient internal accruals from current order book and current cash is enough for equity infusion. Government focus on roads and higher allocation in Union Budget also bodes well for the company.
PNC Infratech | Rating: Buy | LTP: Rs 268.10 | Target: Rs 300 | Upside: 12 percent. PNC remains our preferred pick in the EPC space given its robust order book, healthy return ratios and lean balance sheet. Irrespective of its asset monetisation plan fructification, sufficient internal accruals from current order book and current cash is enough for equity infusion. Government focus on roads and higher allocation in Union Budget also bodes well for the company.
Somany Ceramics | Rating: Buy | LTP: Rs | Target: Rs 500 | Upside: percent. Somany Ceramics' working capital management and net debt reduction (down from ~ Rs 444 crore in FY20 to Rs 255 crore as on Q3FY21) has been the key positive. Given the robust demand traction, improved margins trajectory and balance sheet repair initiatives, we raise our target multiple to 17x now (vs. 14x) as we roll forward to FY23E.
Somany Ceramics | Rating: Buy | LTP: Rs 385.50 | Target: Rs 500 | Upside: 29 percent. Somany Ceramics' working capital management and net debt reduction (down from about Rs 444 crore in FY20 to Rs 255 crore as on Q3FY21) has been the key positive. Given the robust demand traction, improved margins trajectory and balance sheet repair initiatives, we raise our target multiple to 17x now (vs. 14x) as we roll forward to FY23E.
Divis Laboratories | Rating: Buy | LTP: Rs | Target: Rs 4,440 | Upside: percent. Q3 results were mostly in line with I-direct estimates on all fronts. More than strong quarterly performance (the management stresses in a business like this can be lumpy) important narrative for Divis is unprecedented capex to further augment capacities besides preparing for growing opportunities arising from China plus one factor. Impact of the massive investment is already visible & expected to reflect in FY22-23. Divi’s stays a quintessential play on Indian API/CRAMs segment with its product offering, execution prowess.
Divi's Laboratories | Rating: Buy | LTP: Rs 3,781.65 | Target: Rs 4,440 | Upside: 17 percent. Q3 results were mostly in line with I-direct estimates on all fronts. More than strong quarterly performance (the management stresses in a business like this can be lumpy) important narrative for Divi's is unprecedented capex to further augment capacities besides preparing for growing opportunities arising from China plus one factor. Impact of the massive investment is already visible & expected to reflect in FY22-23. Divi’s stays a quintessential play on Indian API/CRAMs segment with its product offering, execution prowess.
Granules India Ltd.
Cadila Healthcare | Rating: Buy | LTP: Rs 473.40 | Target: Rs 555 | Upside: 17 percent. Q3 operational performance was mostly in line with I-direct estimates (albeit skewed) led by strong domestic formulations growth, whereas profitability was higher due to lower interest cost and tax rate. On the US front, the company plans to venture into complex injectables (71 filed ANDAs), which is likely to provide meaningful traction from FY23-24 onwards. Similarly, addition of biosimilars (like Trastuzumab, Adalimumab, Pegfilgrastim, Bevacizumab, etc.) for Emerging markets (like LatAm, MENA markets, South East Asia) are expected to provide growth impetus, going ahead. The wellness segment performance hinges upon Cadila’s marketing & distribution prowess besides effective product positioning. India formulations business, after recent restructuring, is likely to stabilise.
Dalmia Bharat Sugar | Rating: Buy | LTP: Rs | Target: Rs 200 | Upside: percent. With significant sugar export & diversion of sugarcane towards ethanol, Dalmia has been able to liquidate its inventories significantly. Further, higher contribution of B-heavy ethanol & increase in ethanol prices would result in strong 17.7% earnings CAGR in FY20-22E. We expect operating cash flow generation of more than Rs 500 crore in FY21E & FY22E each & total debt reduction of Rs 680 crore in similar period.
Dalmia Bharat Sugar | Rating: Buy | LTP: Rs 138.90 | Target: Rs 200 | Upside: 44 percent. With significant sugar export & diversion of sugarcane towards ethanol, Dalmia has been able to liquidate its inventories significantly. Further, higher contribution of B-heavy ethanol & increase in ethanol prices would result in strong 17.7% earnings CAGR in FY20-22E. We expect operating cash flow generation of more than Rs 500 crore in FY21E & FY22E each & total debt reduction of Rs 680 crore in similar period.
Hero MotoCorp | Rating: Buy | LTP: Rs | Target: Rs | Upside: percent. For the company, we build 17% sales, 20% PAT CAGR in FY21E-23E. We upgrade from hold to buy, valuing it at Rs 4,000 (20x P/E on FY23E EPS; previous target price Rs 3,480) on healthy demand outlook and unchanged long term comfort drivers i.e. capital efficiency, high dividend payouts, debt free b/s along with consistent cash generation.
