LIVE NOW:Watch the Definedge Conference on Market Analysis (DECMA). Join Now

Long-term picks: Axis Securities recommends these 15 names for up to 36% upside

ICICI Bank, Manappuram Finance, Bharti Airtel, HCL Tech, Relaxo Footwears, Amber Enterprises, NOCIL, Steel Strip Wheels and Lupin are among the top picks by Axis Securities.

March 04, 2021 / 12:27 PM IST
Axis Securities raised its earnings estimates for FY21/22/23 by 9%/8%/7% respectively and also increased the Nifty target in line with the earnings upgrade. The target multiple at 22x on FY23E earnings remains unchanged as it is seeing consistent earnings recovery. The earnings uptrend cycle is likely to persist in the forthcoming quarters providing comfort in the current valuations. Here are the 16 long-term top picks by Axis Securities with an upside of upto 36 percent from the recommended price
Market has been in an uptrend since the second half of 2020, except for a few corrections and dips in between. Experts say declines in an upward market are healthy and provide an opportunity for new investors to enter. There is little doubt that the 2020 pandemic rally was driven significantly by FII buying which was due to multiple factors including low interest rate regime. So now the upward shift of interest rates will present short-term challenge for the market but the structural growth story for India is intact, said Axis Securities in its latest report. Even though February saw higher volatility than the long-term average, the market trend was constructive. The trend across the core sectors was also very strong during the month which is a significant positive. "While the market has seen positive traction during February, there are marked changes in the global interest rate cycle and doubts are being cast on the ‘Lower for Longer’ trend of interest rates." Axis Securities raised its earnings estimates for FY21/22/23 by 9%/8%/7%, respectively, and also increased the Nifty target in line with the earnings upgrade. "The earnings uptrend cycle is likely to persist in the forthcoming quarters providing comfort in the current valuations," the report said. ICICI Bank, Manappuram Finance, Can Fin Homes, Federal Bank, Bharti Airtel, HCL Tech, Tech Mahindra, Varun Beverages, Relaxo Footwears, Amber Enterprises, NOCIL, Endurance Technologies, Steel Strip Wheels and Lupin, JK Lakshmi Cement are among the long-term picks by Axis Securities with an upside of up to 36 percent from the recommended price.
ICICI Bank | Rating: Buy | CMP: Rs 609 | Target: Rs 666 | Upside: 9 percent. Higher loan growth, improving operating profits, strong provision buffer coupled with a strong deposit franchise will help ROAE/ROAA expansion over FY22-23E for the bank. The key risks are significant deterioration in retail asset quality and delay in the resolution of stressed assets.
ICICI Bank | Rating: Buy | CMP: Rs 609 | Target: Rs 666 | Upside: 9 percent. Overall loan growth in Q3FY21 was 10%YoY with domestic loan book growing 13% YoY. Within domestic loans, Retail/Corporate/SME grew 15/7/25% reflecting gradual normalisation to pre-Covid levels. Deposit growth was strong at 22%YoY. Headline CASA ratio improved to 45% from 44%QoQ. Higher loan growth, improving operating profits, strong provision buffer coupled with a strong deposit franchise will help ROAE/ROAA expansion over FY22-23E for the bank. The key risks are significant deterioration in retail asset quality and delay in the resolution of stressed assets.
Manappuram Finance | Rating: Buy | CMP: Rs 176 | Target: Rs 207 | Upside: 18 percent. Axis Securities believe credit costs will come down over FY22-FY23E and expect cost optimization to aid profitability. Balance sheet liquidity remains comfortable with no funding challenges. Management expects to maintain ROAs of 6-7% over FY21-22E, while broking firm expect company to maintain ROAE of +24% over FY21/FY22. Gold lending is a high moat business and specialists like MGFL will continue to benefit. The key risks are near term asset quality risk in MFI portfolio and a slowdown in the gold loan business.
