The Indian equity market witnessed healthy gains in October and November 2022. Nifty rose more than 5 percent in October and more than 4 percent in November.
Nifty registered its new all-time high of 18,887.60 while Sensex jumped to a new peak of 63,583.07 on December 1.
In a report on December 4, global brokerage firm Jefferies revealed 19 'analyst top ideas for the month of December. Here are the top ideas of the brokerage firm:
"ICICI Bank is among our top picks across Indian financials as we believe that the Bank offers among the best risk-rewards across peers with superior growth, improved asset quality and higher ROEs (return on equities). We forecast ICICI Bank to deliver 19 percent CAGR in profit over FY22-25 and ROE of nearly 16%," said Jefferies.
The brokerage firm believes ICICI Bank is well poised to leverage on growth pickup in Indian bank credit as well as gain market share in times of tighter liquidity and higher rates.
"We expect SBI to report ROA (return on assets) of 0.9 percent and ROE of 16 percent in FY24. Valuations are attractive at 1.5 times adjusted PB and ROE will aid reasonable compounding. Hence, SBI is among our top picks in the sector with an SOTP-based target price of ₹760 that includes the value of the bank at 1.6 times Sept-24 adjusted PB," said Jefferies.
"We believe IndusInd Bank is attractively priced in the context that it trades at 1.5 times FY24 adjusted PB and we see scope to deliver turnaround in ROA. The bank's asset quality pressures are behind it as the bank has recognized/ provided for most of the stressed book. We estimate these can lift ROA from 1.2 percent in FY22 to 1.8 percent in FY24 and ROE towards 15 percent by FY24," said Jefferies.
Jefferies sees a 14 percent CAGR in APE (annualised premium equivalent) over FY22-25, a marked improvement from recent trends of a slight decline in premiums in the first half.
The brokerage firm believes IRDAI's permission for life insurance companies to expand into health insurance (indemnity-based) can lift the company's premium growth.
Jefferies believes Chola’s assets under management (AUM) should grow at 23 percent CAGR over FY22-25 led by strong growth in autos and growth in its non-autos segment. New business is seeing strong traction and if executed well could further boost growth, said Jefferies.
The brokerage firm expects Chola to deliver 19 percent net interest income (NII) growth despite some pressure on net interest margins (NIMs).
"The impact of rate hikes has front-ended for Chola due to a higher mix of benchmark link loans, while the impact of lending rate hikes on its floating LAP (loan against property) and home loan portfolio will reflect with a lag in coming quarters," said Jefferies.
"We believe Chola should deliver 19 percent earnings per share (EPS) CAGR and best-in-class ROE of 18-20 percent over FY22-25e, which should support premium valuation," said the brokerage firm.
Jefferies believes Tata is in the early phase of a multi-year turnaround led by the confluence of improved strategy and cyclical recovery.
"We like Tata given the cyclical recovery and improving franchise in India, early leadership in India EVs, and JLR focus returning to higher margin Land Rover models. By FY25, we see Tata's EBITDA becoming 2.6x of FY22 and EPS exceeding the past peak," said Jefferies.
"In our ₹540 target price, we assign ₹347 per share to India CVs + PVs at 12 times EV/EBITDA for CVs and 9 times EV/EBITDA for PVs, ₹126 per share to JLR at 1.5 times R&D-adjusted EV/EBITDA and India EV business at ₹67 per share (0.5 times transaction value in stake sale to TPG)," said Jefferies.
Jefferies pointed out that Maruti's EBITDA margins were in a 10-15 percent band for most of FY05-20 but fell to a historical low of 6.5 percent in FY22, partly due to a sharp metal price rally.
"With commodity cost pressures behind, good demand and refreshed product portfolio, we factor EBITDA margins recovering to 10.8 percent in the second half of the year (2HFY23) and further to 12 percent in FY24-25E," said Jefferies.
The brokerage firm expects Maruti's volumes to rise 60 percent over FY22-25, which along with margin expansion, should drive EBITDA to become 3.5 times and quadruple EPS over FY22-25E.
"Our FY24-25E EPS is 12-21 percent above the street. Maruti's 33 times and 21 times FY23E and FY24E PE are not cheap, but valuations should sustain amid strong earnings outlook," said Jefferies.
"TVS's 34 times and 23 times FY23E and FY24E PE appears rich but is justified, in our view, given strong earnings growth outlook and improving franchise," said Jefferies.
"The risk of lower share in EV vs ICE scooters has been a key concern, which should be mitigated with rising EV volumes; we see a potential for stock valuations to expand if TVS is able to garner a similar market share in EVs as in ICEs," said the brokerage firm.
The brokerage firm believes L&T should benefit from execution and margin recovery as theimpact of supply disruptions and sharp commodity price rise ease.
It also believes the peak of non-core investments is behind and L&T has the potential to surprise execution and order flow expectations.
The brokerage firm highlighted that L&T’s current order book is ₹3.7 lakh crore, up 25 percent year-on-year (YoY) and gives comfort on double-digit revenue growth in FY22-25E.
Jefferies believes margins which are currently weak should normalise by FY24E between some cooling off in commodity prices and cost pass-throughs in contracts they win ahead.
