scorecardresearch3 fundamental stock picks by HDFC Securities for 2-3 quarters; See list

3 fundamental stock picks by HDFC Securities for 2-3 quarters; See list

Updated: 05 Jan 2023, 11:56 AM IST
TL;DR.
Domestic brokerage house HDFC Securities has come out with 3 fundamental picks with a time horizon of 2-3 quarters. Let's take a look:
Domestic brokerage house HDFC Securities has come out with 3 fundamental picks with a time horizon of 2-3 quarters. Let's take a look:

Domestic brokerage house HDFC Securities has come out with 3 fundamental picks with a time horizon of 2-3 quarters. Let's take a look:

The year 2022 was marked by multiple headwinds for the market. While the market remained volatile due to geopolitical tensions, rate hikes, and slowing economic growth, there were pockets of opportunities. While uncertainty is expected to remain the theme for the market for a significant part of 2023, there will certainly be stock opportunities. Brokerage firm HDFC Securities has come out with 3 fundamental picks with a time horizon of 2-3 quarters.

Let's take a look:

Gujarat Themis Biosyn: The advises investors to buy Gujarat Themis Biosyn in the band of 774-787 and add more on declines to 682 (12x Sep-24E EPS) for a base case target of 852 (15x Sep-24E EPS) and bull case target of 909 (16x Sep-24E EPS) over the next 2-3 quarters.

Prior to FY20, the company was engaged in contract manufacturing of Rifamycin S for Lupin. During FY20, management decided to change the business model from contract manufacturing to manufacturing and sales model; as a result, the company’s operating profitability has significantly improved, the brokerage pointed out. The company had reported robust numbers over FY20-22.

It expects the company to benefit from the ramp-up of new products post large capital expenditure. Management aims to start revenue from export markets mostly from FY25E. It has identified new products, for both markets. HDFC estimates revenue, EBITDA, and PAT CAGR of 29 percent/28 percent/27 percent over FY22-25E.

Operating margin is expected to remain at around 49-50 percent over the next 2-3 years as the company focuses on products, which has limited competition, it added.

Gujarat Themis is engaged in the manufacturing of APIs namely Rifamycin S and Rifamycin O. The key raw material for GTBL is Rifabutin which is sourced through the domestic market.

"The firm said that it is working on 10-12 new products in the areas such as Cardiac, Anti-Infectives, etc. and it would be by way of fermentation process only. The company is planning to establish a new R&D lab to take care of technology development for new products and for examining whether existing products can be used for more applications. GTBL is in process of identifying new products which have good domestic and export potential. It is working on a strategy to move up the value chain by way of forward integration into API," noted the brokerage.

In the September quarter, its revenue grew 36 percent YoY at 47.7 crore. Operating margin contracted 140 bps YoY at 51.2 percent. Net profit increased 35.5 percent YoY at 18.7 crore.

Meanwhile, for H1FY23, revenue increased 37.3 percent YoY at 92.6 cr and net profit was up 36.5 percent YoY at 36.5 crore.

The stock has risen 59 percent in the last 1 year.

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Gujarat Themis Biosyn stock price trend

Ahluwalia Contracts (ACIL): As per the brokerage, investors could buy the stock in the Rs. 471-481 band and add more on dips to 425-433 (10x Sept 24E EPS). It feels the Base case fair value of the stock is 525 (12.25x Sept 24E EPS) and the Bull case fair value is 557 (13x Sept 24E EPS) over the next two quarters. At the CMP of 476 the stock trades at 11.1x Sept 24E EPS.

"ACIL’s pursuit of engineering and construction perfection, which have been achieved through ground-breaking technologies, creative systems, and procedures, aided the Company in delivering challenging projects and solutions on time, maintaining the best quality and within the budget. ACIL continues to see robust prospects in healthcare, data centers, and industrial structures apart from government buildings. The competitive intensity remains elevated and ACIL remains very selective in bidding for projects. While there are near-term headwinds of high input costs, ACIL expects to report 15 percent revenue growth and margins in the range of 11-12 percent moving ahead," said the brokerage.

The promoter family remains closely involved in the business with well-defined responsibilities and a clear understanding of future roles. ACIL’s robust and diversified order book, strong bidding pipeline, and timely execution could help to bring more orders going forward, added HDFC.

