ICICIdirect sees Nifty50 at 20,000 by FY23; 6 stocks that could give 20-40% return post Q2

The Indian markets might have fallen by a little over 6 per cent from the highs but there is good news for long term investors as the upside still remain intact for the Nifty and the Sensex post robust September quarter earnings, ICICIdirect said in a report.

See Zee Business Live TV Streaming Below:

The domestic brokerage firm sees the Nifty50 scale towards 20,000 and the Sensex to hit 66,600 by FY23 tracking strong earnings growth from India Inc.

Corporate performance (ex-financials) for June-September 2021 (Q2FY22) was encouraging with both topline (up 10.8% QoQ) and bottomline (up 12.5% QoQ) witnessing the double-digit sequential growth.

This was amid state-specific unlocking, decline in the Covid incidence pan-India, increased pace of vaccination and consequent pick-up in the economic activity.

“The performance on a YoY basis looks rather robust (sales, PAT up 34%, 41% YoY, respectively) despite element of pent-up demand in the base quarter primarily tracking higher commodity prices in the oil and gas and metals domain,” ICICIdirect said in a report.

“Going forward, revisiting our index earnings estimates, we expect Nifty EPS to grow at a 25.7% CAGR in FY21-23E. Consequently, our revised Nifty target is at 20,000 i.e., 24.5x P/E on FY23E EPS. Parallel Sensex target is at 66,600, offering a healthy double-digit upside,” said the report.

On the operating profit front, the report highlighted that the sequential growth was limited to just 2.6 per cent amid ~140 bps decline in operating margins to 17.8% on the back of higher raw material costs (up 260 bps QoQ) partially mitigated by operating leverage benefits.

On the PAT front, earnings were up 12.5 per cent on a QoQ basis supported by a decline in interest costs as well as lower effective tax rate.

With governmental thrust on infrastructure spend and private capex cycle revival, the management commentary was optimistic of a strong rebound in H2FY22E

ICICIdirect highlights 6 stocks with strong Q2 results that can give 20-40% return post Q2 results in 12 months - LTP as on 22 November

Aditya Birla Fashion & Retail (ABFRL): Buy| LTP: Rs 269| Target Rs 350| Upside 30%

ABFRL reported better than estimated results with overall revenue recovery rate reaching 89 per cent of pre-Covid levels in Q2FY22, compared to 45 per cent in Q2FY21. On a favourable base, revenue grew 2x YoY to 2054 crore.

ABFRL reported a profit at profit before tax (PBT) level at Rs 8.8 crore. Debt levels have now further reduced to Rs 450 crore (Q2FY21: Rs 2500 crore) on the back of healthy operating cash flows and tight control on fixed overheads.

We believe ABFRL with lighter balance sheet and strong bouquet of brands is well placed to accelerate the pace of store addition and revenue growth. Maintain BUY with target price of Rs 350 (3.0x EV/sales FY23E).

Bharat Electronics: Buy| LTP: Rs 203| Target: Rs 250| Upside 23%

Bharat Electronics (BEL) reported revenues at Rs 3660.5 crore, up 14.8 per cent on a YoY basis. Absolute EBITDA in Q2FY22 came in at 856.4 crore, while EBITDA margin came in at 23.4 per cent.

Consequently, the net profit came in at Rs 612.6 crore, up 54.3 per cent on a YoY basis. Overall, BEL’s order book was at Rs 54,627 crore as on Q2FY22.

Though BEL's execution bounced back strongly, the key beat came in EBITDA margins front which eventually led to PAT beat.

BEL’s overall long-term outlook remains positive with strong order inflow guidance of 15000-17000 crore for FY22E, expected strong execution pick up, maintaining higher margins to bode well for BEL.

ICICIdirect expects revenue, EBITDA to grow at CAGR of ~14%, 11.9%, respectively over FY21-23E aided by sustained margins in the range of 20-22%. Also, a debt free balance sheet and cash flow generation characteristics are a structural advantage for the company.

EIH: Buy| LTP: Rs 136| Target: Rs 180| Upside 32%

EIH’s operational performance for Q2FY22 remained ahead of our estimates mainly led by better-than-expected revenues, which were up sharply 233.6% YoY, 154.1% QoQ to 201.6 crore, i.e. ~70% of pre-Covid levels.

Operating losses also narrowed down to Rs 12.3 crore. Going forward, the ongoing crisis would restrict overall room supply in the industry in the next three to four years, auguring well for branded players like EIH.

ICICIdirect expects business to recover to 94% of pre-Covid levels with EBITDA surpassing pre-Covid levels by FY23E; margins are seen close to 23%.

The brokerage firm believes that this segment has potential for value enhancement in the long run post achieving decent scalability.

Elgi Equipments: Buy| LTP: Rs 212| Target: Rs 260| Upside 22%

Elgi Equipments reported strong revenue growth for Q2FY22 with decent margins amid higher input costs amid challenges.

Consolidated revenue grew 35.8 per cent YoY to Rs 652 crore. EBITDA margins came in at 12.3 per cent in Q2FY22 despite higher commodity prices, operating costs amid challenges. PAT came in at Rs 51.6 crore, up 55.2% YoY partly aided by higher other income and lower effective tax rate.

ICICIdirect expects Elgi to register strong topline growth aided by incremental growth in key international markets while domestic markets witnessing continued improvement in performance.

Going ahead, further traction in international market, new products would aid long term growth prospects for Elgi.

Phillips Carbon Black: Buy| LTP: Rs 220| Target Rs 320| Upside 45%

Phillips Carbon Black reported a robust performance in Q2FY22. Net sales for Q2FY22 were at Rs 1067.6 crore with carbon black sales volume at ~116 KT, up 7% QoQ and consequent EBITDA/tonne at ~| 16,150.

Ensuing PAT in Q2FY22 was at | 121.5 crore, up 16.5% QoQ. ICICI direct expect the company to report robust volume growth, going forward, amid cyclical recovery in the CV space as well as need for personal mobility driving sales in the 2-W & P V segment.

It expects sales, PAT to grow at 23%, 21%, CAGR, respectively, in FY21-24E, building in 11.4% volume CAGR. With greenfield expansion (~150 KT) under execution, long term growth prospects are healthy amid limited competition in overseas markets.

State Bank of India (SBI): Buy| LTP: Rs 486| Target Rs 640| Upside 31%

SBI posted a robust operational performance in Q2FY22 with advances growth in line with industry, improvement in margin and prudent asset quality.

In Q2FY22, SBI witnessed ~35 bps QoQ improvement in margin to 3.5%, amid business growth and lower slippages, which led NII to grow 10.7% YoY and 12.8% QoQ.

With overall stress (GNPA +restructuring) at ~6.1 per cent and cumulative provision buffer at ~4.5 per cent, the bank is relatively superior on asset quality.

ICICIdirect believes considering recovery gaining momentum, the bank, by virtue of its strong liability franchisee, decent provisioning and levers to aid margins, should see improvement in overall operational performance.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)