1 NBFC, 1 Pharma Stock To Buy For Quick Gains, As Suggested By HDFC Securities

1. Shriram Transport:

HDFC Securities has raised its bets on this stock from the finance-leasing and hire purchase segment, Shriram Transport Finance and set the target price of Rs. 1634, implying upside of 19 percent from the last traded price of Rs. 1372. The scrip has been recommended for an investment horizon of 2 quarters or 6 months.

HDFC Securities’ take:

The company’s major AUM i.e. over 90 percent comprises used CV financing. Also, with operations spanning 4 decades, the company has expanded its footprint in semi-urban and rural financing. Going ahead owing to reduced EMI pressure as well as replacement demand in the offing due to the implementation of the scrappage policy, demand for used CV financing will be somewhat better.

Some of the watch-outs will be collecting efficiency and asset quality situation. Also, management hold the view that good monsoon and festive demand will boost up the demand in the next 6 months. “Over dependence on financing used vehicles and rural economy brings concentration risk. The possibility of a third Covid wave and fresh lock downs could hurt the business. Demerger related news can keep the stock price volatile”, adds the report.

The brokerage previously also recommended its buy on the scrip for bull case target of Rs. 1503 on March 30 for a 2 quarter period. Now it again continues with its ‘Buy’ view on Shriram Transport.

Valuation & Recommendation:

The scrip’s average RoE of the last 10 years stand at 16%. The brokerage expects from FY22 things will be normalizes and there will be an uptick in the earnings. “We have envisaged 9% CAGR for NII and 23% CAGR for Adjusted Net Profit over FY21-23E, while AUM is estimated to grow at 9% CAGR over same time frame. NIMs may improve with decline in CoF and reduction in excess liquidity. With the current stock of provisions at 7.5% of AUM, we expect normalised provisioning from H2FY22 on the back of resumption of economic activity and improving collections and recoveries. RoAA is estimated at 2.6% in FY23E compared to 2% in FY21. The stock is trading at a significant discount to Cholamandalam and Sundaram Finance, which could reduce going forward given the company’s growth and asset quality trajectory. We believe that investors can buy STFC at LTP (1.4xFY23E ABV) and add more at Rs.1198 (1.25xFY23E ABV) for the base case fair value of Rs.1488 (1.55xFY23E ABV and for the bull case fair value of Rs.1634 (1.7xFY23E ABV) over the next two quarters”, says the brokerage report.

2. Suven Life Sciences:

The brokerage is bullish on Suven Pharma and has set a target price of Rs. 117, an upside of 22 percent considering the last traded price of close to Rs. 96 per share. Note this is a positional call by the brokerage for a horizon of 3 months.

Note positional recommendations are given based on technical analysis of the stock by the company’s research experts.

Technical observation for the Suven Life Sciences:

The stock is in an intermediate uptrend and has been hitting higher tops and higher bottoms for some months now. After being in a range of Rs. 82-90, the stock broke out of its range on September 21 owing to above average volumes. Technicals for the stock are providing positive signals as the stock trades above the 20 day and 50 day SMA. “Weekly momentum indicators like the 14-week RSI have bounced back from oversold levels and are in rising mode now. This augurs well for the uptrend to continue. With the intermediate technical setup too looking positive, we believe the stock has the potential to move higher in the coming weeks and therefore recommend a buy”, adds the brokerage.

Disclaimer:

The stocks listed out are based on fundamental and technical analysis and taken from brokerage report. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

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