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Ashoka Buildcon (CMP: 134; Target: 163; Upside Potential: 22%)
Ashoka Buildcon has an extensive experience of over four decades in the construction segment and has demonstrated strong execution capabilities. With the private sector emerging as the key player across various infrastructure segments, Ashoka Buildcon looks well poised to benefit aided by its robust order inflows, latest technology, innovative construction practices and better project execution. Its current balance order book for road EPC and road HAM stands at Rs. 5,802 crores and Rs. 1,455 crores, comprising around 33.0% and 8.3% of the total order book, respectively. The asset monetization program continues to substantiate Ashoka’s full cycle credentials and efficient use of capital to develop, construct, commission, operate and sell investments. The divestments of the CGD business and road project SPVs would release capital locked in equity of the projects and reduce consolidated project debt by over Rs. 5,616 crores. Thus, we are positive about the long-term prospect of the company and value it at a P/E of 13x based on FY23 earnings to arrive at a target of Rs. 163 per share.
Bharti Airtel (CMP: 973; Target: 1,106; Upside Potential: 14%)
The telecom company remains on strong footing with industry-leading ARPU, higher focus on premiumization, a growing subscriber base and earlier tariff hikes. The industry pricing environment has become more favourable, raising expectations for regular tariff hikes. We expect ARPU to improve led by increasing tariffs, 2G to 4G migrations, prepaid to post-paid conversions and rising data monetization. The India business continued on a strong footing, with the company consistently delivering healthy revenue growth. Other businesses such as Fixed Broadband and Enterprise, are witnessing strong traction and will drive revenue growth in the medium term. Further, the company has an excellent track record in business execution and is expected to deliver robust performance led by broad-based growth across segments. We are, thus, positive about the long-term prospects of the company and value it at a P/E of 38x based on FY23 earnings to arrive at a target of Rs. 1,106 per share.
Coal India (CMP: 332; Target: 370; Upside Potential: 12%)
Coal India Limited plays a significant role in achieving the nation’s energy security. The company recorded the highest-ever production and offtake in FY23 at 703 MT and 695 MT, respectively, of which ~85% of the supply was to the power sector. Based on the demand projection in “Vision 2024” for the coal sector in India and subsequent demand projection on CIL, a roadmap has been prepared wherein CIL has envisioned 1 Billion Tonne (BT) production in FY25-26 to meet the coal demand of the country. CIL has identified all required resources to achieve this target, including significant projects contributing to its 1 BT production plan. We believe that strategic relevance of Coal India for India’s energy security along with its focus on improving operational efficiencies warrants a positive outlook on the company. We, thus, value the company at a P/E of 8x based on FY23 earnings to arrive at a target of Rs. 370 per share.
Colgate Palmolive (CMP: 2,180; Target: 2,500; Upside Potential: 15%)
It is to be noted that 80% of the urban population is still not brushing twice and 55% of the rural population does not use toothpaste daily, implying a huge growth opportunity in oral care business. In the quarter gone by, the business also saw green shoots in rural recovery and recovery in its volumes. Further, it is also looking for relevant opportunities from the global portfolio which can be introduced in the domestic markets. With the entry of new CEO Ms. Prabha Narasimhan (ex-HUL head in the beauty and personal care segment) and her strategies to further augment the business, we remain positive on the overall growth story. On the valuation front, we are positive about the long-term prospect of the company and value it at a P/E of 50x based on FY23 earnings to arrive at a target of Rs. 2,500 per share.
Dabur India (CMP: 537; Target: 640; Upside Potential: 19%)
Dabur is a professionally run company which is hungry for growth and market share and they have proved it by gaining market share across categories like hair oil and honey. Out of net worth of Rs. 9300 crores, there is net cash of Rs. 7,000 crores which can be used to expand in high growth categories like food where they recently acquired Badshah Masala for close to Rs. 480 crores at just 2x sales where double-digit growth is possible. The company’s CEO is also seeing strong recovery in rural India which is 40% of India sales for the company along with the upcoming winter quarter which is generally strong for Dabur due to high margin products like Chyawanprash doing well. On the financial front, we believe that soft raw material prices can help the company to achieve the guided EBITDA margin of 19.5%. We remain positive on the company as it is a proven business available at close to 40x FY25 earnings, ROICs are very strong, management team is hungry for growth and commentary for near term is improving.