Manappuram Finance | Rating: Buy | CMP: Rs 176 | Target: Rs 207 | Upside: 18 percent. Company can sustain its performance in a critical business environment due to its well-matched ALM profile, strong liquidity, and cost controls. Low LTVs of 63%, provide a comfortable margin of safety against gold price correction. Management has applied to RBI for 300 branches in north India and expect permission to come soon. Axis Securities believe credit costs will come down over FY22-FY23E and expect cost optimization to aid profitability. Balance sheet liquidity remains comfortable with no funding challenges. Management expects to maintain ROAs of 6-7% over FY21-22E, while broking firm expect company to maintain ROAE of +24% over FY21/FY22. Gold lending is a high moat business and specialists like MGFL will continue to benefit. The key risks are near term asset quality risk in MFI portfolio and a slowdown in the gold loan business.
Can Fin Homes | Rating: Buy | CMP: Rs 485 | Target: Rs 573 | Upside: 18 percent. Company's ability to improve NIMs even in a tough environment reflects its entrenched business model, even as book size is much smaller than peers. Axis Securities expect loan growth to pick up gradually as the company embarks to push growth through competitive rates and new geographies. Loan mix profile skewed towards salaried segment will help in maintaining asset quality. Broking firm remain positive on the stock given its favourable loan mix, sustained margins, comfortable liquidity position and robust CAR (24%). The key risk is lower than expected demand pick-up.
Can Fin Homes | Rating: Buy | CMP: Rs 485 | Target: Rs 573 | Upside: 18 percent. Company's ability to improve NIMs even in a tough environment reflects its entrenched business model, even as book size is much smaller than peers. Axis Securities expect loan growth to pick up gradually as the company embarks to push growth through competitive rates and new geographies. Loan mix profile skewed towards salaried segment will help in maintaining asset quality. Broking firm remain positive on the stock given its favourable loan mix, sustained margins, comfortable liquidity position and robust CAR (24%). The key risk is lower than expected demand pick-up. Comapny is one of the better-positioned players in the housing finance sector with a strong balance sheet, low NPAs, granular loan book and sound underwriting standards. With demand back completely, the management is now focusingmore on the growth front and re-priced its loan book with competitive rates of6.95% and mitigating risk of balance transfers. It is also targeting large cities andmetros along-with its earlier strategy to expand into tier 3-4 cities.
Federal Bank
Federal Bank | Rating: Buy | CMP: Rs 84 | Target: Rs 93 | Upside: 11 percent. Axis Securities 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, it expect the valuation to improve from current levels if asset quality trends maintain and ROA improvement keeps on track. The key risk is asset quality trends in coming quarters. The Bank continues withits cautious approach in building the loan mix toward high-rated corporates and retail loans. The bank’s liability franchise remains strong with CASA plus Retail TD of ~90% and one of the highest LCR amongst banks.Restructuring levels are also lower than expected.
NOCIL | CMP: Rs 169 | Target: Rs 202 | Upside: 20 percent. Broking house expect FY22E to see a healthy performance on the back of improving opportunities in the export markets and demand traction in domestic markets. The improvement in pricing scenario showing an increasing trend, expansion in new geographies, improving product mix and strong relationships with its customers will lead to strong operational performance for the next few quarters. The key risks are concern on COVIDs second wave and frizzling out of auto sector demand thereby impacting demand for tyres.
NOCIL | CMP: Rs 169 | Target: Rs 202 | Upside: 20 percent. Broking house expect FY22E to see a healthy performance on the back of improving opportunities in the export markets and demand traction in domestic markets. The improvement in pricing scenario showing an increasing trend, expansion in new geographies, improving product mix and strong relationships with its customers will lead to strong operational performance for the next few quarters. The key risks are concern on COVIDs second wave and frizzling out of auto sector demand thereby impacting demand for tyres. The company management revised its guidance upwards from flattish to 8%-10% volume and sales growth for FY21E, despite a weak Q1FY21 and indicated that the growth is expected to continue in Q1FY22 as well.
Varun Beverages | CMP: Rs 1,040 | Target: Rs 1,230 | Upside: 18 percent. Axis Securities expect company to register Revenues/EBITDA/Earnings CAGR of 11%/14%/31% respectively over CY19-22E. This growth will be driven by 1) Consolidation in newly acquired territories, 2) Distribution led market share gains, and 3) Margin tailwinds from cost efficiencies. Healthy outlook on the upcoming season and tieups with leading and fast-growing QSR players in India are expected to propel company's growth into a new orbit going ahead.
