Brokerage recommendations for SAMVAT – 2079

Kotak Securities, ICICI Securities and JM Financials suggest stocks that can generate returns of ~10 – 30 percent over the next 12 months

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For the Indian equity markets, the change of SAMVAT is considered very auspicious as it marks the beginning of the traditional Hindu calendar year. Investors are of the opinion that equity investments made during the first hour of the new SAMVAT, also known as ‘muhurat’, bring success, prosperity and luck throughout the year.

This year, too, brokerages are bullish on Indian equities and expect strong returns from stocks. Here are the top picks for SAMVAT 2079 from leading brokerage houses.

Kotak Securities

The brokerage expects net profit of the Nifty 50 Index to grow 9.9 percent in FY23 and 15.4 percent in FY24. It estimates the Nifty 50 Index at Rs 806 for FY23 and Rs 932 for FY24 with significant contribution from automobiles, banks, diversified financials and telecom. Its top picks are:

Aegis Logistics Target: Rs 330. Potential upside: 20 percent

Kotak expect earnings to grow 29.9 percent in FY23 and 12 percent in FY24 with the stock currently trading at a valuation of 18x P/E FY24 EPS.

Cipla Target: Rs 1,215. Potential upside: 10 percent

The brokerage suggests that in lieu of key upcoming launches like gAdvair and gRevlimid, Cipla’s FY23 EBITDA margin guidance of 21-22 percent is conservative. Instead, it factors in a 23.3 percent EBITDA margin for Cipla in FY23. It expects Cipla to deliver a robust 21 percent US sales CAGR over FY2022-25 basis, which is the top pick of the brokerage in the pharma space.

DLF Target: Rs 410. Potential upside: 14.3 percent

The company reported strong pre-sales of Rs 7,200 crore in the residential business in FY22. DLF is confident of meeting its launch target of 76 lakh sq. ft in FY23 and has planned launches of 92 lakh sq. ft in FY24E. The company was able to reduce debt by Rs 2,300 crore in FY22. It has a land bank of 15 crore square feet in Gurgaon and accelerated monetisation of the residual land bank could add incremental value. Kotak pegged the fair value of DLF shares at Rs 410 each.

Infosys Target: Rs 1,750. Potential upside: 18.7 percent

The brokerage is confident that the company will keep its margins in the 21-22 percent band even as it raised revenue growth guidance for FY23 to 15-16 percent from 14-16 percent earlier. EBIT margin can improve as supply-side pressures ease and can translate into strong EPS CAGR over the next three years. Kotak maintains a ‘buy’ rating, valuing the stock at 25x September 2024 EPS.

SRF Target: Rs 2,830. Potential upside: 13.4 percent

SRF has announced a sharp step-up in capex plans (Rs 15,000 crore in the next five years), predominantly directed at the chemicals segment, where demand remains robust and opportunities are ample. The management said the chemicals segment can grow at a 20 percent CAGR while generating 20 percent returns on capital employed (RoCE).

The US has imposed anti-dumping duties on imports of hydrofluorocarbons (HFCs) from China until at least 2026-27, enhancing SRF’s competitiveness in the US. Kotak values SRF on a SoTP (sum of the parts) basis and arrives at a fair value of Rs 2,830 per share.

ICICI Securities

Apollo Tyres Target: Rs 335. Potential upside: 25 percent

With the goal of achieving revenue of $5 billion by FY26, EBITDA margin of at least 15 percent, RoCE of 12-15 percent, and net debt to EBITDA of less than 2x, the company is currently focusing upon capital efficiency, sweating of assets, controlled capex spends, healthy free cashflow generation and deleveraging of the balance sheet. With a reduction in debt, RoCE is seen at 13 percent by FY24. It is currently trading at an inexpensive valuation of ~5x EV/EBITDA on FY24.

Eicher Motors Target: Rs 4,170. Potential upside: 23 percent

Analysts at ICICI Securities suggest that with operating leverage gains and a decline in key raw material prices (largely metals and plastics), margins at Eicher Motors will improve to 26.1 percent with consequent RoCE at ~21 percent by FY24.

The brokerage is of the opinion that the company is trading at an inexpensive valuation of ~28x P/E on FY24 amid high double-digit growth prospects. It also stands to gain from a cyclical upswing in the commercial vehicle space through its joint venture with Volvo.

Coforge Target: Rs 4,375. Potential upside: 22 percent

Coforge estimated at least 20 percent constant currency (CC) revenue growth in FY23, backed by continued strong deal wins. It won 11 large deals in FY22 including one of $100 million+ and three $50 million deals. It provides visibility for near- to medium-term growth momentum. The brokerage bakes in 19.1 percent revenue CAGR over FY22-24 with 220 bps margin expansion driven by continued offshoring focus. The stock is currently trading ~25x P/E on FY23 and ~21x P/E on FY24 and is expected to generate a RoCE of ~32 percent by FY24.

