Samvat 2078: ICICI Direct picks 7 stocks that could give up to 33% returns

Muhurat trading is considered to be an auspicious event for prosperity and growth, as believed in the Indian market, which opens for an hour or so on the day of Diwali (Laxmi Pooja).

In this regard, a domestic brokerage house ICICI Direct Research has listed out at least 7 stocks from various sectors, up to an upside growth of 33 per cent. These stocks are picked on the basis of deep analysis and overall growth of the market in 2021 along with key positives that would drive the market.

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The factors these stocks are being picked are: a) higher pace of vaccination, b) pro-growth policy action, c) National Asset monetisation pipeline that will drive capex cycle, d) Strong recovery in real estate market that has a multiplier impact on the economy and e) Buoyancy in corporate earnings growth.

1) Bank of Baroda: Buy – Target Price – Rs 120/share (upside 25 per cent)

ICICI Direct Research believes credit growth of the bank will pick up with unlocking and speedy economic recovery. Transfer of NPAs to bad bank would lower broad NPA numbers and aid recovery. Q2FY22 could see recovery from DHFL that can boost earnings scheduled this month.

Moreover, the recent outlook upgrade by Moody’s on the Indian banking system would impact positively on BoB as well. Similarly, the margins are expected to remain stable despite reduced lending rates due to benign funding costs, lesser reversals due to moderation in stress formation.

BoB has a pan-India presence with 8192 branches, 11637 ATMs and 24056 business correspondents. Similarly, it has a meaningful presence in international operations with its JVs and subsidiaries. Total around 12.4 per cent of total business comes from overseas. 

2) Gateway Distriparks: Buy – Target Price – Rs 350/share (upside 33 per cent)

Gateway Distriparks Limited (GDL) has been actively reducing its gross debt position, which reached a high of around Rs 740 crore in FY19 (due to buyback of Blackstone’s entire stake in the rail segment for Rs 850 crore) to around Rs 480 crore in FY21 (expected to significantly lower in FY23E). 

A strong balance sheet combined with strategically located infrastructure will help GDL to capitalise on future growth opportunities and improve its return ratios. The management expects to reach Rs 10000/TeU margins in the medium term, which may translate into strong FCF generation (>9% yield in FY23E).

GDL, a leading integrated intermodal logistics facilitator in India, operates in varied segments of logistics industry viz. container freight stations (CFS), container train operations (CTO) and cold chain logistics. Rail segment comprises around 70 per cent of consolidated revenues.

3) Bata India: Buy – Target Price – Rs 2,380/share (upside 22 per cent)

Bata India has scaled up its digital initiatives with e-commerce channel contributing 15 per cent in FY21. Focus on omni-channel retailing resulted in 60 per cent of marketplace orders being fulfilled by Bata stores and 100 per cent for its own website. (Delivery across 1200+ stores in 1300 cities)

Bata has devised new strategies that would aid in providing thrust to revenue growth, and tweaking the product portfolio in favour of casual footwear that is experiencing higher demand. It is providing more visibility at stores for younger brands like Hush Puppies, Power and North Star.

The brokerage believes such strategic initiatives are expected to provide thrust to its operational performance on a sustained basis. It expects revenue, earnings growth of 9 and 17 per cent, respectively, in FY20-24E with 480 bps improvement in RoCE to 33 per cent in FY24E.

4) TCNS Clothing: Buy – Target Price – Rs 860/share (upside 17 per cent)

TCNS Clothing has embarked on several initiatives to fuel revenue recovery from FY22 onwards. It is expected to accelerate expansion plans and is targeting 60 new EBO stores in FY22E. Higher focus is on expanding network in tier III, IV cities mainly through franchisee led model. 

The company is also focusing on increasing its LFS touchpoints through addition of 200-250 touchpoints. TCNS had taken a strategic decision to exit certain long credit cycle customers through rationalisation of MBO outlets (1522 in FY18 to 1011 in FY21) in the last three years.

Considering the company’s strong brand franchise and healthy balance sheet (cash reserves worth Rs 140 crore), we bake in earnings CAGR of 30 per cent in FY20-24E and, given the capital efficient business model, expect TCNS to report healthy RoIC of around 30 per cent in FY24E.

5) Mahindra Lifespace: Buy – Target Price – Rs 325/share (upside 23 per cent)

Mahindra Lifespace has outlined five years plans wherein it aims to achieve a sales value of Rs 2500 crore by FY25. For the same, it is targeting four land transactions every year totalling around Rs 2,000 crore worth of sales potential. 

Going ahead, triggers such as PLI schemes, the softening of interest rates and credit availability, the lower tax rates for new manufacturing facilities, coupled with the global realignment of manufacturing, supply chains will drive IC & IC business. 

The brokerage highlight that the company has targeted an annual leasing run rate of Rs 500 crore from IC & IC business by 2025. ICICI Direct like MLD given its strong parentage, the management’s focus on expanding its overall scale of operation and a comfortable balance sheet.

6) Action Construction Equipment: Buy – Target Price – Rs 300/share (upside 32 per cent)

Action Construction Equipment is confident of achieving 15 per cent CAGR for earth moving machinery and 25 per cent CAGR for remaining segments in the next 3-4 years with total revenue reaching around Rs 2100 crore by FY24.

The brokerage estimates total revenue to be Rs 1750 crore in FY23E with absolute EBITDA Rs 221 crore and margins in the range of 11-13 per cent. ACE has recently raised Rs 135.52 crore, which will mainly be used for debt repayment and inorganic growth of the company.

The company commands strong market share in excess of 60 per cent in the crane market and drives 70% of the business. This segment will continue to grow in 15 per cent range in the medium term given pick up in infrastructure and industrial cycle.

7) Vardhman Special Steel: Buy – Target Price – Rs 340/share (upside 30 per cent)

Vardhman Special Steel is focusing on improving capital efficiency and is targeting an EBITDA/capital employed of 25 per cent by FY25 and plans to increase share of export to ~20-25 per cent in FY25 from 1 per cent in FY21, the brokerage firm says.

Over FY21-23E, we expect VSSL’s topline to grow at a CAGR of 25 per cent, while EBITDA and PAT are expected to register a CAGR of 35 and 64 per cent, respectively.

Vardhman Special Steel is among India’s leading steel bar producers for automotive applications. It has specialised product offerings, which include steel bars & rods & bright bars of various categories of special & alloy steel.

ICICI Direct see value emerging across the market cap spectrum with the key filter being quality, and continue to advise investors to utilise equities as a key asset class for long term wealth generation by investing into quality companies with strong earnings growth, stable cash flows, RoE and RoCE.

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