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Kajaria Ceramics has faced margins challenges in the last three to four quarters with a sharp rise in gas prices. Kajaria has started using LPG partly as an alternate to gas from November at its plants.
Maruti Suzuki is steadily moving up the technology ladder with interesting new age offerings in the form of new Baleno as well as new Ertiga, XL6 and New Brezza.
Kajaria Ceramics share price, Maruti Suzuki share price, Reliance Industries share price, Sterlite Technologies share price, Mahindra CIE share price, IndusInd Bank share price, HDFC AMC share price, V-Guard Industries share price
Kajaria Ceramics, Maruti Suzuki, Reliance Industries, Sterlite Technologies, Mahindra CIE, IndusInd Bank, HDFC AMC, V-Guard Industries and Nesco are nine stocks that ICICIdirect recommended for 2023. The domestic brokerage sees 19-35 per cent upside potential on these counters in 2023. This is what the brokerage said on each of these stocks:
Kajaria Ceramics | Target Rs 1,340
Kajaria Ceramics is the largest manufacturer of ceramic/vitrified tiles in India with current annual capacity of 84.5 million square meter (MSM).
Kajaria Ceramics has faced margins challenges in the last three to four quarters with a sharp rise in gas prices. Kajaria has started using LPG partly as an alternate to gas from November at its plants. The company’s average fuel price is likely to come down to Rs 55 per SCM in Q3FY23 against Rs 62 per SCM in Q2FY23, with softening in gas prices and use of LPG as an alternate fuel.
The management guidance for 15 per cent volume growth in FY23 implies 11 per cent growth in H2FY23, with October being relatively soft amid festivities. Also, the company expects 200-plus basis points improvement in margin to 14 per cent during H2FY23 with relaxation in gas prices, use of alternate fuel and softening in raw material costs.
“We believe while Q3 could witness modest volume growth, double digit growth is likely from Q4FY22 with underlying real estate demand remaining robust. We expect 12 per cent CAGR in tiles volume and realisations CAGR of 3.4 per cent, resulting in tiles revenues CAGR of 16 per cent over FY22-25 to Rs 5,237 crore. Margins are also reverting to historical average of 16% in FY24, with softening gas prices,” ICICIdirect said.
Kajaria, with a net cash balance sheet and superior brand, is a solid play on the tiles sector with expanding reach to tier II, III cities, the brokerage said.
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Sterlite Technologies | Target Price: Rs 220
Sterlite Technologies (STL) is a leading telecommunication infrastructure player with offerings in in optical fibre and cables, hyper-scale network design, and deployment and network software. It has current annual capacity of 50 million fibre kilometre (Fkm) for optical fibre (OF) and 42 million Fkm for optical fibre cable (OFC)
The company in Q2 secured new orders of Rs 3,199 crore, the highest order intake in the last three and a half years. It has also short closed an order book of Rs 941 crore, mainly in the services and wireless business, in line with its focus of executing projects at desired level of profitability, ICICIdirect said.
Driven by continued robust capacity utilisation in the product segment as well as improved traction in services business, H2FY22 revenues are likely to remain healthy with overall revenues CAGR of 21.4 per cent in FY22-24E,” the brokerage said.
With improved margins in services, stable optical products margins and reduced losses led by exit from wireless software business, margins are likely to recover sharply to 15 per cent in FY24 against sub-10 per cent currently, ICICIdirect said
“STL is uniquely positioned to benefit from 5G/FTTH deployment cycle both domestically and globally. We believe that with renewed focus on ramping down/exiting loss making segment and focusing on improving services segment profitability, STL will likely see improvement earnings momentum ahead,” the brokerage said.
Maruti Suzuki | Target Price: Rs 11,200
Maruti Suzuki (MSIL) is the market leader in the Indian passenger vehicle space, commanding 43 per cent market share as of FY22. It has a host of popular models in its portfolio such as Alto, Swift, Wagon R, Dzire and Baleno in passenger car (PC) segment and Ertiga, New Brezza and Grand Vitara in Utility Vehicle (SUV) space.
