KRChoksey is betting on these 6 stocks for an upside of up to 23%

HDFC, State Bank of India, Bajaj Auto and HUL are some of the stock on the list

March 08, 2021 / 12:40 PM IST
Sensex
The market ended with a gain of over 2 percent in the week ended March 5 but profit-booking in the last two sessions dragged the Nifty below 15,000 amid weak global cues. Improving macro numbers and a strong showing from autos in February lifted the sentiment, while rising bond yields and weak global cues acted as a dampener. The BSE Sensex added 1,305.33 points, or 2.6 percent, to end the week at 50,405.32 and the Nifty50 rose 408.95 points, or 2.8 percent, to finish at 14,938.1. The BSE smallcap index rose nearly 4 percent, the midcap index added 3 percent and the largecap index jumped nearly 3 percent. The Nifty media index outperformed other sectoral indices with a gain of 6.5 percent. Foreign institutional investors bought equities worth Rs 2,199.74 crore, while domestic institutional investors sold equities worth Rs 2,635.39 crore during the week. Broking house KRChoksey is betting on HDFC, State Bank of India, Bajaj Auto, Hindustan Unilever, Mindtree and Persistent Systems for an upside potential of up to 23 percent. Take a look
Broking firm expect HDFC to benefit from the growing demand for home loans amidst the price competition. Its reach and cost advantage augurs well. It remains a key beneficiary in the home loan market – which is currently undergoing a structural change in demand. It is also a player favorably placed in the high price competitive market. KRChoksey expect its to post a CAGR of 8% in PAT over FY21-23E with RoA improving to ~2.5% from 2.3% in FY21 and also expect 8% CAGR in PAT over FY21-23 with RoA improving to ~2.5% from 2.3% in FY21. We value the core business at 2.2x FY23 Adjusted Book Value of Rs 618; and Rs 1,651 for its subsidiaries and revise the target price to Rs 3,012 per share (earlier Rs 2,500 per share), implying an upside potential of 16.6% from the CMP. Accordingly, we upgrade the rating on the shares of HDFC to a buy.
The broking firm expects HDFC to benefit from the growing demand for home loans amid the price competition. Its reach and cost advantage augur well. It remains a key beneficiary in the home loan market, which is undergoing a structural change in demand. It is also a player favourably placed in the high-price competitive market. KRChoksey expects HDFC to post a CAGR of 8 percent in PAT over FY21-23E with RoA improving to around 2.5% from 2.3% in FY21 and also expect 8% CAGR in PAT over FY21-23 with RoA improving to around 2.5% from 2.3% in FY21. It valued the core business at 2.2x FY23 adjusted book value of Rs 618 and Rs 1,651 for its subsidiaries and revised the target price to Rs 3,012 per share (earlier Rs 2,500 per share), an upside potential of 16.6% from the CMP. It upgraded the rating on the shares of HDFC to a buy.
State Bank of India is a key beneficiary among PSUs, for the likely improvement in the economy and ensuing capital expenditure. Its customer pool is relatively low risk, as witnessed in recent quarters. While NPAs have risen, it is largely well provided for. Its subsidiaries enjoy strong market position. Its deposit franchise, market position, and the benefits from an expansionary budget and ensuing expenditure is a positive. Its valuation remain lower than its recent average and an upcycle in economy is likely to further improve the rerating potential. We expect a CAGR of 8% in PAT over FY21-23E and clock a ROA of 50 bps. While it’s underperforming the private bank peers, the risk reward is now attractive. Its valuation remain lower than its recent average and an upcycle in economy is likely to further improve the rerating potential. We value the bank at 1.5x FY23E ABV to arrive at a revised target price of Rs 450 per share (earlier Rs 300 per share), implying a potential upside of 13.6% from the CMP. Accordingly, we reiterate an accumulate rating on the shares of State Bank of India.
State Bank of India will be a key beneficiary among PSUs for the improvement in the economy and ensuing capital expenditure. Its customer pool is relatively low-risk, as witnessed in recent quarters. While NPAs have risen, it is largely well provided for. Its subsidiaries enjoy a strong market position. Its deposit franchise, market position and the benefits from an expansionary Budget and ensuing expenditure is a positive. Its valuation remains lower than its recent average and an upcycle in the economy is likely to improve the rerating potential. We expect a CAGR of 8% in PAT over FY21-23E and a ROA of 50 bps. While it is underperforming the private bank peers, the risk-reward is now attractive. The brokerage values the bank at 1.5x FY23E ABV, revising the target price to Rs 450 per share from Rs 300, implying a potential upside of 13.6% from the CMP. It reiterated an "accumulate" rating on the shares of State Bank of India.
KRChoksey expect Bajaj Auto to post a CAGR of 5% and 2% in Revenue and PAT respectively over FY20-23E on the back of improvement in the economic situation in exports and domestic recovery in the automobile sector. We remain positive on the company’s growth prospects given the financial performance and the company’s ability to control cost. We believe that the company is well placed to benefit from the revival in the 2-Wheelers demand, particularly in the rural markets and remains our preferred pick in the sector. We assign a P/E multiple of 22.5x (earlier 20x, factoring in sector recovery and financial performance) on FY23E EPS of Rs 190, to arrive at a revised target price of Rs 4,275 per share (earlier Rs 3,778 per share), implying an upside potential of 10.2% from the CMP. Accordingly, we reiterate an accumulate rating on the shares of Bajaj Auto.
KRChoksey expects Bajaj Auto to post a CAGR of 5% and 2% in revenue and PAT, respectively, over FY20-23E on the back of improvement in exports and domestic recovery in the automobile sector. It remains positive on the company’s growth prospects, given its financial performance and the ability to control cost. The company is well placed to benefit from the revival in the 2-wheelers demand, particularly in the rural markets and remains the preferred pick in the sector. It assigned a P/E multiple of 22.5x (earlier 20x, factoring in sector recovery and financial performance) on FY23E EPS of Rs 190, to arrive at a revised target price of Rs 4,275 per share from Rs 3,778, implying an upside potential of 10.2% from the CMP. It has reiterated an "accumulate" rating on the shares of Bajaj Auto.
