Choice Broking has released its top seven action recommendations for 2022. These are Bharti Airtel, HDFC Life Insurance Company, Hindustan Unilever, ICICI Bank, Infosys, Larsen & Toubro, Schaeffler India.
Selection of New Years 2022 stocks | Choice brokerage
1) Bharti Airtel Ltd. (M Cap Rs 397 485 cr)
Airtel | https://www.airtel.in/
Thanks to a higher ARPU and continued growth of the 4G subscriber base, Bharti Airtel achieved a strong financial performance in the second quarter of fiscal 22. India mobile service revenue increased by 6, 2% in QoQ, while mobility activities in the Africa region increased by 5.1%. As a result, consolidated sales increased 5.5% sequentially to Rs. 28,326 crore. Consolidated EBITDA increased 6.3% quarter on quarter with an increase of 37 basis points in the EBITDA margin to 49.5%. The reported PAT was Rs. 1,134 crore in the second quarter of fiscal 22 compared to Rs. 283.5 crore in the first quarter of fiscal 22. The PAT margin increased 295 bps sequentially to 4% .
Evaluation: Airtel’s domestic mobile business is expected to demonstrate its operational excellence in the sector. Additionally, its Airtel Business vertical, which offers a range of digital solutions to businesses, could be the company’s next growth engine. Investing in Airtel will be a game for the long haul and therefore we assign a “BUY” rating to the stock with a target price of Rs. 956 per share.
2) HDFC Life Insurance Company Ltd. (M Cap Rs 129 349 cr)
HDFC Life | https://www.hdfclife.com/
HDFC Life Insurance Co Ltd. (HDFCLIFE) reported encouraging figures in the second quarter of fiscal 22, with new business bonuses at Rs. 6,596 crore up 12.3% year-on-year, largely on the back of good traction from new first year fonts. Total premium collection was Rs. 11,631 crore, up 14.2% year-on-year. Renewal premiums improved in the quarter as persistence ratios across all periods improved, suggesting that the heightened public awareness of life insurance seen during the pandemic is expected to remain sustainable.
Evaluation: We expect HDFCLIFE to improve its performance metrics thanks to favorable winds in the industry and the Exide Life deal. In addition, we expect it to maintain its leadership position among private players as rising costs would make disruptive practices difficult. We are pricing HDFCLIFE at a P / EV multiple of 4.4x (based on FY23 EV) to arrive at a target price of Rs. 833, so assign a ‘BUY’ rating.
3) Hindustan Unilever Ltd (M Cap Rs 540 758 cr)
Hindustan Unilever | https://www.hul.co.in/
Based on 4 percent year-on-year volume growth and 7 percent price growth, Hindustan Unilever Ltd (HUL) reported 11.4 percent year-on-year revenue growth consolidated in the second quarter of fiscal year 22 at Rs. 13,046 crore. Gross margin contracted 144 basis points year-on-year to 51.5%. However, mainly due to calibrated price increases in home care and beauty and personal care (soap category), the gross margin increased sequentially by 112 basis points. Consolidated EBITDA increased 10.3% year-on-year with a 31 basis point year-on-year margin contraction. The published PAT rose 10.5% with the margin contracting 18 basis points to 16.7%.
Evaluation: The business environment continues to be difficult with unprecedented levels of input cost inflation and subdued consumer sentiment, mainly in rural areas. With the easing of pandemic restrictions, the recovery in consumption continued at a good pace in urban markets. Overall, we are cautiously optimistic about the overall recovery in demand in the near term. Despite strong fundamentals, over the past three months the HUL share price has corrected by around 16.2%. Thus, we assign a “BUY” rating to the stock with a target price of Rs. 2,821 per share.
