Here Are The Top Stock Picks For October 2023 By Axis Securities

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Axis Securities Report

Here are our top picks for October 2023:

ITC - Firing on all cylinders (Potential upside: 22%)

We believe the narrative around the ITC Ltd, is getting stronger as all its businesses are on the right track-

1. Stable cigarette volume growth led by market share gains and new product launches;

2. Fmcg business reaching the inflexion point as its Ebit margins expected to inch up further and would be driven by – the ramp up in the outlet coverage, effective implementation of localisation strategy, driving premiumisation, leveraging technology on demand and supply side; and moderation of raw material input cost;

3. Strong and stable growth in hotels as travel, wedding, and corporate activities pick up;

4. Steady and decent performance in paperboard and agribusiness witnessed in the last few quarters. Moreover, reasonable valuation among the entire fmcg pack provides a huge margin of safety.

Key risks:

1. Increase in cigarette taxation,

2. increase competition and

3. economy slowdown.

Ashok Leyland - Sustainable growth on the back of improved margins (Potential upside 19%)

Ashok Leyland Ltd. remains well-positioned to benefit from a longish commercial vehicle upcycle. We remain positive on the long-term growth trajectory of the company with better margins led by operational efficiencies, material cost reduction program, softening of commodity costs, and pricing discipline, and expect 8% compound annual growth rate volume growth over FY23-26E; We forecast the company to post revenue/ Ebitda/profit after tax growth of 11%/22%/34% CAGR over FY23- 26E.

We maintain our 'Buy' rating on the stock with the target price at Rs 210/share, valuing the stock at 19 times June-25E earnings per share (unchanged), implying an upside of 19% from the current market price.

Key risks:

• Higher Interest rate,

• macro Economic risks, and

• higher fuel prices.

CIE Automotive - Outperformance in India and Europe operations (Potential upside 22%)

We continue to like CIE Automotive Ltd.'s growth story driven by-

1. Operational performance and focus on building an electric vehicle product portfolio,

2. healthy order-book and steady growth in Indian operations,

3. strong free cash flow generations and negligible debt on the balance sheet,

4. capacity building to meet demand from India original equipment manufacturers. The growth trajectory in Europe operations is expected to remain flat (decline in demand led by high-interest rates by Central Banks in EU and USA) in CY24 and recovery is expected by management post that.

5. Based on strong fundamentals and ability to generate FCFs we value the company at a one-year forward price-earning multiple of 24 times in Indian operations (aided by overall industry growth and demand backed capacity expansions) and 10 times on moderate European operational earnings June-25 earnings per share, thereby arriving at our SOTP-based target price of Rs 585/share, implying an upside of 21% from the current market price.

Key risks:

1. Higher Interest rate,

2. slower-than-expected two-wheeler demand recovery, and

3. business skewed towards internal combustion engine vehicles.

CreditAccess Grameen – Strong growth runway, premium valuations justified (Potential upside 22%)

We prefer CreditAccess Grameen Ltd. amongst the microfinanciers, despite its premium valuations. We believe the company remains well poised to deliver superior performance over the medium to long term. This will be supported by-

1. Strong rural presence and focus,

2. Customer centric approach,

3. Robust technology infrastructure,

4. Strong risk management framework and

5. Adequate capitalisation.

Despite a strong show in Q1 FY24, the management has retained its earlier guidance. However, we expect some upwards revision in the management's guidance across most parameters (gross loan portfolio growth, net interest margins and return on asset/return on equity).

We maintain our 'Buy' recommendation with a revised target price of Rs 1,600/share. We value CreditAccess Grameen at 3.2 times FY25E book value.

Key risks:

1. Moderation in gross loan portfolio growth momentum,

2. Inability to scale up new products and business in new geographies.

Click on the attachment for full list of Axis Securities' top stock picks for October 2023:

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