Hello 2022! ICICI Direct reveals its best stock picks; do you have any?
It’s a good start to 2022! Sensex zoomed in to 900 points and Nifty was trading above 17,600 in the first trading session of the week.
âAt the start of CY22, a radical change is expected in the way businesses operate and transform in light of innovations in the digital and technological world,â said ICICI Direct in its research report.
âOn a year-to-date basis, Nifty is trading at ~ 21x P / E which seems expensive compared to its past 10 year average of ~ 18.4x. One notable point, however, is that Nifty’s constituents have undergone a shift. radical in favor of more efficient names in terms of capital and longevity of earnings, which indeed command better valuations, thus lifting mixed valuations to the index level and making past comparisons rather redundant, âhe said. he adds.
The brokerage is also bullish on a few stocks with upside potential of over 50%. Looked:
1. Bharti Airtel
Target price: Rs 860
âWe anticipate that the price increase will result in an increase in the operating rate of wireless products by 19%. In addition, assuming a conservative impact of approximately 75% on EBITDA, Wireless EBITDA is expected to increase by 29% from current levels. , that would push RoCEs to a decent double-digit level in FY 23E, âthe brokerage firm said.
He added that the favorable structure of the industry of three players (two being strong), government reduction – (moratorium on AGR / spectrum contributions, reduction of bank guarantee needs, rationalization of the definition of AGR, increase spectrum duration etc) along with rising tariffs and fundraising put Airtel in an ideal place to maintain its relative strength among its peers with a tremendous digital ecosystem offering.
âOther triggers include VIL’s relative market share gain, given its stressed balance sheet and long-term potential driven by 5G growth opportunities,â he said.
2. The Phoenix Mills
Target price: Rs 1200
ICICI Direct expects retail rental income to grow at a CAGR of around 13.5% to Rs 1,913 crore in fiscal year 20-25E, thanks to significant addition to the portfolio of approximately 6 million square feet of shopping centers over the next four to five years. In addition, there is visibility for growth beyond five years as the company continues to aim to add approximately 1 million square feet of retail space to its overall portfolio, supported by strong liquidity and partnerships / commitments with funds such as GIC / CPPIB.
âPML remains a near-game in Indian consumer history, given the quality of assets, healthy balance sheet and strategic expansion plans. QIP fundraising and GIC / CPPIB investments have boosted cash flow and growth ammunition, “he said.
“With only five to six major shopping center developers currently in India, and given its USP of efficiently operating large format properties, PML remains a top player in the medium to long term,” he added.
3. Minda Company Limited
Target price: Rs 220
The brokerage noted that the company has a product profile that is largely immune to EVs. Interestingly, MCL already supplies its products to electric vehicle OEMs like Ola Electric, Ampere, Revolt, among others. He has also developed products exclusively for EV viz. DC to DC converter, motor controller, telematics, battery charger, etc.
He said the company is also well positioned to play on the premiumization theme with product capability in the MCH division in the form of a smart key and increased content in the wire harness segment in due to the BS-VI transition.
âWith strong order intake, a cyclical CV recovery, a focus on growth in the aftermarket space and the consolidation of JV partner participation, we are generating a 25.4% sales CAGR over the years. exercises 21-23E. The trajectory of RoCE and corresponding margins is expected to improve to 16.8% and 12.2%, respectively, by FY23E, âhe added.
4. Radico Khaitan
Target price: Rs 1450
âGross margins are expected to remain capped at 48-50% in FY 22. However, in FY 23E, the company expects a mix of price increases (in some states) and premiumisation leads to an expansion of gross margins. The company aims to increase its share of recycled glass from 14% currently to 25% (optimum) in a few years, which would help it to amortize its gross margins, âsaid the brokerage firm.
He mentioned that Radico has the distinction of being one of the very few domestic players who over the years have entered and generated brand equity in the premium alcoholic beverage segment and above. The company plans to expand its whiskey portfolio and hopes to gain a foothold in the premium whiskey segment within two years.
5. eClerx services
Target price: Rs 2,900
ICICI Direct noted that revenue over the past four to five years has been low due to three to four major roll-offs, which took place in 2016-19. However, the company has reported strong growth in recent quarters and is targeting growth of over 20% in FY22.
He added that the company recently acquired Personiv, an outsourcing provider with over 35 years of experience with offices in the United States, India and the Philippines. The acquisition would take advantage of synergies in digital services and customer experience. This would add approximately $ 32 million in annual revenue to eClerx.
6. Tech Mahindra
Target price: Rs 2,150
The brokerage firm mentioned that the company is seeing strong traction in the healthcare and life sciences (HLS) vertical, which is on track to reach $ 1 billion in revenue. ) two to three years from now, up from a current annual rate of around $ 400 million. BFSI has the top three clients out of 10 in TechM’s overall portfolio.
The company said replacing core banking solutions and upgrading them is the main growth opportunity. The vertical is currently around $ 800 million. Management has indicated that it tends to hit $ 1 billion in revenue in fiscal year 22 and $ 1.5 billion within two to three years.
7. Orient the cement
Target price: Rs 250
âThe company aims to become a 14.5 MT cement player by FY26E, which involves a total investment of Rs 3600 crore. However, the initial priority would be to significantly reduce the debt before moving on to the next phase of development. “Expansion. In S1FY22, the company repaid total debt of Rs 240 crore and aims to reduce debt levels to Rs 250 crore from Rs 783 crore in FY 21,” said ICICI Direct.
âIn the next phase of expansion, the company would add a 3 MT clinker unit in Devapur, Telangana, with a likely investment of Rs 1600 crore. The company is also exploring opportunities to further improve its capacity with completely new projects in Rajasthan. It depends on the transfer of the mines from Orient Paper to Orient Cement. A large part of the capital expenditure will probably only be incurred in fiscal year 24E “, he added.
8. Dwarikesh sugar
Target price: Rs 110
The brokerage said the sugar industry saw its sugar stocks rise from a peak of 14.5 million tonnes (MT) in September 2019 to 8.2 MT in September 2021. The rise in global sugar prices in the Brazil has resulted in regular sugar exports of around 4 MT in the 2021-22 season. With the expected 6 MT of exports, 31 MT of production and 27 MT of consumption, sugar stock levels are expected to drop to ~ 6 MT by September 2022. This would push domestic prices up to 37-38 / kg d ‘by March 2022 and drive industry profit growth.
âConsidering the higher sugar prices (domestic and global) and the increase in the capacity of the distillery (by 3x), we expect DSL to register a CAGR of 39.5% during the exercise 21-24E. With increasing profitability and a reduction in sugar stocks, we expect Rs 530 crore free cash over the next three years. This would completely reduce the balance sheet, âhe added.
9. NRB bearings
Target price: Rs 220
ICICI Directs noted that NRB plans to invest heavily in R&D, as the bearing industry sees new opportunities in the electric vehicle segments. The company will not only focus on products based on electric vehicles, but will also expand its activities into new areas of business development, including products for steering systems, hybrid and electric drivetrain and other applications for vehicles. electric and hybrid.
He added that the company has also been chosen as the exclusive supplier to Ola’s two-wheeler segment and has worked on custom needle bearings it needs. NRB is also focusing on new products with the adoption of BS-6 standards.
10. Aster DM Health
Target price: Rs 250
âAster is now looking to expand its network following a light asset model in India, but remains on solid footing through GCC’s FCF generation. We are positive on Aster’s integrated business model and expect progressive margins and improved RoCE through higher occupancy and capacity optimization in new assets from FY 22E “, said the brokerage in its report.