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

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Axis Securities Report

Here are our top picks for September 2023:

ITC - Firing On All Cylinders (Potential upside 23%)

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 14%)

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 Ashok Leyland 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 14% from the current market price. 

Key risks:

1. higher Interest rate,

2. macro Economic risks, and

3. higher fuel prices.

CCL Products - Well Place To Grow (Potential upside 24%)

We remain positive on CCL Products India Ltd. given:

1. Strong footing in the International markets as it continues to gain market share and access new business,

2. Cost-efficient business model;

3. Doubling the capacity from 38,500 million tonne in FY22 to ~77,000 million tonne by FY25 across Vietnam and India;

4. Capacity addition in the value-added products (freeze-dried coffee and small packs) in Vietnam, and

5. Foray into high-margin branded retail business (continental coffee, plant-based meat protein).

PNC Infratech - Robust Order Book And Diversification To Drive Growth (Potential upside 28%)

The road sector is witnessing encouraging development owing to increased government thrust on infrastructure investment. Furthermore, diversification into railways augurs well for PNC Infratech Ltd. implying lower dependence on road projects.

Management has also indicated that the intensity of competition for high-value projects has decreased and that most awards are expected to be completed by the National Highway Authority of India by Q3 FY24 before the onset of the General election in FY24 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%/11%/13% respectively over FY23-FY25E.

Valuation: Stock is currently trading at 12 times and 11 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 one time book value to arrive at a target price of Rs 435/share, implying an upside potential of % from current market price.

Key risks:

1. Delay in getting Appointed date for new HAM projects;

2. Lower order inflow than expected,

3. Delay in HAM asset monetisation.

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