ITC to ICICI Bank: HDFC Sec suggests buying these stocks via SIP route

Aegis Logistics: Aegis Logistics Ltd (ALL) is a leading provider of logistics and supply chain services to the Indian oil, gas and chemical industry. It has a market cap of ₹9,007 crore. The company's liquids division continues to report strong performance, driven by near full utilization and HDFC expects the strong trend to continue in the near to medium term. Capacity addition led by expansion programs will drive volume as well as profitability growth in the medium to long term, it added. However, economic slowdown, volatility in oil and gas prices and regulatory changes in Oil and Gas industry could impact its growth story in the future, cautioned the brokerage. The changing macro-economic scenario can also have an impact on the growth plans of the company, it said.

Bajaj Auto: Bajaj Auto is India’s No.1 motorcycle exporter. It is also the world’s largest manufacturer of three-wheelers. It has a market cap of 1.17 lakh crore The brokerage noted that the company’s gross margin is likely to benefit from the recent fall in commodity prices and depreciation of the rupee against the dollar as exports account for ~50% in volume terms. Although there is some short-term pressure in the key Africa region, other markets are doing well, it added. Management expects demand to gradually pick up with the economy reviving, stated HDFC. Higher competition in premium segment, stress in export geographies and forex volatility are key risks for the company, it cautioned.

Bharti Airtel: Bharti Airtel is a global communications solutions provider with over 49.7 crore customers in 17 countries across South Asia and Africa. It has a market cap of ₹4.07 lakh crore. Lesser launch of low price smartphones in the recent past has reduced industry 4G subscriber additions. This could reverse in the near term, noted HDFC. Bharti Airtel enjoys industry leading Average revenue per user (ARPU) of ₹183 with 25% gain in one year and the company expects another tariff hike in 2022, if not in the next three to four months, added HDFC. Regulatory and policy changes, technological changes, geopolitical risk and competitive pressures are key concerns, cautioned the brokerage.

CDSL: Central Depository Services Ltd (CDSL) is one of two depositories in India and the only one to be listed. It has a market cap of ₹12,698 crore. Growth of the business of depositories is directly proportional to the growth of capital markets, noted HDFC. CDSL stands to benefit from growth in capital markets, however, due to subdued markets, new account additions have fallen over the last few months, it added. CDSL has been witnessing strong momentum in transaction revenue in the past few quarters, driven by retail activity (online brokers) and pledge income, continued gains in market share and sustained growth in annual issuer charges (annuity income), explained the brokerage. The highly regulated nature of operations, rise in competition from other depository or entry of new player/s and prolonged bearish phase in capital markets are key risks for the company, it added.

HPCL: Hindustan Petroleum Corporation Ltd (HPCL) has a dominant market position as one of India's top-three oil marketing companies with consistent market share gains in the auto fuel segment despite rising private competition. It has a market cap of ₹37,407 crore. Going forward, with the completion of the Visakhapatnam capacity expansion and residue upgradation project, the scale and cash flows are expected to improve, noted HDFC. HPCL’s FY23-FY24E capex stands at ₹22400 crore and the company has guided that 30% of its investments in the next five years would be channelized in non-traditional businesses, said the brokerage. Completion of various ongoing projects will drive growth over the next 3-5 years, it added. Economic slowdown, delay in projects execution, volatility in oil and gas prices and in GRMs and regulatory changes in Oil and Gas industry, cautioned the brokerage.

Hindalco: The company has outlined a total growth Capex of $8.17 billion over FY23-27 and the $2.5 billion greenfield capex in Novelis will generate mid-teen return on capital employed, HDFC said. It has been able to maintain its EBITDA guidance at $500/t with a potential to generate higher EBITDA/t with its announced new capacity and new contracts being signed, noted the brokerage. The company is expanding both downstream and upstream to raise its aluminium capacity as well as the share of value add products, which will eventually reflect in an improved EBITDA margin, it added. Volatility in LME Aluminium prices, lower profitability at Aleris and Novelis, and reduction in scrap LME spreads are key risks, it cautioned.