Lemon Tree Hotels Target: Rs 110. Potential upside: 29 percent

The brokerage believes the company is well-positioned to capture the unorganised market share due to a slowdown in upcoming room supply in the wake of ongoing distress. It has a ‘buy’ rating on this stock with an SoTP-based target price of Rs 110, i.e. at 28x FY24E EV/EBITDA.

Healthcare Global Enterprises Target: Rs 345. Potential upside: 17 percent

HCG, with its integrated, one-stop-solution and focused model, is well-poised to capture growing potential with pan-India focus on cancer therapy. It is consolidating its existing network through cost optimisation. De-leveraging of the balance sheet (debt reduction from ~Rs 900 crore to ~Rs 650 crore by FY24E) and reduction of losses across new centres have substantially eased legacy overhangs. ICICI Securities values HCG at Rs 345 (HCG existing centres, new centres at 12x FY24 EV/EBITDA and Milann (its fertility centres brand) centres at 1x FY24E EV/sales).

Container Corporation of India Target: Rs 890. Potential upside: 28 percent

The management expects to clock 6.5-7 million TeUs (twenty-foot equivalent unit) volumes in the next three to four years (currently 4 million TeUs) and doubling of revenue over the period. Driven by higher volume growth and incremental revenue from new initiatives, the brokerage expects Concor to register a revenue and PAT CAGR of 22 percent and 46 percent, respectively, in FY22-24. The stock is trading at a reasonable valuation of 19x FY24 earnings. The company is expected to be a major beneficiary of the modal shift of freight volume share from road in favour of rail as envisaged in the new National Logistics Policy.

Havells India Target: Rs 1,650. Potential upside: 29 percent

ICICI Securities said Havells will report strong revenue CAGR of 16 percent over FY22-24, led by new product launches and dealer network expansion. The softening of raw material prices and the launch of premium products will result in a strong EBITDA margin recovery from H2FY23 onwards (from its lowest Q1FY23 EBITDA margin of 8.5 percent). As a result, PAT will register a strong CAGR of 20 percent over FY22-24. A strong brand, a robust balance sheet position and focus on improving profitability of its Lloyds business makes Havells an attractive stock in the FMEG space.

JM Financial Services

KPIT Technology Target: Rs 830. Potential upside: 28 percent

KPIT works with the top 10 auto manufacturers globally, accounting for about 50 percent of the $20 billion R&D capex currently undertaken by the industry. KPIT clocks revenue of almost Rs 2,432 crore (FY22) which is roughly 3 percent of the $10 billion capex undertaken by the company’s manufacturer clients. This is a huge revenue growth potential. The stock trades at nearly 40x  FY24 earnings and may stay elevated, given the strong growth tailwinds.

Schaefflers India Target: Rs 4,045. Potential upside: 27 percent

The brokerage expects new business wins in the automotive segment and a rising share of exports to drive outperformance, delivering 18 and 25 percent CAGR in sales and earnings over CY21-24. The stock trades at ~46x P/E CY22 earnings and ~33x P/E CY24 earnings.

Praj Industries Target: Rs 550. Potential upside: 27 percent

With orders of about Rs 3,241 crore, Praj is one of the best plays of the global bioeconomic revolution, according to JM Financial. Praj commands about 10 percent market share, as measured by the production of ethanol plants globally installed by the company. Its strong ability and vast experience in technology, project management and operations are key moats for the business.

Cholamandalam Investment & Finance Company Target: Rs 950. Potential upside: 28 percent

JM Financial forecasts an earnings CAGR of 19 percent over FY22-24 driven by healthy assets under management growth trends, better margins, product portfolio expansion, and improvement in asset quality. It expects the company to generate ROA and ROE of 2.7 percent and 20 percent in FY24, driven by diversified and highly scalable product portfolio, traction in vehicle finance, geographical expansion and digital initiatives.

The brokerage likes the franchise because of strong execution capabilities leading to sustainable superior returns. Key risks for the company include a slowdown in the economy, any slowdown in vehicle finance due to chip shortage issues, and any change in the regulatory landscape.

Deepak Nitrite Target: Rs 2,730. Potential upside: 21 percent

Deepak Nitrite will tend to significantly gain from opportunities unfolding in the chemical sector through the ‘Make in India for the World’ initiative as well as the strong recurrence of the China+1 strategy. Moreover, Rs 1,500 crore worth of projects are lined up by the company across key product lines to ensure growth and profitability in the medium to long term.

The company achieved 44 percent RoCE for Q1FY23, while attaining more than 30 percent in each of the last 10 reported quarters. The company continues to be debt free with a sizeable net worth of Rs 3,573 crore on a consolidated basis. This will help to leverage the balance sheet for expansion.

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