4) Bank ICICI SA (M Cap Rs 510 199 cr)
ICICI Bank | icicibank.com
ICICI Bank Ltd. (ICICIB) posted a strong performance in the second quarter of FY22 with PAT growth of 30% year-on-year, driven by healthy loan growth of 17% year-on-year, expanding margins and declining provisions for NPA. NII increased 24.8% year-on-year as NIM improved 11 basis points in QoQ to 4% due to lower reversals and strong growth in the high margin unsecured portfolio. NIM is expected to grow further with a growing share of the high margin unsecured portfolio and the deployment of excess liquidity. While the low cap rate remains a key competitive advantage for the bank, ICICIB announced a 12 basis point drop in the cost of deposits quarter on quarter to 3.53% in the quarter. The CASA ratio of 46.1% in the second quarter of FY22 was among the best in the industry.
Evaluation: We assign a ‘BUY’ rating to stocks with a target price of Rs. 900 valuing stand-alone banking activities at Rs. 710 (at P / ABV of 2.5x FY24E) and valuation of subsidiaries at Rs 190.
5) Infosys Ltd (M Cap Rs 784 845 cr)
Infosys | https://www.infosys.com/
Infosys Ltd. (Infosys) announced sequential growth of 6.1% (+ 20.5% year-on-year) in total consolidated revenue for the second quarter of fiscal 22, which stood at Rs. 29,602 crore . In constant currency terms, revenue increased 6.3% quarter-on-quarter (+ 19.4% year-on-year), which is above market expectations. Growth was generalized across geographies and segments. Business in the largest geographic area, i.e. North America, grew 23.1%, while business in the largest segment grew 20.5% year-on-year in constant currency. Digital revenues grew 42.4% year-on-year and accounted for around 56.1% of total revenues. Large contract momentum continued in the quarter with a total contract value of $ 2.2 billion, up from $ 2.6 billion in the second quarter of FY21.
Evaluation: At a CMP of Rs. 1,866, Infosys is trading at a P / E TTM multiple of 37.6x. Based on year 23E earnings it is trading at a P / E multiple of Rs. 30.5x. Given the strong outlook and the company’s growth leadership in the sector, we arrive at a target price of Rs. 2,150 per share, which is 15.2% above the recommended price. Thus, we assign a “BUY” rating to the company.
6) Larsen & Toubro Ltée. (M Cap Rs 262.137 cr)
Larsen & Toubro | https://www.larsentoubro.com/
Larsen & Toubro Ltd. (L&T) witnessed an influx of orders of Rs. 42,140 crore, of which 52% of orders came from international markets, during the second quarter of fiscal 22. As of September 2021, the company had a backlog of Consolidated orders of Rs. 3.3 lakh crore, with international orders having a share of 23%. The Infrastructure segment contributed 74 percent to the total backlog, followed by heavy engineering with a contribution of 15 percent.
Going forward, L&T intends to continue to focus on the profitable execution of its large project backlog, take advantage of the strong growth momentum of the technology portfolio, cost optimization measures through automation and the intensive use of digital technologies, the release of funds through better management of working capital and a gradual disposal of non-essential assets.
Evaluation: L&T will benefit from the government’s continued focus on building infrastructure. In fiscal year 21-24E, we forecast 10% growth in revenue CAGR to Rs. 1.97 lakh crore. However, the EBITDA and PAT margins are expected to contract by 519 bps and 61 bps respectively. Thus, we assign a “BUY” rating to the share with a target price of Rs. 2,170 per share.
7) Schaeffler India Ltd (M Cap Rs 26 935 cr)
Schaeffler India Ltd. (Schaeffler) has a 36% market share in the overall national bearing market and a market share of around 60% in the roller bearing market. In the third quarter of fiscal 2021, the company reported 20.7% sequential growth in total operating profit to Rs. EBITDA margin of 1,487.6 crore increased by 99 percentage points. base in QoQ, resulting in a 27.7% increase in EBITDA to Rs. 264.5 crore. The reported PAT rose 33.3% QoQ to Rs. 170.8 crore with a 109 basis point margin expansion to 11.5%.
Evaluation: We believe the company would benefit from the recovery of the automotive sector and increased exports to its parent company and other markets. Government policies aimed at stimulating indigenization will also serve as a tailwind for the sector. Thus, we assign a ‘BUY’ rating to the stock with a target price of Rs. 10,380.
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Posted on: Wednesday December 29, 2021 13:24 IST