After 2 months of positive returns, September did not follow the trend. The month saw a 3.7 percent decline in Nifty50 after a 12.5 percent jump in July and August combined. This comes on the back of fears of recession, a jump in inflation, foreign investors turning sellers again as well as the Russia-Ukraine war.
Amid this backdrop, brokerage house HDFC Securities has come out with 3 fundamental picks with a time horizon of the next 2-3 quarters.
Gujarat Alkalies & Chemicals: The brokerage recommends buying this chemicals stock on dips between ₹918-926 band and add more at ₹824. It has given the target price of ₹995 for the base case and ₹1,077 for the bull case scenario with a time horizon of 2 quarters. The stock has rose nearly 12 percent in the last 1 year and 36.5 percent in 2022 so far. It has gained 5 percent in October so far after a 5 percent fall in September.
Gujarat Alkalies & Chemicals Ltd. (GACL) is the second-largest player in the domestic caustic chlorine industry with integrated operations. It produces a wide range of products, including caustic soda, liquid and gaseous chlorine, hydrogen peroxide, phosphoric acid and aluminium chloride, which find application across a diversified group of industries.
As per the brokerage, the company registered strong revenue and robust growth in profitability led by healthy volume growth and robust realisations. In Q1FY23, the company posted strong set of numbers on the back of better realisations, it said. Recent capacity addition, better utilisations and healthy realisations would drive growth in the coming quarters, added HDFC.
HDFC Sec estimates an 18 percent CAGR in revenue led by healthy growth in volumes across business segments and strong realisations. It registered 55 percent YoY growth in revenue in FY22 at ₹3759 crore due to robust realisations. EBITDA margin had improved 1150 bps YoY at 26.2 percent and PAT increased 238 percent YoY at ₹560 crore, informed HDFC.
"After a sharp surge in the margin, we expect it to stabilise at around 28-29 percent over the next two years. Net profit is expected to grow at 29 percent CAGR over FY22-24E. GACL has taken up various projects, which include adding new products in the portfolio as well as expanding the current product lines by putting up additional capacities through new plants. We think that given the commissioning of forward integration projects, expansions, power saving initiatives and NALCO JV could lead to scale economies/operating leverage and a rerating of the stock in addition to earnings expansion despite a largely commodity portfolio," explained the brokerage.
HUDCO: The brokerage recommends buying this stock at ₹36-36.5 band and add more on dips at ₹32.5-33. It has given the target price of ₹40 for the base case and ₹43 for the bull case scenario with a time horizon of 2-3 quarters. The stock has fallen nearly 20 percent in the last 1 year and 7 percent in 2022 so far. It has gained 2 percent in October so far after a 13 percent fall in September.
Housing and Urban Development Corporation Limited provides housing and infrastructure development in India. The company offers loans for housing projects, such as urban and rural housing.
In the longer term, HDFC expects, demand for housing is likely to increase with the increasing urbanization, better affordability and higher incentives provided by the government. This is likely to be beneficial for companies like HUDCO. The government is also looking to improve urban infrastructure and provide better living conditions to the rising urban population, it explained.
It expects the loan book of the company to grow at a conservative CAGR of 8.5 percent over FY22-FY24E. PAT is expected to grow at 6 percent CAGR on account of a higher base due to exceptional items, stable spreads and higher delinquencies, it predicted.
"FY22 profit was aided by provision write-back of ₹246 crore lifting return on asset (RoA) to 2.2 percent. The benefit of writeback might not be available in the coming years and it sees the stock's RoA to hover around the 2 percent mark. Most of the concerns seem to be reflected in the price and the stock is available at an inexpensive valuation and offers an attractive dividend yield (FY22 dividend ₹3.50), noted the brokerage.
Jyothy Labs: The brokerage recommends buying this FMCG stock at ₹193-210 band and add more on dips at ₹174-182. It has given the target price of ₹214 for the base case and ₹228 for the bull case scenario with a time horizon of 2 quarters. The stock has gained 20 percent in the last 1 year and 44.5 percent in 2022 so far. It has risen 6 percent in October so far after a flat September.
Jyothy Labs Limited is an India-based fast-moving consumer goods (FMCG) company. The Company is involved in the manufacturing and marketing of products in fabric care, dishwash, mosquito repellent and personal care.
"Being the No. 1 in the fabric whitener market (84.4 percent market share), No. 2 in the dishwashing bar and liquid market, and No.2 in mosquito repellent coil market, the company, through its diverse product portfolio, has a strong positioning and growth runway in-home care, fabric care and personal care segments," noted the brokerage.
Despite a lackluster performance in the recent past, the company would achieve double-digit revenue growth in the medium term, it believes, given its various relevant strategic initiatives in recent times. Its core portfolio has been gaining decent traction in the past few quarters with all its major brands having gained a market share of 70-400 bps, added HDFC.
As a part of its renewed strategy, the company is focused on driving volumes to gain scale and operating leverage which would result in double-digit revenue growth, it pointed out. However, sharp inflation in commodity prices led to gross margins plunging to a record low in Q1FY23, it stated.
But, with the recent correction in commodity prices, HDFC expects recovery margins from H2FY23. Going ahead, it sees the company reporting revenue/EBITDA/PAT CAGR of 11 percent/23 percent/28 percent.
It further stated that JLL’s current discount to peers is largely on the back of its smaller business size, lower profitability, and return ratios vis-à-vis them and also because of a lack of geographical and product diversification. However, with growth prospects led by innovation, initiatives, larger investments in brands, and superior profitability over the next two years, HDFC expects the discount to peers to narrow. It predicts JLL would gradually be rerated in line with other mid-sized FMCG players as the street becomes comfortable with its topline and bottom-line growth robustness.