IIFL lists top 5 picks for 2023 with 20% upside

Equitas Small Financial Bank: The brokerage has a target price of ₹66 for this lender, implying a target price of 20 percent. As per the brokerage, the overall outlook remains strong with management reiterating its 1.5 percent credit cost guidance for FY23 owing to asset quality normalisation and despite it reducing its loan growth guidance to 25 percent for FY23. Lower growth and higher opex would, however, mean that achievement of 2 percent RoA (return on assets) would be pushed to FY24, noted IIFL. Given the expected return profile, valuation at 1.1x FY24ii BVPS appears favourable, it added. The management has given the following guidance: Loan growth of 25 percent in FY23, Opex growth of 20-23 percent in FY23, Cost-to-income ratio of 60-63 percent in FY23 and Credit cost of 1.5 percent for FY23.

IndusInd Bank: The brokerage has a target price of ₹1,428 for the stock, implying a target price of 20 percent. According to the brokerage, the operating performance has remained strong with a reported PPOP (pre-provision operating profit) margin of 5.7-6.0 percent over the last 6 quarters. Provision coverage ratio (PCR)is strong at 72 percent and additional provisions at 1.46 percent of loans could cushion earnings, said IIFL. Management guidance is encouraging with 20 percent loan growth for FY23, a cost-to-income ratio of 41- 43 percent and credit cost of 120-150 bps, it noted. Valuation at 1.5x FY24ii BVPS looks favourable, given the growth outlook and return profile, added IIFL. It has increased its loan growth estimates to 21.7 percent CAGR (19.3 percent earlier) but has lowered its credit cost estimates for FY23 to 180 bps.

PB Fintech: The brokerage has a target price of ₹552 for the stock, indicating a potential upside of 20 percent. The stock has underperformed due to concerns around IPO lock-in expiry, even though growth and path to profitability have remained on track, said IIFL. It is trading at 4X FY24ii EV/S, offering 48 percent revenue CAGR over FY22-24ii, vs. Indian internet firms at 6.2x EV/S (38 percent CAGR), noted the brokerage. Contribution margins improved 220 bps QoQ to 24.6 percent, driven by lower losses in the New initiatives. The core business was profitable for a third straight quarter with Adj. EBITDA of ₹12 crore, while new initiatives reported an Adj. EBITDA loss of ₹65 crore, highlighted the broekrage. Management has indicatedESOP expenses are likely to come off sharply in 2HFY23 and FY24, it added.   

Emami: The brokerage has a target price of ₹516 for the stock, implying a potential upside of 20 percent. With a higher salience of rural and mass-end discretionary products, Emami has been impacted disproportionately in the current inflationary times, said IIFL. Moderation in the overall price index should, therefore, bode well for demand recovery for Emami, it added. IIFL broadly maintains its sales estimates and moderate Ebitda margin to 27%/27.5%/27.5%, resulting in an Ebitda downgrade of 2.6%/5.0%/7.4% in FY23/24/25. Its EPS estimates for FY23/24 are upgraded by 9%/11%. As the base of OTC (over-the-counter) and Healthcare sales normalises, sales growth should improve gradually in coming quarters, said the brokerage. Even as the company continues spending behind brands, management sounded confident of clocking a 27% Ebitda margin for FY23, it added.

Godrej Agrovet: The brokerage has a target price o ₹570 for the stock, indicating an upside potential of 20 percent. Th brokerage retains its positive stance on the stock, even with the underperformance in 2Q and remains optimistic for margins to mean revert in a couple of quarters across key businesses. Medium-term growth looks encouraging, as key businesses recover from cyclical pressures, and Astec continues to grow strongly, noted IIFL. At 21/17x FY24/25 P/E, valuations are attractive vs its peer-set in India; downside risk from these levels is minimal, it added. It believes demonstration of healthy earnings growth could potentially spark a re-rating for the stock.