Hindalco Industries (CMP: 507; Target: 650: Upside Potential: 28%)
It is interesting to note that Novelis, a subsidiary of Hindalco Industries, contributes 70% of Hindalco’s EBITDA. With Novelis reporting excellent results and providing very good long-term outlook, we remain positive on the company. 60% of Novelis volumes come from beverage can plus two thirds of new capex is for beverage can that is fully contracted at higher margins. As a result, we believe that this business should command higher value as it is annuity cash flow business. In automobile space, aluminium use is likely to increase due to light weighting and EVs which should benefit the company as it constitutes 20% of Novelis volumes with higher margins. Moreover, limited upcoming aluminium smelting capacity due to very low RoE and need of electricity would help the company to maintain USD 700 per ton EBITDA going forward. We remain constructive on the company as the US Fed’s less hawkish stance and some positivity in China is likely to cushion aluminium prices.
Jio Financial Services (CMP: 226; Target: 350; Upside Potential: 55%)
Jio Financial Services (JFL) is a decadal opportunity and is a well-capitalised financial services arm of Mukesh Ambani family where they directly own stake equal to their stake in Reliance Industries. JFL holds 6% stake in Reliance Industries which is valued at around Rs. 1.05 lakh crores. Although this money cannot be leveraged upon to grow the book, it can always act as a liquid asset which can be sold gradually when JFL lending business really scales up. We believe that the cost of funds for JFL will be hardly 50 bps above Reliance’s borrowing cost and that will be competitive against most other NBFCs in the market. On the other hand, huge data base due to largest store network and highest number of subscribers can be leveraged as potential customers which places the company on a strong growth trajectory. Moreover, the entire team is getting built under the financial services veteran Mr. KV Kamath who has the resources of JFL to attract the best talent for various functions. Overall, we believe that JFL is a best way to play financialisaton and formalisation of the Indian economy.
Landmark Cars (CMP: 727; Target: 1,000; Upside Potential: 38%)
With increasing disposable income and aspirations, we believe that the penetration of above Rs. 15 lakh cars will increase multi-fold along with future EV launches by MG Motor and M&M will lead to new earnings growth trajectory for Landmark from FY25. OEMs such as M&M who are very successful along with MG Motor which is planning to put a new plant in India are partnering with Landmark as it is a listed company with professional approach and excellent after sales offering. We expect EPS to rise materially from Q3FY24 and anticipate Rs. 400 crores debt which is majorly working capital to decrease as the management is clearly focussed on reducing debt. Based on our assumption, Landmark Cars is trading at 25x FY25 earnings and offers multiple years of 25% earnings CAGR potential with more than 20% ROE and steady compounding business of after sales which has higher margin, ROCE and predictable revenue stream.
Minda Corporation (CMP: 340; Target: 500; Upside Potential: 47%)
Minda is a leading automotive component supplier catering to all key segments of PV, 2Ws, CVs and tractors with a diversified product portfolio. Minda is the best proxy to play in 2-wheeler sales which is currently doing extremely well. The company has received lifetime orders worth Rs. 7,700 crores of which 46% came from replacement business and 54% came from new business. We feel that with such strong order book and all EV ready products, the company can easily grow above 20% for next 3-5 years. The company is continuously working on products that are expected to have 3-4x content value compared to traditional products. The management has also guided for 20% revenue CAGR, with margins also inching upwards to 13% from the current 11%. With the stock available at 7% cash flow yield on FY25e with ROE of 20% and having great growth prospects, we feel that a good upside is still left in the stock.
Puravankara Limited (CMP: 157; Target: 176; Upside Potential: 12%)
We remain optimistic about the company sustaining its pre-sales growth momentum through its robust pipeline of projects of about 15 msqft – 3.60 msqft in Puravankara, 7.97 msqft in Provident and 3.68 msqft in Purva Land. The non-Bangalore projects encompass 65% of the launch pipeline and other upcoming projects. Of the pipeline, the management expects the opening of 6-7 msqft this year and the balance inventory to be opened in a phased manner next year and the year after. The company expects the surplus from pipeline projects to be Rs. 3,300 crores, with cashflow visibility of Rs. 6,730 crores in the next 3-4 years. To drive future growth, the business is also focusing on scouting new acquisitions to expand further and enter new markets. The company has also witnessed improvement in key operating metrics including booking volumes and realizations and expects improvement in EBITDA margins going ahead. We are, thus, positive about the long-term prospect of the company and expect a share price of Rs. 176 per share in a one-year timeframe.
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