Three fundamental stock picks by HDFC Securities for greater returns

Updated : February 22, 2021 02:00 PM IST

L&T Finance Holdings (LTFH) has shown commendable growth on all fronts post-implementation of its strategy in FY17, HDFC Securities said.

The Indian stock market has correctly from its recent all-time high levels with the benchmark Nifty trading below 15,000 level.

HDFC Securities’ Retail Research has come out with its ‘Fundamental Picks’ with three stocks that can be bought on dips for a time period of two quarters.

Here are fundamental picks from HDFC Securities’ Retail Research:

L&T Finance Holdings | Buy | Rs 107.5

L&T Finance Holdings (LTFH) has shown commendable growth on all fronts post-implementation of its strategy in FY17. It is on the path to become a dominant player in infrastructure and tractor businesses. Focus on branch rationalization, cost efficiency and use of digital and data analytics platform to source loans and collections could lead to further improvement in return ratios.

The stock is available at cheap valuations for a reason of possible asset quality hiccups in wholesale lending though the focus on this business has been falling.

We feel investors can buy the stock at CMP (1.04xFY23E ABV) and add further on dips to Rs 73-76 band (0.90x FY23E ABV) for sequential targets of Rs 99.5 (1.2x FY23E ABV) and Rs 107.5 (1.3x FY23E ABV) in 2 quarters, HDFC Securities' Retail Research said.

eClerx Services | Buy | Rs 1,127

Despite the modest performance in the recent past, eClerx is likely to witness a gradual recovery in growth on account of stable deal momentum, no client roll-offs and expanding delivery base which could boost the overall deal pipeline.

We expect that the company could witness a gradual improvement in revenues mainly led by improved deal wins, traction in digital and CLX revenues in FY22E and FY23E. Better outlook on growth rate and stable profitability, reasonable valuation, healthy balance sheet and the company's aspiration to reach industry level growth makes us positive on the stock, HDFC Securities' Retail Research said.

We think the Base case fair value of the stock is Rs 1,040 (12.0x FY23E EPS) and the bull case fair value of the stock is Rs 1,127 (13.0x FY23E EPS) over the next 2 quarters. Investors can buy the stock on dips to Rs 905-915 band (10.5x FY23E EPS) and add more on dips to Rs 820-828 band (9.50xFY23E EPS). At the LTP of Rs 969, the stock trades at 11.2x FY23E EPS, it added.

Security and Intelligence Services (India) | Buy | Rs 471

Security and Intelligence Services (India) (SIS) Group is a market leader in security, cash logistics and facility management services and operates in India, Australia, Singapore and New Zealand. SIS is no. 1 security service provider in India and Australia. The company is no.2 player in Facility Management and Cash Logistics segment in India.

We estimate around 8 percent revenue CAGR over FY20-23E led by growth from across its verticals. Strong revenues and steady margins coupled with lower finance costs would drive 16 percent PAT CAGR over FY20-23E. A consistent improvement in cash generation and deleveraging would be key upside catalysts, HDFC Securities' Retail Research said.

The stock trades at 16.5x FY23E EPS which is reasonable given strong earnings growth expected in the coming years.

We feel that investors can buy the stock at LTP and add further on dips to Rs 360-364 band (15.0x FY23E earnings) for base case fair value of Rs 435 (18.0x FY23E earnings) and bull case fair value of Rs 471 (19.5x FY23E earnings) over the next two quarters.

(Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.)

Three fundamental stock picks by HDFC Securities for greater returns

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