2 Stocks To Buy For Gains Up To 44%: ICICI Direct

Buy Jindal Stainless Hisar with a target price of Rs 488

Jindal Stainless (Hisar) Limited (JSHL) is a major operator in the Indian stainless steel industry. “JSHL reported a healthy performance in Q2FY22. During Q2FY22, JSHL reported a consolidated topline of Rs 3743 crore, up 63% YoY and 35% QoQ, higher than our estimate of Rs 3465 crore. Whereas the consolidated EBITDA was at Rs 567 crore, up 95% YoY and 37% QoQ, higher than our estimate of Rs 475 crore. Consolidated PAT was at Rs 499 crore, up 196% YoY and 39% QoQ, higher than our estimate of Rs 374 crore” said the brokerage.

Key triggers for future price performance according to the brokerage

• With respect to the precision strip division, JSHL has recently commissioned the first phase of expansion wherein the precision strip capacity has been expanded from 22000 tonnes per annum (TPA) to 48000 TPA. Going forward after the second phase, precision strip capacity would be further expanded to 60000 TPA (from 48000 TPA) which would be completed by Q4FY23. The total CAPEX for both phases is Rs 250 crore.
• JSHL is also expanding blade steel capacity from current capacity of 14000 TPA to 24000 TPA in two phases at a total CAPEX of Rs 200 crore for both phases. After the first phase, the capacity would be expanded to 20000 TPA and is likely to be completed by Q2FY23 while post the second phase capacity would be expanded to 24000 TPA and be completed by Q2FY24.
• For FY22, for merged entity, JSHL has upward revised its EBITDA/tonne guidance to ~Rs 24000-25000/tonne (from Rs 18000-20000/tonne earlier).

What should investors do?

JSHL’s share price has grown by ~3.5x over the last 12 months (from ~Rs 97 in October 2020 to ~Rs 339 levels in October 2021). We maintain our BUY rating on the stock. We value JSHL at Rs 488, based on the merger ratio, said the brokerage.

Buy Sumitomo Chemicals with a target price of Rs 505

Sumitomo Chemical India (SCI) operates across the agro solutions (ASD), environmental health (EHD), and animal nutrition business verticals (AND). According to the brokerage the company has “reported revenue growth of 1% YoY to Rs 910.4 crore, impacted by sluggish growth from herbicides (-20.6% YoY). The gross margins fell 90 bps YoY to ~39% while EBITDA margin contracted 70 bps YoY to 23.6%. EBITDA was down 2% YoY to Rs 214.7 crore and PAT declined 2% YoY to Rs 154.2 crore owing to lower-than-expected operational performance.” The brokerage has also said that “overall numbers were below our estimates, impacted by subdued herbicides sales.”

Key triggers for future price performance according to the brokerage:

• Upcoming CAPEX for five molecules, which will be supplied to SCC Japan. Capex is earmarked at Rs 100-110 crore with an asset turn of around 2-2.5x.
• Potential opportunity of technicals manufacturing for Nufarm to improve export share meaningfully.
• Allocation of incremental FCF towards organic/inorganic growth likely to expand return ratios further.

What should investors do?

“The stock appreciated at 63% CAGR in the last two years. We retain BUY rating on the back of a better growth outlook from the outsourcing opportunity of SCC Japan. We value Sumitomo Chemicals at 50x P/E FY23E EPS to arrive at a target price of Rs 505/share (earlier Rs 505/share)”, said the brokerage.

Disclaimer

The above stocks are picked from the brokerage report of ICICI Direct. 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.