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The Retail Research Desk at HDFC Securities has included SBI Life Insurance, Ipca Laboratories, Finolex Industries and DCW Ltd in its top fundamental pics. The brokerage is bullish on these stocks on the back of strong growth prospects and attractive valuations. It recommends buying these stocks on the current market price and add on dips for the time frame of two quarters.
SBI Life Insurance Company
Even during the weak economic scenario, the company has reported decent numbers in Q1FY22. In our view, SBI Life Insurance Company deserves premium valuation given diversified product mix, strong distribution and focus on improving persistency, HDFC Securities said.
The brokerage estimates SBI life to deliver CAGR of 20 percent for Value of New Business (VNB), 16 percent New Business Premium (NBP) and 16 percent for Embedded Value (EV) over FY21 to FY23E. The company is trading at 2.5x FY23 Embedded Value, which is at a sharp discount to its peer HDFC Life.
Given the high growth environment, we believe that Indian life insurance companies will keep on getting higher multiples. SBI Life offers quality at attractive valuations due to its best-in-class cost ratio, improving persistency and strong premium growth that ensures continuity in sound operating performance. Its margin has expanded in FY22 but it still lags peers and therefore has a high room for improvement over the next two years, it added.
The brokerage recommends investors can buy SBI Life at the current market price and add on dips to Rs 1,059 band for the Base case the fair value of Rs 1,295 and the Bull case the fair value of Rs 1,370 over the next 6 months.
HDFC Securities is positive on Ipca Labs on the back of strong volume growth in domestic formulation across therapeutic areas, cost-competitive and consistent quality driving better business prospects in API segment, robust debt-free B/S with strong liquidity in the form of cash, liquid investments to the tune of around Rs 920 crore as on June 2021 and strong return ratios and better traction in the international markets such as Europe and Asia.
We feel investors can buy the stock on declines at Rs 2,359 and add more on dips to Rs 2,080 (20.5x FY23E EPS) for a base case target of Rs 2,664 (26.25x FY23E EPS) and a bull case target price of Rs 2,867 (28.25x FY22E EPS) over the next two quarters.
The entire chemicals and pipes space has been rerated over the past few quarters while Finolex Industries is available at attractive valuations on a relative basis. The dispute among the promoters family is one of the reasons for the stock not getting its due valuation, HDFC Securities said.
However, it feels the discount given by the street to Finolex Industries on this count is quite high. The stock is currently trading at a valuation of 16x FY23E earnings.
We feel the base case fair value of the stock is Rs 206 (18.6x FY23E) and bull case fair value is Rs 222 (20x FY23E). Investors willing to take risk can buy the stock in the band of Rs 180-186 and add on dips at the price of Rs 166, it said.
With the required capital infusion, the brokerage house expects the company’s operations to stabilize and there will be an end to the turbulent phase which it had experienced in the last 2-3 years.
DCW is one of the oldest companies in the commodity chemical space and scale-up in its margin accretive speciality chemical side along with constant de-leveraging and no large capex lined up for next 2 years will result in strong cash flow generation and improvement in its return ratios which would the key drivers for the stock to get re-rated, it said.
We think DCW can post a revenue/EBITDA and PAT growth of CAGR 16/22/480% over FY21-FY23E. We believe the base case fair value of the stock is Rs 44 (4.4x FY23E EV/EBITDA) and the bull case fair value is Rs 48 (4.7x FY23E EV/EBITDA). Investors can buy the stock in the band of Rs 38-41 and further accumulate on dips at Rs 33, it added.