"Thermax’s brand is well placed for its larger agenda of being a leader for India in terms of clean water, clear air and clean energy by offering new product solutions to its existing customers. 42 percent EPS CAGR in FY22-25E and 19 percent ROE against 8 percent should drive an upside from current levels. Our target price of ₹2,880, values the stock at 40 times PE Sept.24E," said Jefferies.
The road-to-rail shift is reflected, particularly in the double-digit domestic volume growth. Dadri connectivity is expected in FY23E and JNPT connectivity in FY24E-25E are the additional DFC-linked volume upside legs, said Jefferies.
The brokerage firm believes volume growth should drive upside for Concor over the next 6-12 months, with privatisation being the additional trigger.
"We believe certainty on the LLF fees should see the stock trading at higher valuations, with privatisation prospects helping as well. Our ₹945 target price is DCF-based and implies 16.8 times EV/EBITDA Sept.24E –considering LLF clarity gives additional confidence on earnings estimates ahead," said the brokerage firm.
Macrotech is India's second-largest residential developer by pre-sales and the largest listed developer by the land bank. The company enjoys an almost even mix of premium and affordable housing segments; almost all of it is based out of Mumbai.
Jefferies pointed out that its expansion strategy, through the partnership model, is well thought out and is targeting the areas in Mumbai with lower penetration and new geographies of Pune and Bangalore. The same provides visibility on its 20 percent CAGR target for pre-sales in the medium term.
"The stock is down from its ₹1,500+ peak, partly as the market worries about the impact of higher rates. However, presales are holding well and higher pricing provides strong NAV leverage given large land bank," said Jefferies.
"We expect Godrej Properties' sales to stay strong over the medium term. The company has a medium-term sales target of nearly ₹20,000 crore. Its balance sheet is under-levered (0.1 times gearing) and provides scope to add large new projects," said Jefferies.
"Our price target of ₹1,700 is based on 25 times multiples to normalized profit margins to sales. The stock is down from its ₹2,500+ peak on weak sales, management churn and slow project additions; but we believe steady pre-sales in FY23, improving profitability and new project adds should help the stock," said Jefferies.
The brokerage firm pointed out that the stock also trades at below -1sd on five-year PB bank and below average PB on the 10-year PB band, and as such valuations have eased.
While earnings have been tepid in the first half, Jefferies expects trends to start improving in the second half of FY23 and thereafter aided by a correction in palm oil prices.
"The stock has underperformed peers year-to-date (YTD) and valuations are reasonable at 44 times one-year forward EPS. While the first half of FY23 saw an EPS decline, we expect a pickup starting the year's second half and strong growth in FY24, as margins recover. We value the company at 45 times Sep-24 EPS with a buy recommendation and a target price of ₹1,040," said Jefferies.
Jefferies pointed out that the earlier guidance of $400m cash burn in Blinkit over calender year 2022-2023 has been revised down to $320m, as operating performance surpassed management's expectations. The management is confident of turning Blinkit adj Ebitda positive in two years.
Following a nearly 60 percent correction from the peak, the stock now trades at 1 time one-year forward blended EV/GMV and 3.5 times EV/revenue.
"While this is at a premium to global and regional peers, this is justified in the context of long growth run-way along with higher explicit medium-term forecasts on GMV (nearly 30 percent for Zomato Food del versus 10-20 percent for peers)," said Jefferies.
"We also see a consistent improvement in profitability in food delivery despite strong 30 percent CAGR over FY22-25E (well ahead of global/regional peers)," said the brokerage firm.
Jefferies believes the ramp-up in products like Cequa and Winlevi will help to grow the US business at high single to low double-digit even if sales of generic business do not increase from hereon.
"Sun Pharma trades 25 times Sept-24 in line with its one-year forward historical P/E. We value the company at 27 times Sept-24 as the company is most immune to generic price erosion in our coverage," said the brokerage firm.
"We build in 18 percent EBITDA CAGR over FY23-FY25e, driving FY25 ROE to nearly 12-13 percent, the best in 15 years. IHCL ended FY22 with a net cash position post the recent fundraising activities (versus net/debt to EBITDA of 2-8 times in FY10-FY20) and the past year suggests a stronger focus to keep BS lean, FCF high, measured capital allocations, monetisation and simplification of holding structure," said Jefferies.
"With its number one position in listed hotel space in India, we believe IHCL can trade at a premium to historical valuations given it can capture an outsized portion of Hotel segment recovery and its improving margins/return profile," said the brokerage firm.
Jefferies said the ability to sustain margins across cycles is a factor of the company's nimbleness to navigate uncertain macros, market positioning (pricing power) and focus on premiumization.
"We have a buy on the stock with a target price of ₹505, nearly 37 percent upside from the current market price; target PE is at 40 times (nearly 10 percent premium to three-year historical average), in view of the Butterfly acquisition and robust growth prospects, as well as numerous initiatives embarked upon by the company (cost control, go-to-market distribution, etc.)," said Jefferies.
In view of strong growth prospects, Supreme Industries targets notable Capex in FY23 at ₹700 crore. This Capex is
higher than peers and is likely to be primarily funded via internal accruals, Jefferies said.
"We have a buy on the stock with a target price of ₹2,890, nearly 25 percent upside from the current market price; the target PE is at 30 times, in line with the historical five-year average. Over FY22-25e, we estimate volume growth at +17 percent CAGR, driven by new Capex, expected revival," said Jefferies.
Disclaimer: This article is based on a Jefferies report available on public platforms. The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.