Ahluwalia Contracts (India) Limited (ACIL), is one of the leading infrastructure companies. ACIL is engaged in civil construction and execution of turnkey projects. It is actively engaged in the construction of institutional & industrial buildings, corporate office complexes, multi-storied housing complexes, township development projects, hospitals, medical colleges, hotels, educational & technical institutes, schools, and gymnasiums and sports complexes. Mr. Bikramjit Ahluwalia is a key promoter in the company being experienced in the construction industry in India with more than five decades of experience.

The brokerage expects the company’s order inflow guidance of 3,500-4,000 crore for FY23E is conservative and is likely to be exceeded given the strong opportunities. It believes that the company could report revenue growth of 13.6 percent and 12 percent in FY24E and FY25E, respectively. The high-priority healthcare sector comprises one-third of ACIL’s backlog and is likely to be a key driver of both fresh inflows and execution in FY23/24E, noted the brokerage. ACIL operates an asset-light business, with consistent free-cash-flow generation since FY15, it added.

ACL reported muted performance in Q2FY23. Its cons revenue stood at 623 crore in Q2FY23 vs. 698 crore in Q2FY22 and 609 crore in Q1FY23. It reported revenue growth of -10.8 percent YoY and 2.2 percent QoQ. Revenue was impacted due to a delay in execution on account of the heavy monsoon. The company’s EBITDA stood at 62 crore vs 63 crore in Q2FY22 and 61 crore in Q1FY23, reported EBITDA de grew 2 percent YoY and grew 2 percent QoQ.

EBITDA margin was at 9.9 percent in Q2FY23 vs. 9 percent in Q2FY22 and 9.9 percent in Q1FY23. EBITDA margin contracted on a QoQ basis due to higher employee costs in the quarter. The company’s net profit rose 9.4 percent YoY basis and 3.7 percent QoQ to 36 crore in Q2FY23.

The stock has risen 26 percent in the last 1 year.

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Ahluwalia Contracts stock price trend

Chennai Petroleum Corporation: As per the brokerage, investors could buy the stock in the 205-209 band and add more on dips to 180-184 band (3.75x FY24E EPS). The base case fair value of the stock is 230 (4.75x FY24E EPS) and the bull case fair value of the stock is 254 (5.25x FY24E EPS) over the next 2 quarters. At the CMP of 207 the stock trades at 4.3x FY24E EPS.

According to the brokerage, CPCL is the largest refinery in south India with a total installed capacity of 10.5 MTPA. Considering the strategic importance of CPCL’s refinery in southern India, its expansion plan and its strong promoter background, HDFC believes the financial performance could improve in the medium term. Singapore GRMs have also improved in November/December after falling sharply between July and November 2022, it added.

The brokerage further noted that CPCL’s ongoing enhancement projects and expectation of sustained bounce back in GRM could lead to strong earning visibility and RoE improvement going forward.

Refining fundamentals remain robust and its Average Gross Refining Margin (GRM) in H1FY23 stood at US$ 14.58 per bbl vs. US$ 5.75 per bbl in H1FY22 and GRM was at US$4.44 per bbl in Q2FY23 vs. US$ 5.83 per bbl in Q2FY22, informed the brokerage. It expects that GRM could be flat to slightly up QoQ in Q3FY23.

Taking its lower size, NCI (Nelson Complexity Index) and volatile refining margin profile, the stock is trading at a lower valuation than other refiners, said HDFC. Expectations of strong revenue growth and margin expansion, combined with healthy RoE and stable crude oil price make a case for a higher multiple, it forecasted.

CPCL reported strong performance in Q2FY23 with a high GRM. Consolidated net revenue was at 19,509 crore in Q2FY23 vs 8,856 crore in Q2FY22. EBITDA decreased to 228 crore in Q2FY23 vs 306 crore in Q2FY22 and net profit was at 17 crore vs 61 crore in Q2FY22.

The average Gross Refining Margin for the period April — Sept 2022 is $14.58 per bbl (April - Sep’2021: $5.75 per bbl) and for the period July - Sept 2022 is $4.44 per bbl (July -Sept 2021: $5.83 per bbl). Inventory loss ($4 per barrel) due to a sharp fall in crude oil prices was the main reason for the subdued profits despite high GRMs. Also, the levy of a windfall tax on the export of crude oil products wef July 01, 2022, impacted the profitability of the company (by $10-12 a barrel). Forex losses due to the weakening of the Rupee also impacted profits.

The stock gave multibagger returns in the last 1 year, up 101 percent.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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Chennai Petroleum Corporation stock price trend
First Published: 05 Jan 2023, 11:56 AM IST