2 Stocks To Accumulate With Potential Upside To Outperform Market, Says KRChoksey

2 Stocks To Accumulate With Potential Upside To Outperform Market, Says KRChoksey

	CMP	Target	Potential Upside	Recommendation	Sector
Bajaj Auto	Rs 3,836	4,352	13.4%	ACCUMULATE	Automobile
UltraTech Cement	Rs7,490	8,128	8.5%	ACCUMULATE	Cement

UltraTech Cement

Cement prices have been steady so far in July, owing to the rainfall, which will either keep prices stable or cause them to fall somewhat. In most of the regions, the situation has remained constant. The company witnessed a 6-8 percent increase in regional prices in Q1FY22. In Q1FY22, prices in the East/South were up 10%, the West was up roughly 7%-10%, and the North/Central was up 3-6%.

Ultratech Result Highlights of Q1FY22

• Ultratech reported a 54.2 percent YoY increase in sales to INR 1,18,298 million, which was generally in line (0.7 percent below) with our forecast.
• Higher utilisation, sustained demand, and a low base impact drove a 47 percent YoY increase in cement sales volume to 21.5 MT from 14.7 MT in Q1FY21.
• Capacity utilisation in Q1FY22 was 73 percent, up from 46 percent in Q1FY21.
• PAT increased by 114.4 percent YoY to INR 17,026 million, however it fell by 4.1 percent on a quarter-on-quarter basis.

KR Choksey expects the stock of UltraTech Cement to hit at least Rs 8,128 as against the current market price of Rs 7490.

UltraTech Cement

“The stock price of Ultratech has rallied ~10% since our last update and is currently trading at FY22E/FY23E EV/EBITDA of 17.7/16.3x. We are optimistic about the company’s growth prospects and apply an EV/EBITDA multiple of 17.5x to FY23E EBITDA, which yields a target price of INR 8,128 per share (earlier INR 7,415 per share); a potential upside of 8.5% over the CMP. Accordingly, we reiterate an ACCUMULATE rating on the shares of UltraTech Cement Ltd,” the research report said.

We remain positive on Ultratech’s growth prospects given its robust financial performance and market leadership position. We expect Ultratech Cement to post a CAGR of 7.6%, 8.9%, and 16.6% in Revenue, EBITDA, and PAT respectively over FY21-23E on the back of a robust demand environment in the country, it added.

CMP: Rs 7,490

Target: Rs 8,128

Potential Upside 8.5%

Market Cap (INR Mn): INR 2,161,687

Recommendation: ACCUMULATE

Sector: Cement.

Bajaj Auto

Bajaj Auto‘s main focus will be on gaining market share, and the company is optimistic about the demand outlook in the international market. Due to the present pandemic situation in India, the company may suffer supply difficulties. Premiumization of sectors will be another focal area for Bajaj Auto in the future.

Result highlights of Q1FY22

• Bajaj Auto recorded total revenue from operations of INR 73,860 Mn in Q1FY22, up 140 percent year on year (-14 percent QoQ).
• Domestic volumes increased by 84.2 percent year over year to 342,552 units, while export volumes increased by 160 percent to 556,753 units.
• Due to a strong increase in input costs in the quarter, EBITDA margin fell 270 basis points QoQ to 15.5 percent (+165 basis points YoY), and EBTIDA for the quarter was INR 11,177 Mn (+174 percent YoY).
• Net Profit for the quarter was INR 11,699 Mn (+122 percent YoY), with NPM at 16.2 percent (-168 bps YoY).

KR Choksey expects the stock of Bajaj Auto to hit at least Rs 4,352 as against the current market price of Rs 3836.

Bajaj Auto

“We retain our positive stance on Bajaj Auto based on its resilient performance especially in the export markets and the company’s ability to control costs amid demand slowdown. We continue to assign a P/E multiple of 24x on FY23E EPS of INR 180 per share and maintain our Target Price of INR 4,352 per share; implying an upside potential of 13.4% over the CMP. Accordingly, we reiterate an “ACCUMULATE” recommendation on the shares of Bajaj Auto Ltd,” KRChoksey said in its research report.

Taking cues from the Q1FY22 performance, both the domestic and export market is expected to witness a slower recovery due to the piling up of inventory. Margins were under pressure due to an increase in raw material prices. On the other hand, the domestic demand continued to remain under pressure. However, the earnings of the company have witnessed a CAGR growth of 4% from EPS INR 140 in FY16 to EPS INR 168 in FY21, the fall in earnings was mainly due to disruption in production and sales amid nationwide lockdown, it added further.

CMP: Rs 3,836

Target: Rs 4,352

Potential Upside 13.4%

Market Cap (INR Mn): INR 1,110,023

Recommendation: ACCUMULATE

Sector: Automobile

Disclaimer

The stock recommendations are picked from the brokerage report of KRChoksey. However, neither the author, nor the brokerage, nor Greynium Information Technologies should be held responsible for decisions taken and losses incurred based on the above article. Investors should understand that there are inherent risks involved when investing in the markets. They should hence exercise due caution.