Varun Beverages | CMP: Rs 1,040 | Target: Rs 1,230 | Upside: 18 percent. Axis Securities expect company to register Revenues/EBITDA/Earnings CAGR of 11%/14%/31% respectively over CY19-22E. This growth will be driven by 1) Consolidation in newly acquired territories, 2) Distribution led market share gains, and 3) Margin tailwinds from cost efficiencies. Healthy outlook on the upcoming season and tieups with leading and fast-growing QSR players in India are expected to propel company's growth into a new orbit going ahead. With business growth restoring, aided by lockdown relaxations as witnessed in Q3CY20 and Q4CY20, broking firm do expect this momentum to continue in CY21. The trend of in-home consumption has seen an increase and is likely to sustain as consumers get habituated to consuming soft drinks at home.
Representative image
Relaxo Footwear | CMP: Rs 871 | Target: Rs 1,005 | Upside: 15 percent. Relaxo has maintained healthy operating cashflows, asset turns (~3x) and EBITDA Margins over the years making it a capital-efficient business. Broking firm 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. It 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. Broking firm remain positive on the stock from a long term perspective given immense growth potential. Gross Margin expanded in 9MFY21 bps in on the back of benign raw material prices, while Axis expect prices of raw material to rise as demand reverts to normalcy in turn levelling margins to previous trends. EBITDA Margin witnessed sharp improvement on account of better product mix and saving in selling and administrative expenses.
Amber Enterprises | CMP: Rs 3,198 | Target: Rs 3,614 | Upside: 13 percent. Axis Securities expect company 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. It raise the multiple to 41 x, which is at a premium to consensus and historical multi
Amber Enterprises | CMP: Rs 3,198 | Target: Rs 3,614 | Upside: 13 percent. Axis Securities expect company 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. It raise the multiple to 41 x, which is at a premium to consensus and historical multiples. Strong traction in the under-penetrated RAC segment and growth opportunities led by government policies (PLI) and export opportunities augur well for Amber over the long term.
Endurance Technologies | CMP: Rs 1,420 | Target: Rs 1,714 | Upside: 21 percent. Broking firm expect Endurance Technologies to outperform the industry given its sticky relations with OEMs, broad product basket, market leadership with a market share of around 35% in suspensions, 25% in hydraulic braking system, 20% in disc braking system, and 16% in transmission. It estimate Endurance to post consolidated Revenue/EBIDTA/PAT to grow at CAGR of 11%/14%/15% respectively over FY20-23.
Endurance Technologies | CMP: Rs 1,420 | Target: Rs 1,714 | Upside: 21 percent. Broking firm expect Endurance Technologies to outperform the industry given its sticky relations with OEMs, broad product basket, market leadership with a market share of around 35% in suspensions, 25% in hydraulic braking system, 20% in disc braking system, and 16% in transmission. It estimate Endurance to post consolidated Revenue/EBIDTA/PAT to grow at CAGR of 11%/14%/15% respectively over FY20-23. Premium bikes are expected to grow in the lower teens over the next 3-5 years on the back of increasing urbanization, improved purchasing power & rising aspirational needs. Endurance Tech would be the big beneficiary of the rise in the share of premium bikes as it is one of the few auto ancillaries with tried and tested products thatgo into manufacturing premium bikes along with new products.
Steel Strip Wheels | Rating: | CMP: Rs 646 | Target: Rs 877 | Upside: 36 percent. Being in an oligopoly market, company commands leadership with a market share of around 55% in steel wheel rims and around 20% in alloy wheels; Axis Securities expect company to outperform the industry given its sticky relations with OEMs across all the auto segment viz., 2/3W, PV, CV, and Tractors. The key risks are delay in automobile demand recovery especially. PV and CV and sharp appreciation of INR in wake of rising exports of the company.
Steel Strip Wheels | Rating: | CMP: Rs 646 | Target: Rs 877 | Upside: 36 percent. Being in an oligopoly market, company commands leadership with a market share of around 55% in steel wheel rims and around 20% in alloy wheels; Axis Securities expect company to outperform the industry given its sticky relations with OEMs across all the auto segment viz., 2/3W, PV, CV, and Tractors. The key risks are delay in automobile demand recovery especially. PV and CV and sharp appreciation of INR in wake of rising exports of the company. The company has visibility of orders to supply Al-alloy wheels over the next 5 years; the company is also expanding Al-alloy wheel capacity to 2.4 mn wheels which would be ready by the end of FY21. Being a high margin product (margin differential of around 500-600 bps over Steel wheels), the bottomline is expected to grow at a faster pace as the share of the Al-alloy wheel rises in overall sales.