ICICI Bank: ICICI Bank is the second-largest private sector bank in India. It has a market cap of ₹6.05 lakh crore. There has been meaningful pick up in credit growth from retail side and as the expected capex cycle will pick up, the much-needed credit demand from corporate side will emerge in the Indian banking sector, pointed out the brokerage. ICICI Bank, one of the leaders in the industry, is well placed ahead of this new growth cycle to garner growth opportunities, it added. Its like ICICI Bank because of its strong balance sheet with granular, sticky liability base, lower stress levels, industry best PCR (Provision Coverage Ratio) and adequate CAR (Capital Adequacy Ratio). Its subsidiaries which are leaders in their respective fields add strong value to the overall valuation, said HDFC.

ITC: Apart from having a near-monopoly in its traditional business of cigarettes, ITC is the country's leading FMCG marketer. It has a market cap of ₹3.86 lakh crore. ITC has been of the Nifty’s top performers in the calendar year 2022 so far driven by strong performance across all its segments despite inflationary pressures and demand slowdown coupled with supportive valuations, noted HDFC. It believes this sort of consistency across segments with some visible relief on the cigarette taxation front can drive a further re‐rating on the valuations front. The company is one of the leading FMCG companies in the country and, at these valuations, there is limited downside risk, and the risk-reward ratio despite the recent run up in the share price is favorable for ITC, added the brokerage. Profitability and cash generation are heavily skewed towards the cigarettes business and any further Covid waves and subsequent lockdowns can significantly affect profitability, noted HDFC.

Reliance Industries: Reliance is one of India's largest private sector companies, with diverse interests. It has a market cap of ₹17.6 lakh crore. Reliance forayed into the new energy business in FY22 to focus on renewable and clean energy, said the brokerage. Reliance Jio subscriber addition post churn and regular tariff hikes could bring strong revenue visibility going forward, it added. FY23E. Besides, Reliance Retail has created world class ecosystem with scale (revenue and stores) well ahead of peers over the last five years, noted the brokerage. Economic uncertainty, regulatory and policy changes, volatility in crude oil prices, high inflation, and fall in gross refining margin (GRM) are key risks for the company, said HDFC.

SBI: SBI is the largest Public Sector Bank with over 22,000 branches and stands to gain from improvement in business sentiment. It has a market cap of ₹4.64 lakh crore. The management is confident of a sustained business momentum from improving utilisation of corporate credit limits and traction in SMEs, which should likely support incremental loan growth, said HDFC. Given the positive asset quality outlook, credit cost is expected to remain benign and aid RoA recovery, added HDFC. Macro-economic risks given its size and exposure, asset quality challenges, low credit growth and increasing geographic penetration by newer private sector banks are key risks.

Thermax: Thermax Ltd offers integrated solutions in the areas of energy and environment – heating, cooling, power, water & waste management, air pollution control and chemicals. It has a market cap of ₹26,969 crore. The company is expected to benefit from India’s transitioning to green energy setting up ambitious targets for 2030 in the renewable energy space, said HDFC. Thermax remains confident of the chemical business opportunity and optimistic about the ordering outlook for the energy and environment business as industrial activity gains momentum and orders for clean energy equipment witness pickup, stated the brokerage. It has a strong balance sheet with healthy cash position which provides investment avenues in new energy technologies like hydrogen, it added. Margin are likely to remain under pressure due to elevated RM prices, fixed price contracts and higher logistics related costs, cautioned HDFC.

Persistent Systems: It is one of the leading mid cap IT companies in India. The company has acquired five companies in FY22 and its strong deal win momentum could help to improve its revenue growth, said HDFC. Now, the company expects to achieve $1 billion revenues over the next 3-4 quarters. Further, the company has been focusing on better realisation in new engagements and higher pricing in some renewals and new contracts, it added. Rupee appreciation against the USD, higher attrition rate, margin contraction, visa cost and strict immigration norms are key concerns, cautioned HDFC.