HDFC Securities is bullish on Apollo Tyres, InterGlobe Aviation, PNC Infratech and Supreme Industries. The brokerage house has recommended investors buy these stocks at the current market price levels and further add them on dips for a time horizon of two quarters.
Here are the fundamental picks by HDFC Securities:
Apollo Tyres registered strong growth in FY21, barring Q1FY21 due to COVID-19 related disruption. H2FY21 witnessed a sharp recovery in both India and European business. The company posted the highest operating margin since FY16 led by various cost control initiatives in both geographies. It is towards the fag end of its current capex cycle.
Apollo trades at 12.5x FY23E EPS almost in line with long term historical average of about 11x while 5 years average multiple stands at ~15x. Renowned private equity firm Warburg Pincus subscribing to compulsorily convertible preference shares in Mar-2020 shows confidence. The company has guided for Rs 500-600 crore debt reduction from FY23E onwards given that there are no major capex plans.
HDFC Securities feels that investors can buy the stock on declines to Rs 196 and add further on dips at Rs 179 for base case fair value of Rs 223 and bull case fair value of Rs 249.5 over the next two quarters.
HDFC Securities expects the company to benefit from the leading market positioning in the highly under-penetrated growing Indian aviation space. Its asset-light leasehold operational business model, ready capacity, strong balance sheet, and fragile competition landscape provide comfort. The vulnerability of most of its peers is an added trigger for the company, the brokerage house said.
It believes the base case fair value of the stock is Rs 1,742 and the bull case fair value of the stock is Rs 1,906. Investors willing to take some risk can look to buy the stock on falls to Rs 1,644 and add more on dips to Rs 1,511.
PNC’s strong balance sheet, strong cash flows, and internal accruals will help it fund the CAPEX requirement for HAM projects. The company follows a strategic bidding process, wherein it concentrates on cluster-based projects. Going ahead, diversification into other sectors (apart from roads) like water, irrigation, metro, and airport runways will open up new avenues for the company, HDFC Securities said.
PNC infra is one of the best players in the infrastructure development space. The stock is trading at an attractive valuation of 10.9x its FY23 earnings. We feel investors can buy the stock at LTP and add on dips to Rs 230.0 for a base case target of Rs 287.0 and bull case target of Rs 310.00, it added.
Supreme Industries’ earnings grew at 8 percent CAGR during FY15-20. We are positive on the future growth prospects of agri piping, housing and building material segment. In our view, Supreme Industries’ revenue and PAT are likely to record a growth of 10.6 percent and 21 percent CAGR over FY20-23E along with consistent FCF generation and stable working capital, the brokerage said.
Segment-wise, it expects Piping/Packaging/Industrial/Consumer segments’ revenue to grow at CAGRs 13/8/5/2 percent respectively over the same period.
The stock is currently trading at a valuation of 34x FY23E earnings. We feel the base case fair value of the stock is Rs 2,342 and the bull case fair value is Rs 2,473. We recommend investors to buy the stock on dips at Rs 2,129 and further add at Rs 1,933, it said.
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(Edited by: By Ajay Vaishnav)