As Nifty, Sensex, and Bank Nifty hit all-time new highs last week and foreign investors turned net buyers in November after two months, pumping Rs 36,239 into domestic equities, the portfolio of investors still remain a big concern.
Here's Jefferies top stock picks
Top Bets In Financial Services
ICICI Bank
With improvement in net interest margins and low credit costs, ICICI Bank has achieved peer-best ROA levels of 2%, leading to a sustainable ROE of 16-17%.
The bank has been able to ramp-up its unsecured lending business for retail loans as well as SME lending business, helping improve its net interest margins without risking asset quality.
ICICI Bank is well poised to leverage on pickup in Indian bank credit growth as well as gain market share in times of tighter liquidity and higher rates.
State Bank of India
SBI is well positioned to deliver a healthy growth in earnings with uptick in top line and low credit costs.
Bank should deeliver 14% CAGR in loans over FY22-25, given its strong deposit franchise (CASA ratio of 45%) that keep the funding costs low amid high share in retail and corporate lending.
Jefferies' expect SBI to report ROA of 0.9% and ROE of 16% in FY24.
Top Bets In Auto
Tata Motors
Tata Motors made a strong comeback in PVs with market share rising from 5% in FY20 to 14% in 1HFY23, led by strong SUV focus, better products and an improved brand positioning.
Jefferies said Tata Motors has taken an early leadership in electric vehicles in India passenger vehicle space with 80% market share.
Jefferies estimates that by FY25, Tata's Ebitda turning to 2.6 times of FY22 and EPS exceeding the past peak.
Maruti Suzuki India
Maruti Suzuki exports have risen sharply, which is boosting volumes, Jefferies said.
The research house expect Maruti Suzuki volumes to rise 60% over FY22-25, which along with margin expansion, should drive Ebitda becoming 3.5 times and quadrupling of EPS over FY22-25E.
Top Bets In Capital Goods & Logistics
Larsen & Toubro
Larsen & Toubro current order book is Rs 3.7 trillion, up 25% YoY and gives comfort on double-digit revenue growth in FY22-25E.
Prudent capital allocation and ROE improving to 16% in FY25E from 11% in FY22, the note said.
Thermax
The research house expects business model change points to strong earnings recovery although thermal captive power is unlikely to grow and is being under-appreciated by the market.
Management focus is on leveraging its brand in green offerings, improving capital allocation, margin improvement and seeking new renewable energy growth avenues with global tie-ups, Jefferies said.
Top Bets In Real Estate
Macrotech
The company has reached 60% of the management full-year pre-sales target of Rs 115 billion in H1, indicating strong momentum. The FY23 target is 27% higher from a year earlier.
Jefferies said the expansion strategy, through the partnership model, is well thought out and is targeting the areas in Mumbai with lower penetration and new geographies of Pune and Bangalore.
Godrej Properties
Godrej Properties has achieved 49% of its full-year pre-sales target of Rs 100 billion, indicating a good start. The FY23 target is 27% higher from a year earlier.
Jefferies expect Godrej Properties sales to stay strong over the medium term. The company has a medium term sales target of Rs 200 billion.
Top Bets In Consumer
Godrej Consumer Products
Though earnings have been tepid in the first half, Jefferies expects the trends to start improving in 2HFY23 and thereafter aided by correction in palm oil prices.
The new CEO Sudhir Sitapati is undertaking several structural initiatives, which should yield results over the medium term, the note said.
Zomato
According to Jefferies the management focus is on driving growth along with loss reduction, with acute focus on a lean cost structure.
The research house see a consistent improvement in profitability in food delivery despite strong 30% CAGR over FY22-25E.
Top Bet In Pharmaceuticals & Healthcare
Sun Pharmaceutical Industries
Sun Pharmaceutical Industries is the largest player in the domestic market with a market share of 8.5%.
With a very strong product portfolio in both acute and chronic segment, the business should sustainably clock low double-digit growth.
Top Bet In Hospitality
Indian Hotels Co.
Indian Hotels Co. will be the top beneficiary of the trend with strong pipeline of hotels and new signups, the note said.
Jefferies expects in 18% Ebitda CAGR over FY23-FY25E, driving FY25 ROE to 12-13%, best in 15 years.
Top Bets In Midcaps
Crompton Consumer
Crompton is the market leader in fans and has typically outpaced industry growth by 1.5 times with 19% plus growth year-on-year in FY22.
Crompton Consumers has the ability to sustain margins across cycles, to navigate uncertain macros, market positioning and focus on premiumization, Jefferies said.
Supreme Industries
Supreme has a diversified product slate which reduces concentration risk and can be viewed as a holistic play on India housing/infrastructure/capex.
According to the note in view of strong growth prospects, Supreme Industries targets notable capex in FY23 at Rs 7 billion.
Top Underperforming Stocks
Coforge
Coforge derives 38% of its revenues from Europe and the U.K. as of 1HFY23, highest among our coverage companies, putting higher pressure on the company given expectation of an earlier and sharper recession in this geography.
In the event of a demand slowdown, getting large deals would become difficult for the IT company which is likely to limit margin expansion, the note said.
Bharat Forge
Weakening global macro outlook poses risk to industrial exports as Bharat Forge derives 25-30% of its standalone revenues from exports of truck components, Jefferies said.
The research house expect Bharat Forge domestic revenues to grow 25%/14% YoY in FY23/ FY24 led by good growth across trucks, passenger vehicles and industrials.
Mahindra & Mahindra Financial Services
Jefferies noted that there has been optimism around asset quality, most of the asset quality improvement is led by settlements/ write-offs rather than meaningful improvement in collections.
According to the note yields should moderate due to stronger disbursements in lower yielding products.
Asian Paints
The Indian paint industry has enjoyed an oligopolistic structure providing significant pricing power, with Asian Paints enjoying a strong leadership, the note said.
Asian Paints has unveiled its plans to spend Rs 67 billion over the next three years, which includes brownfield paint capacity expansion by 30% and backward integration for raw materials, among others.
Cummins
Pricing power has weakened drastically which reflects in the 290 basis points margin decline from 18.2% in FY13 to 15.3% in FY19, the note said.
According to Jefferies, gross block rose 4 times in FY09-19, while sales is up only 1.7 times. The research house believe the expansion plans factored stronger domestic and export growth versus the reality that panned out.
Tata Power
Jefferies said management outlined a plan for 15% revenue and 25% profit CAGR between FY20-25E and 12% ROE by FY25E from 6%.
Peak positive news flow behind as asset monetisation has disappointed the market expectations, the note said.
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