Prabhudas Lilladher believes that current uncertainty is a passing phase and return to normalcy will result in several beaten down segments bouncing back strongly from FY22. It continues to favour companies with strong balance sheet and sustainable business moats in the long term.
Hindustan Unilever | CMP: Rs 2,137 | Target Price: Rs 2,502 | Company remains one of the best plays on HPC and foods segment given strong growth and margin outlook, high FCF conversion (5-year average of >90%), 95% dividend payout and 18.2% PAT CAGR over FY1-23. Broking house remain structurally positive on HUL given its strategy around emerging categories, increasing distribution, WIMI, digital market and strength in Supply chain. It estimate HUL to post EBIDTA CAGR of 15.9% over FY20-23 led by 200bps margin expansion.
ICICI Bank | CMP: Rs 484 | Target Price: Rs 520 | ICICI Bank has emerged as one of the preferred private banking franchise with a strong CASA (40%), tech led domination, market share gains in key retail products (65% of loans), calibrated strategy in corporate lending with little legacy NPAs and +200bps of COVID provisions. ICICI Bank is on track to achieve strong return ratios of 12-15% by FY23/FY24 led by lower provisioning and strengthening core income. Prabhudas Lilladher maintain a strong conviction buy with target price of Rs 520 and value the bank at 1.8x Sep FY22 core ABV arriving at SOTP of Rs 402 for the bank and Rs 118 for subsidiaries.
Infosys | CMP: Rs 1,091 | Target Price: Rs 1,436 | Infosys stays the top pick in the sector as it benefits from near term margin defence and long term growth acceleration from DX/cloud/AI mega trends. Its industry leading performance reiterates deep client relationships, high quality execution and recovering competitiveness should drive quality earnings growth that deserves to be re-rated. It is currently trading at 21.3X/19.5X FY22/23 earnings of Rs 51/55.6 on FY22/23E respectively with revenues & EPS CAGR of 11% & 10% for FY21-23E respectively.
Ultratech Cement | CMP: Rs 4,720 | Target Price: Rs 5,400 | Ultratech Cement led by its dominant size (23% market share) with capacity of 114.8mtpa and highly efficient operations, broking house believe that company stands out as the best candidate to play recovery in the sector. Upcoming 9mnt capacity would further drive the earnings growth. High share of trade volumes (70% in Q2FY21) and successful integration of acquired assets (Century cement, JP associate and Binani cement) would provide sustainability to company’s margins.
Dr. Reddy’s Laboratories | CMP: Rs 4,699 | Target Price: Rs 5,964 | Dr. Reddy’s Laboratories fortune turned around after Erez Israeli (CEO from CY-19) laid down the roadmap for transformation of the organization by ensuring clear strategic focus, effective cost management for sustainable growth. Company is one of the few companies whose all plants stands cleared by USFDA and have a strong product pipeline with high value and limited competition products like gCopaxone, gNuvaring, gVascepa, gKuvan and gRevlimid. Its domestic formulations is also expected to outperform the IPM by 400-500bps once COVID concern fade while emerging markets would also spur growth with new launches.
Ashok Leyland | CMP: Rs 91 | Target Price: Rs 100 | Prabhudas Lilladher expect company to be beneficiary of CV upcycle with key demand drivers are shaping up such as increased fleet utilizations driving inquiries from large fleet operators, improving financing situations with increased collection efficiencies and normalization in economic activity across key end user industries. It believe company’s focus on new launches should result in market share gains while tight cost saving should partially offset negative operating leverage in 2HFY21. It recommend buy with price target of Rs 100 (FY23 12x EV/EBITDA and Rs16 to NBFC).
Emami | CMP: Rs 379 | Target Price: Rs 450 | Broking house believes Emami is in a sweet spot given highest rural salience at 55% of sales, early onset of winter and low base for winter portfolio and Pain Balms in 2H, benign input costs and Ad rates and capability building in sales/ E-com. It expect strong rural demand and favourable seasonal climate after several years to accelerate growth. Although promoter pledge at 40% remains a concern, indications of 40-50% dividend payout and net cash of Rs 2.5bn in balance sheet will provide support. Broking firm estimate 9.3% CAGR in sales and 17.7% in PAT over FY20-23. Buy with target price of Rs 450 (26xSept22 EPS).
Inox Leisure | CMP: Rs 273 | Target Price: Rs 322 | Prabhudas Lilladher remain positive on Inox given strong content slate, improved visibility on multiplex re-opening of various states, and encouraging signs on F&B/ATP trends post-COVID. Inox has managed costs well and has sufficient liquidity which bodes well in-case the footfalls recovery takes longer than expected. Broking firm expect sales/Ind-AS PAT CAGR of 8.5%/20.3% over FY20-23E. The stock trades at EV/EBITDA multiple of 9.0x/6.9x of its FY22/FY23 estimates. It has a buy on the stock with target price of Rs 322.
Crompton Greaves Consumer Electrical | CMP: Rs 297 | Target Price: Rs 346 | Crompton remains the preferred pick in the consumer electrical space given steady growth potential with low discretionary products (fans, lighting, mixer grinder, pumps), market share gains led by Innovation and brand building and calibrated plan to scale up new segments (Geysers, Air Coolers & mixers-grinders). Broking house estimate 15.7% PAT CAGR over FY20-23 and expect steady re-rating given 29% ROE, 50% dividend payout and Rs 11 bn net cash by FY23. It assign a target price of Rs 346 at 32xFY23 EPS.