Representative image
Lupin | CMP: Rs 1,031 | Target: Rs 1,135 | Upside: 10 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. Within the pharma market, the chronic segments (Cardiac, Anti-Diabetic & Respiratory) has outpaced the industry growth by 300-400 bps. Lupin has a 65% contribution from the chronic segment in the overall portfolio in the domestic market and expected to deliver revenue CAGR 7.6% over the period FY20-23E.
Tech Mahindra | Rating: | CMP: Rs 951 | Target: Rs 1,116 | Upside: 17 percent. Axis Securities believe Tech Mahindra has a resilient business structure from a long term perspective. Q3 revenue showed a strong recovery of 2.9% QoQ cc was equally split between demand traction and easing of supply-side issues. Management expects demand momentum led by acceleration in Digital to aid further growth.
Tech Mahindra | Rating: | CMP: Rs 951 | Target: Rs 1,116 | Upside: 17 percent. Axis Securities believe Tech Mahindra has a resilient business structure from a long term perspective. Q3 revenue showed a strong recovery of 2.9% QoQ cc was equally split between demand traction and easing of supply-side issues. Management expects demand momentum led by acceleration in Digital to aid further growth. 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.
Source: Reuters
Bharti AIrtel | Rating: | CMP: Rs 534 | Target: Rs 676 | Upside: 27 percent. Axis Securities 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. Regulatory challenges are well known and Bharti Airtel is wellcapitalized to deal with the payouts as it has raised enough capital (Rs 450bn equity in FY20) and has access to debt as there are no major business solvency risks associated with it. Axis maintain its ARPU assumptions and forecast a 13%/17% CAGR for Revenue/EBIDTA over the period FY20-23E. Profit growth will be even more significant considering FY20E was a loss for the company. Our forecast is based on significant ARPU improvement from the current Rs 162/subs/month (Q2FY20) to Rs 208/subs/month by end of Q4FY23.
HCL Technologies | CMP: Rs 932 | Target: Rs 1,088 | Upside: 17 percent. Broking house believe company has a resilient business structure from a long term perspective. HCL Tech had reported better than expected Q3FY21 numbers on both margin and revenue front. Broking house believe a better business matrix and large long term contracts make HCL Tech a promising investment as compared to its Indian peers.
HCL Technologies | CMP: Rs 932 | Target: Rs 1,088 | Upside: 17 percent. Broking house believe company has a resilient business structure from a long term perspective. HCL Tech had reported better than expected Q3FY21 numbers on both margin and revenue front. Broking house believe a better business matrix and large long term contracts make HCL Tech a promising investment as compared to its Indian peers. A better business matrix will help to generate higher operating business even if there is pricing pressure across verticals. Axis believe a better business matrix and large long term contracts make HCL Tech a promising investment as compared to its Indian peers.
JK Lakshmi Cement | Rating: | CMP: Rs 389 | Target: Rs 450 | Upside: 16 percent. With the revival in cement demand in its key market of North and West and increasing sell of value added products, broking firm believe the company is well positioned to grow its revenue and profitability going forward. Further the recent budget announcement pertaining to infra development also augurs well for the company. Lower than expected volume growth and rise in input prices are the ket risks.
JK Lakshmi Cement | Rating: | CMP: Rs 389 | Target: Rs 450 | Upside: 16 percent. With the revival in cement demand in its key market of North and West and increasing sell of value added products, broking firm believe the company is well positioned to grow its revenue and profitability going forward. Further the recent budget announcement pertaining to infra development also augurs well for the company. Lower than expected volume growth and rise in input prices are the key risks. Axis expect the Company to register Revenue/Ebitda/APAT CAGR of 6%/8%/21% from FY20-FY23E driven by volume CAGR of 4% and consistent realisation improvement of 1% each over FY20-23E.
Rakesh Patil
first published: Mar 4, 2021 12:27 pm

stay updated

Get Daily News on your Browser
Sections