BQ Prime's special research section collates quality and in-depth equity and economy research reports from across India's top brokerages, asset managers and research agencies. These reports offer BQ Prime's subscribers an opportunity to expand their understanding of companies, sectors and the economy.
Axis Securities Report
Here are our top picks for July 2023:
State Bank of India – ROA Delivery Of 1% To Continue (Potential Upside: 25)
Valuation:
Among public sector banks, SBI remains the best play on the gradual recovery of the Indian economy on account of its healthy provision coverage ratio, robust capitalisation, strong liability franchise, and improved asset quality outlook.
We believe normalisation in the credit costs and the ability to deliver healthy growth should enable the bank to deliver return on asset/return on equity of 1%/15-17% over FY24-25E.
We maintain our 'Buy' rating on the stock with a target price of Rs 715/share (core book at 1.3 times Sep-24E and subsidiaries at Rs 164/share)
Key risks:
significant slowdown in credit growth
Federal Bank – Growth Levers Intact! (Potential Upside: 23)
Valuation:
Federal Bank Ltd.'s key strengths continue to be-
Sustained credit growth,
strong liability franchise,
improving fee income with the bank looking to deepen the relationship with corporates to improve client wallet share,
improving cost ratios, and
benign credit costs backed by robust asset quality metrics.
We maintain a 'Buy' rating on the stock with a target price of Rs 155/share (1.3 times Sep'24E adjusted book value).
Key risks:
loan growth moderation
Aarti Drugs – Improved Demand And Stable Realisations (Potential Upside: 29)
Most of active pharma ingredient players reported increase in volume uptick backed by improved demand and stable realisations. We expect demand for API could continue in upcoming quarters with the ease of supply chain bottlenecks. Increase in volume and fall in solvent prices also led to improve in Ebitda margins led by operating leverage.
Aarti Drugs Ltd., being leader in the domestic industry is well placed to grab this opportunity in future.
Stock is currently trading at price-to-earning multiple of 15.9 times and 12.2 times for FY24E and FY25E earnings per share which is attractive. We recommend a 'Buy' rating on the stock with a target price Rs 600. (PE 18 times for FY25 earnings).
PNC Infratech – Robust Order Book To Drive Growth (Potential Upside: 30)
The road sector is witnessing encouraging development owing to increased government thrust on infrastructure investment. Furthermore, diversification into railways augurs well for the company implying lower dependence on road projects. National Highway Authority of India tightening certain bidding norms on road projects will help an organised player like PNC Infratech Ltd.
Considering strong and diversified order book position, healthy bidding pipeline, new order inflows, emerging opportunities in the construction space, the company's efficient and timely execution and strong financial credence, we expect PNC Infra to report revenue/Ebitda/adjusted profit after tax compound annual growth rate of 12%/15%/20% respectively over FY22-FY25E.
Valuation: Stock is currently trading at 12 times and 10.5 times FY24E/FY25E earnings per share which is attractive. We recommend a 'Buy' rating on the company and value the stock at 11 times FY25 EPS and hybrid annuity model portfolio at 1x book value to arrive at a target price of Rs 425/share, implying an upside potential of 30% from current market price.
Key risks:
Delay in getting appointed date for new HAM projects;
lower order inflow than expected,
delay in HAM asset monetisation.
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