Broking firm is optimistic on Hindustan Unilever’s growth prospects and continue to apply P/E multiple of 65x on FY23E EPS of Rs 41.8/share & maintain our target price of Rs 2,719 per share; implying an upside potential of 23.7% from the CMP. Accordingly, it has reiterate a buy rating on the shares of the company. It expect company to post a CAGR of 10% and 14.5% in revenue and PAT respectively over FY20-23E on the back of improvement in the economic situation, new product launches, impactful innovation, and better realization in the domestic markets. On the commodities front, the industry is witnessing unprecedented inflation, especially in tea prices and the palm oil prices, which have gone up by 40% to 50% YoY. Despite all the headwinds, HUL with its operational efficiency and cost saving strategies has been able to maintain double-digit growth in bottom-line.
The broking firm is optimistic on Hindustan Unilever’s growth prospects and continues to apply P/E multiple of 65x on FY23E EPS of Rs 41.8/share and maintain the target price of Rs 2,719 per share, implying an upside potential of 23.7% from the CMP. It has reiterated a "buy" rating on the shares of the company. It expects the company to post a CAGR of 10% and 14.5% in revenue and PAT, respectively, over FY20-23E on the back of improvement in the economic situation, new product launches, impactful innovation and better realisation in the domestic markets. On the commodities front, the industry is witnessing unprecedented inflation, especially in tea and palm oil prices, which have gone up by 40% to 50% YoY. Despite the headwinds, HUL with its operational efficiency and cost-saving strategies has been able to maintain double-digit growth in bottom-line.
Mindtree seems well-placed to drive double digit revenue growth, led by CMT and CPG verticals, with the key Microsoft account and Realogy deal to boost the former. Accelerated digital investments owing to COVID-19 are likely to play well into Mindtree’s service realignment, which focuses on leveraging digital investments in a more targeted manner. The strategic refresh and larger client focus, with cutting the long tail a recurring effort, should also enable the IT firm to allocate resources more efficiently and drive more predictable revenue growth, along with keeping S&M costs under control. KRChoksey maintain buy rating, with a target price of Rs 2,050. It forecast healthy 14%/18%/17% CAGRs in USD revenue, EBIT and EPS, respectively and award the stock a target PE multiple of 22x FY23E EPS, which we believe is justified given the IT major’s robust growth profile, falling reliance on top client Microsoft, all-round growth across key verticals, improving profitability and robust RoE of ~30%.
Mindtree seems well-placed to drive double-digit revenue growth, led by CMT and CPG verticals, with the key Microsoft account and Realogy deal to boost the former. Accelerated digital investments owing to COVID-19 are likely to play well into Mindtree’s service realignment, which focuses on leveraging digital investments in a more targeted manner. The strategic refresh and larger client focus, with cutting the long tail a recurring effort, should also enable the IT firm to allocate resources more efficiently and drive more predictable revenue growth, along with keeping S&M costs under control. KRChoksey has maintained a "buy" rating, with a target price of Rs 2,050. It has forecasted a healthy 14%/18%/17% CAGRs in USD revenue, EBIT and EPS, respectively and awards the stock a target PE multiple of 22x FY23E EPS, given the IT major’s robust growth profile, falling reliance on top client Microsoft, all-round growth across key verticals, improving profitability and robust RoE of ~30%.
Persistent Systems posted a robust 3QFY21 performance, with revenue led by large deal execution, while margin improved despite wage hikes, aided by growth leverage, cost optimisation and higher offshore revenue share. The mid-sized IT firm won several large deals across technology, BFSI and medical devices verticals, providing good medium-term visibility. There remains good scope for cross-selling services between Alliances and TSU business segments. Broking house maintain accumulate rating, with a revised target price of Rs 1,820 (Rs 1,740) owing to a higher PE multiple of 22x vs 21x earlier given improving business visibility and margin outlook. KRChoksey expect Persistent to clock >15%/19% USD revenue and EPS CAGR, respectively over FY21-FY23E. The stock trades at a PE of 23.3x/20.3x FY22E/23E EPS. We award the stock a target PE multiple of 22x FY23E EPS vs 21x earlier on improving revenue and margin outlook, pivot to annuity revenue, and healthy EPS growth.
Persistent Systems reported a robust 3QFY21 performance with revenues being led by large-deal execution, while margin improved despite wage hikes, aided by growth leverage, cost optimisation and higher offshore revenue share. The mid-sized IT firm won several large deals across technology, BFSI and medical devices verticals, providing good medium-term visibility. There remains good scope for cross-selling services between alliances and TSU business segments. The broking house maintains the "accumulate" rating, with a revised target price of Rs 1,820 (Rs 1,740), owing to a higher PE multiple of 22x vs 21x earlier given the improving business visibility and margin outlook. KRChoksey expects Persistent to clock >15%/19% USD revenue and EPS CAGR, respectively, over FY21-FY23E. The stock trades at a PE of 23.3x/20.3x FY22E/23E EPS. It has awarded the stock a target PE multiple of 22x FY23E EPS vs 21x earlier on improving revenue and margin outlook, pivot to annuity revenue, and healthy EPS growth.
Rakesh Patil
first published: Mar 8, 2021 11:50 am

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