Stock picks: DART lists 8 largecap stocks including HUL, Airtel with up to 45% upside potential

Updated: 22 Mar 2023, 08:23 AM IST

On the back of high inflation and other macro concerns, domestic brokerage house DART (Dolat Analysis and Research Themes) continues to prefer bottoms-up stock picks. It believes that the current environment continues to be fluid and this may well extend into the Q4 earnings season, hence, the returns for the broader market may also be backloaded for the CY23. Having said that, DART also believes that the best-case return scenario for Nifty is a low double-digit for the next 12 months odd, unless there is a sharp drawdown on the index. Amid this portfolio positioning, Let's take a look at its top largecap picks.

Asian Paints: The brokerage has a ‘buy’ call on the stock with a target of 3,460, estimating a potential upside of 21%. As per the brokerage, Asian Paints would remain a key beneficiary of rural revival as the company has 50% revenue contribution attributed from these regions. Going ahead, it believes that the company would continue to outpace peers with products across all layers of the paint segments, better offerings and a strong distribution network. Margins have been impacted in the recent past due to high inflation and unfavorable product mix but DART expects the margins to revert to mean as the higher cost raw material pass-through is absorbed. Despite high price hikes during FY23E, it anticipates 15.3% revenue growth in FY24E led by volumes and margins to improve to 19.8/20.6% in FY24/25E compared to 18.7% reported in Q3FY23. Also, improvement in the sales mix would help the company to augment margins.

Bharti Airtel: The brokerage has an ‘accumulate’ call on the stock with a target price of 860, implying a 14% potential upside. The brokerage noted that Bharti delivered a healthy 47/30% in India Wireless/Consolidated 4-year EBITDA CAGR driven by subscriber market share gains and ARPU growth. However, it pointed out that Bharti’s recent sharp price increases for the 2G segment from 99 to 155 are proof of the pudding of price increases which is inevitable for the sector. In parallel, it expects Bharti to capitalize on alternate revenue streams viz. FTTH, content, payment, healthcare, education, etc., in partnership with other players that ride on the telco's infrastructure. Thus, Bharti is a proxy play on evolved telecom industry structure, potential tariff increases and upgrades, it said. Tariff increase in the near-term, listing process initiation for Jio and further weakening and consequent shutdown of VIL as an optionality are key triggers, stated the brokerage.

DLF: The brokerage is bullish on DLF with a target price of 530, indicating a potential upside of 43%. DART views DLF as a low-risk compounder given a sizeable mix of annuity portfolio accounting for 30 percent of NAV and limited reinvestment requirement in the land. It believes DLF is a prime beneficiary of the real estate upcycle given a combination of diversified product mix and fast churning residential portfolio, brand leadership in the core market of operations, optionality to scale-up higher using the sizeable land reserves and offering a play on near REIT ready 40 msf of prime operating annuity assets. Valuations also look attractive, however, deteriorating macro outlook impacting overall property demand is a key risk, it added. Overall, the brokerage sees DLF sustaining its superior earnings and cashflow profile – core ROE at >15% for FY23E/FY24E. 

Hindustan Unilever: The brokerage has an ‘accumulate’ call on the stock with a target price of 2,900, indicating a 15 percent potential upside. HUL has advanced its reach to 9 million out of 11 million outlets in the domestic market. Though the room for further network expansion is low, especially in highly penetrated categories like soaps and detergents, the company would focus on the increasing contribution of premium products, noted DART. Further, the company caters to multiple categories in personal care and home care segments where penetration is very low and has the potential to post exponential growth, going ahead, it stated. DART further pointed out that over the last decade, HUL has improved its margin by 1,000bps driven by premiumization and cost control measures. Due to lower price pass-on, gross margin remained lower in the recent past. Nevertheless, with the decline in palm oil prices and stabilization in other commodities, DART believes that the company would be able to increase its gross margins.

M&M: The brokerage is bullish on the stock with a target price of 1,646, implying a potential upside of 41%. M&M is in the midst of a very strong model cycle in SUVs and the brokerage believes the high demand for premium SUVs like XUV700, Thar and Scorpio-N will help in stronger net ASP per vehicle and margin expansion. However, in LCV, price sensitivity and the inflationary situation may put pressure on demand, it warned. While margin expansion will be driven by operating leverage, and the removal of introductory pricing on many models; the increase in prices due to BS6 Phase 2 of 9-15k will put some pressure on margin, said DART. It believes the stock shall trade at a premium to the historical multiple as the company moves higher to its guided ROE target of 18%. 

Marico: The brokerage has an ‘accumulate’ call on the stock with a target price of 558, indicating an upside of over 15%. In the recent quarter, Marico was able to post a 120 bps improvement in GM owing to softening of copra prices and calibrated price hikes – amongst the rarest of companies to post GM expansion, noted DART. It further added that the company’s food business has witnessed very strong growth over the last three years and is expected to reach to 8.5-10 bn mark by FY25. As urban markets are growing faster compared to rural, in the near term Marico is better placed compared to peers as 70% of its business is attributed to urban areas. Further, the key areas – Saffola and VAHO portfolio – would benefit from a favorable base, explained the brokerage. Hence volume growth for Marico is expected to improve in the near term, it forecasted. It expects 8.5% revenue CAGR over FY22-25E – mainly led by volume growth and margins to improve to 19.2/19.4% in FY24/25E compared to 18.5% in Q3FY23. 

PI Industries: The brokerage has a ‘buy’ call on the stock with a target price of 4,237, implying a potential upside of over 45%. As per the brokerage, PI Industries' healthy 9MFY23 performance has been primarily driven by the custom synthesis manufacturing (CSM) segment, which has registered a growth of 30% YoY. With a strong order book of $1.8 bn, a healthy R&D pipeline, and a surge in inquiries from the non-ag chem space, the growth outlook for the CSM segment looks solid and will continue to register healthy double-digit growth over FY24/FY25, it said. The firm's domestic business also clocked in a growth of 15% YoY for 9MFY23 aided by incremental sales from its new product launches. Despite a muted performance in Q3FY23, the brokerage expects a rebound in Q4FY23 with improved Rabi acreages and expects healthy performance over FY24 driven by the scale-up of newly launched products. 

Titan: The brokerage is bullish on the stock with a target price of 2,773, indicating an upside of 13%. Over the next 12 months, DART believes that the volume base for Titan would remain favourable considering a higher number of weddings. It also expects the growth to be led by volumes and hence there would be traction in absolute profitability. Considering the leader in the jewellery space, the brokerage sees the scarcity premium remaining attached to the stock. It further noted that Titan’s vision to add new collections across categories store addition in the domestic and international markets would help it to post high growth, going ahead.

First Published: 22 Mar 2023, 08:23 AM IST