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Maruti Suzuki is steadily moving up the technology ladder with interesting new age offerings in the form of new Baleno as well as new Ertiga, XL6 and New Brezza. It is approaching the alternate fuel scheme though push towards CNG vehicles, hybrids (including strong hybrids) and just unveiled flex fuel prototype vehicle
Maruti Suzuki sold over 2.3 lakh units of CNG powered vehicles in FY22, highest ever, with present penetration pegged at 15 per cent that is expected to inch up, going forward.
“On the EV front, its first captive EV is slated to be launched by 2025 with Suzuki Motors committing a capex spend of Rs 10,400 crore in this domain. To address the competition in SUV space, MSIL has in the recent past launched new Brezza in compact SUV space & Grand Vitara in mid SUV domain that is witnessing healthy demand traction. With exciting product launches in the offing it is traversing well on its path to regain 50 per cent market share in domestic PV space, going forward. Maruti is well placed to play upon the underpenetrated PV segment domestically,” ICICIdirect said.
The brokerage is expecting a 16.6 per cent volume CAGR, 24.7 per cent revenue CAGR and 67.6 per cent PAT CAGR for Maruti Suzuki over FY22-24E. On the balance sheet front, Maruti Suzuki is net debt free with surplus cash amounting to Rs 42,000 crore (FY22). It is capital efficient with RoIC over 25 per cent.
Mahindra CIE | Target Rs 410
Mahindra CIE (MCI) is part of the Spain-based CIE Automotive Group. It is a multi[1]technology, multi-product automotive component supplier. As of CY21, the company derived 49 per cent of consolidated sales from Europe and rest 51 per cent from India. In terms of technology, forging forms 59 per cent of consolidated sales (86 per cent in Europe). India mix is more diversified, and includes 22 per cent from aluminium, 21 per cent from stampings and 12 per cent from castings.
The segment-wise contribution is skewed towards PV and two-wheeler in India and PV and M&HCV in Europe With large part of supply side disruptions behind us, we expect Mahindra CIE to continue to outperform its base user industries both in India as well as Europe.
ICICIdirect said Mahindra CIE is focusing on higher diversification and growth opportunities in its India business and is right-sizing European operations. Its recent announcement of putting German forging business on the block for sale is a step in the same direction, it said.
“Improving order win momentum (including EV programmes), thrust on exports and shift in global automotive supply chain away from China are seen as being some of the tailwinds for MCI in coming years. At the margin level, the company is poised to benefit from past restructuring actions and reduced breakeven points,” the brokerage said.
ICICIdirect is expecting Mahindra CIE built 14.7 per cent sales CAGR over 2021-24E along with an uptick in margins to 12.8 per cent by 2024E.
IndusInd Bank | Target Price: Rs 1,450
IndusInd Bank is a Hinduja group promoted newer age private sector bank and is fifth largest private bank in India. Vehicle finance forms 26 per cent of overall loans. ICICIdirect said the bank’s operating performance remains on steady track led by healthy business growth. With focus on new growth engines, investment in retail franchise and gradual retaliation of liabilities, the bank is poised to pedal growth and report a healthy margin trajectory. Revival in corporate lending and steady disbursement in retail portfolio to aid business growth at 18-20 per cent.
The brokerage said that NPAs continue to improve led by lower slippages. Healthy provision buffer of 3.4 per cent and focus on collections are expected to keep credit cost at normalised levels, it said.
“We expect robust growth in earnings at Rs 9,652 crore and RoE at 15 per cent in FY25E, though, focus on distribution capabilities and tech spends to keep opex elevated in the near term.
HDFC AMC | Target Price: Rs 2,600
HDFC AMC is among the largest and profitable mutual funds with a average AUM of Rs 4.2 lakh crore as on September 30. Its market share as on Q2FY23 was at 11 per cent.
ICICIdirect said that increasing awareness, digital adoption, increasing retail participation in capital markets and new product launches to drive shift towards financial assets and equity as an asset class.
The AMC, it said, is well placed to benefit given its strong distribution, brand name and superior fundamentals.
“HDFC AMC’s healthy performance in equity schemes from Q2FY22 onwards was expected to drive inflows with a lag. In H1FY23, erosion in market share was reversed. We believe the market share gain should be visible from Q3FY23 onwards,” it said.
Tech investments, business promotion activities, new launches to keep opex elevated in the near term but should reflect in business growth, it added.
“Likely improvement in market share on the back of healthy scheme performance and superior earnings trajectory makes us positive on the stock,” the brokerage said.