Hero MotoCorp | Rating: Buy | LTP: Rs 3,495.35 | Target: Rs 4,000 | Upside: 14 percent. For the company, we build 17% sales, 20% PAT CAGR in FY21E-23E. We upgrade from hold to buy, valuing it at Rs 4,000 (20x P/E on FY23E EPS; previous target price Rs 3,480) on healthy demand outlook and unchanged long term comfort drivers i.e. capital efficiency, high dividend payouts, debt free b/s along with consistent cash generation.
Dhampur Sugar | Rating: Buy | LTP: Rs | Target: Rs 210 | Upside: percent. Dhampur would be commissioning new 100 KLD distillery by November-December 2021. After the capex, the company would have total 500 KLD distillery capacity. This capacity addition would eliminate the dependency on sugar exports. Further, higher distillery volumes from sugarcane juice, B heavy molasses would aid earnings growth.
Dhampur Sugar | Rating: Buy | LTP: Rs 170 | Target: Rs 210 | Upside: 23 percent. Dhampur would be commissioning new 100 KLD distillery by November-December 2021. After the capex, the company would have total 500 KLD distillery capacity. This capacity addition would eliminate the dependency on sugar exports. Further, higher distillery volumes from sugarcane juice, B heavy molasses would aid earnings growth.
SKF India | Rating: Buy | LTP: Rs 2,420.50 | Target: Rs 2,890 | Upside: 19 percent. Taking cognisance from the recent auto numbers and recovery in industrials, we revise our estimates upwards. We introduce FY23E numbers and pencil in 17%, 24.5% & 25.9% revenue, EBIDTA & PAT CAGR for FY21E-23E, respectively. Hence, with improved outlook and enhance visibility, we upgrade the stock from hold to buy valuing the stock at 33x FY23E earnings with a target price of Rs 2890/share (earlier Rs 1615).
SKF India | Rating: Buy | LTP: Rs 2,420.50 | Target: Rs 2,890 | Upside: 19 percent. Taking cognisance of the recent auto numbers and recovery in industrials, we revise our estimates upwards. We introduce FY23E numbers and pencil in 17%, 24.5% & 25.9% revenue, EBIDTA & PAT CAGR for FY21E-23E, respectively. Hence, with improved outlook and enhance visibility, we upgrade the stock from hold to buy valuing the stock at 33x FY23E earnings with a target price of Rs 2890/share (earlier Rs 1,615).
NRB Bearings | Rating: Buy | LTP: Rs 118.55 | Target: Rs 150 | Upside: 26 percent. NRB’s performance is largely correlated to the domestic auto segment as ~ 70% of the topline comes from domestic OEMs. The past two quarters showed signs of a strong recovery. Further auto volumes in January also came in strong. Also, even with a rise in steel prices, we expect NRB to emerge with EBIDTA margins of 15.7% for FY22E & FY23E led by positive operating leverage. We introduce FY23E and build in revenue, EBIDTA and PAT CAGR of 8.9%, 22.3% and 36.5%, respectively, in FY20-23E. We estimate an EPS of Rs 8.4/share for FY23E that implies earnings yield of 7% at CMP.
NRB Bearings | Rating: Buy | LTP: Rs 118.55 | Target: Rs 150 | Upside: 26 percent. NRB’s performance is largely correlated to the domestic auto segment as ~ 70% of the topline comes from domestic OEMs. The past two quarters showed signs of a strong recovery. Further auto volumes in January also came in strong. Also, even with a rise in steel prices, we expect NRB to emerge with EBIDTA margins of 15.7% for FY22E & FY23E led by positive operating leverage. We introduce FY23E and build in revenue, EBIDTA and PAT CAGR of 8.9%, 22.3% and 36.5%, respectively, in FY20-23E. We estimate an EPS of Rs 8.4/share for FY23E that implies earnings yield of 7% at CMP.
Narayana Hrudayalaya | Rating: Buy | LTP: Rs 489.50 | Target: Rs 580 | Upside: 18 percent. Despite Covid-related challenges, the company posted a substantial improvement in operational performance. Also, in Decembers, the company’s flagship centre revenues reached ~ 89% of pre-Covid (February 2020) levels. In view of significant near-term headwinds due to reduced overall occupancy levels amid Covid-19, the management has charted a path to reduce costs, increase efficiency and rationalise capex. New hospitals (SRCC, Gurugram, Dharamshila) continue to see a reduction in losses due to ramp up in occupancies. We continue to believe in the long term prospects of the company on the back of asset-right model and affordability philosophy.
Narayana Hrudayalaya | Rating: Buy | LTP: Rs 489.50 | Target: Rs 580 | Upside: 18 percent. Despite Covid-related challenges, the company posted a substantial improvement in operational performance. Also, in Decembers, the company’s flagship centre revenues reached ~ 89% of pre-Covid (February 2020) levels. In view of significant near-term headwinds due to reduced overall occupancy levels amid Covid-19, the management has charted a path to reduce costs, increase efficiency and rationalise capex. New hospitals (SRCC, Gurugram, Dharamshila) continue to see a reduction in losses due to ramp up in occupancies. We continue to believe in the long term prospects of the company on the back of asset-right model and affordability philosophy.
Rakesh Patil
first published: Feb 9, 2021 10:58 am

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