Nesco | Target Price: Rs 800
Nesco (Nesco) is in the business of development and management of commercial/IT-ITeS real estate, exhibition centre and foods business.
ICICIdirect said the company’s Q2FY22 results signalled an improved outlook with pick-up in exhibition business. The
company saw a strong traction Q2FY23 revenues (up 77 per cent YoY). The exhibition order book is robust for the next couple of quarters and pre-Covid run rate of exhibition business is likely ahead, it said.
For H2FY23, earnings expected to be robust with 128 per cent growth.
“For FY22-24, we bake in revenues and PAT CAGR of 34.4 per cent, 32.6 per cent, respectively, driven by exhibition pickup and steady commercial segment. We like Nesco, given the prudent management pedigree, steady & planned expansion across verticals funded largely through internal accruals and niche profitable business model including foods/own events etc. Post a washout 2.5 years for the exhibition business, we expect H2FY23 to witness full recovery to pre-Covid levels in the exhibition business,” ICICIdirect said.
The domestic brokerage said the IT Park business is also expected to be boosted as occupancies have improved and further improvement over next couple of quarters.
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V-Guard | Target Price: | 310
V-Guard is a well-known FMEG brand in the electrical and electronics space especially in South India, with a presence of over four decades.
To diversify its geographical risk, V-Guard is expanding operations into non south regions. The contribution of non-south region to its overall revenue has increased to 42 per cent in FY22 (vs. 23 per cent in FY12) supported by capacity addition, new product launches and dealer additions. Revenue contribution from non south region is further likely to increase to 45% in next two years led by new product launches
“To scale up its kitchen appliances portfolio, V-Guard recently acquired Sunflame Enterprises for a consideration of Rs 660 crore. Sunflame derives 80 per cent of its revenue from non-south regions. As a result, we believe V-Guard will derive synergy benefits from this acquisition in terms of geographical expansion, diverse product portfolio and strong distribution channel,” it said.
ICICIdirect said V-Guard’s revenues are likely to grow at a CAGR of 17 per cent over FY22-25E led by new product launches (post Sunflame acquisition) and dealer expansion. On the margin front, Ebitda margin is likely to expand by ~130 bps over FY22-25E led by improved sales mix and cooling of raw material prices from its peak, it said.
As a result, PAT is likely to grow at a CAGR of 18 per cent over FY22-25E. V-Guard is likely to have a debt burden on its books in the near term but we believe the same would start easing from FY25 onwards supported by its strong operating cash flow and no major capex over the next two years.
Reliance Industries | Target Price: Rs 3,050
ICICIdirect noted that Reliance’s retail arm Reliance Retail has been one of the fastest, largest growing retailers in recent times. In FY18-22, it recorded a staggering 30 per cent revenue CAGR with sales worth nearly Rs 2 lakh crore in FY22.
“Its recent acquisition of Metro Wholesale business (B2B) for a consideration of Rs 2,850 crore would further strengthen its backend supply chain with accelerated growth in JioMart Kirana orders (up 4x YoY) and on-boarding of new HoReCA clients.
We bake in revenue and earnings CAGR of 25 per cent and 36 per cent, respectively, in FY22-25. The 5G launch has begun for Jio in the last couple of months and is likely to reach pan -India by December, 2023,” it said.
Superior spectrum portfolio along with superior digital ecosystem offering lends Jio a competitive advantage even in 5G (as seen in 4 G foray), it said.
“We expect Jio (long with Airtel) to gain subscriber market share. We expect ARPU and Ebitda of Jio to grow at 12 per cent and 22 per cent, respectively, over FY22 -25.
On the O2C front, Singapore GRMs, which had declined during the start of Q3 have started improving amid rise in product cracks and are at $9per barrel. This would likely improve Reliance’s GRMs and its refining segment earnings, it said.
(Disclaimer: Recommendations provided in this article are authored by an external party. The views expressed herein are that of the respective entity and do not represent the views of Business Today (BT). BT does not guarantee, vouch for, or endorse any of its contents and hereby disclaims all warranties, express or implied, relating to the same. BT further urges you to consult your financial adviser and seek independent advice regarding the contents herein, including stock investments, mutual funds, general market risks etc.).
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