Month: September 2021

1. BEML: Buy for a target of Rs. 1675

HDFC Securities is positive on the scrip of BEML and has set a target price of Rs. 1675 i.e. an upside of 16.64 percent from the last traded price of Rs. 1436 per share.

HDFC Securities’ take on BEML

BEML Ltd. is a public sector undertaking (PSU) established originally to manufacture rail coaches and spare parts and mining equipment. It is a Miniratna Category-I PSU and operates under three core business verticals i.e. Mining & Construction, Defence and Rail & Metro. The brokerage believes BEML is well placed to capitalize on significant growth opportunities from the strong uptick in mining activities, capex driven demand in mining and construction equipment. Huge capex of Rs 13 lakh crore in Rail and Rs 3 lakh crore in Metro Rail by GoI will drive growth in the sector.

The government’s initiatives including “Make In India” and “Aatmanirbhar Bharat” offer significant opportunities across all of the business verticals of BEML. Then the import embargo on 100 +108 items in the defence sector also will establish growth opportunities for the players in the segment.

Worth mentioning that the Draft Defence Production & Export Promotion Policy (DPEPP) has set an ambitious revenue target of Rs 1,75,000 cr (US$ 2500 cr) by 2025 in order to become self-reliant with a clear focus on doubling the share of procurement from the domestic industry to Rs. 140,000 crore by FY25E. Hence, the brokerage believes that BEML is well positioned to capture the growth opportunities across the business segment.

Valuation & Recommendation: The brokeage is of the view that BEML is well-placed to bank on the opportunities in mining, defence and Railways & Metro space. The mining sector is now open for private sector participation and will likely get a boost. Further, initiatives i.e.”Atmanirbhar Bharat”, “Make in India”, import ban on 101 items and hike in FDI limit in defence to 74%, along with strong ordering activities in railways and metro rail, augur well for BEML.

Tailwinds for the company as listed by the brokerage:

1. Strong up-tick in mining activities in the wake of private sector participation, which is likely to boost domestic production and reduce imports;

2. Huge opportunities in defence space with the initiatives of “Atmanirbhar Bharat”, “Make in India”, ban on import of 101 +108 items and hike in FDI in defence to 74%; and

3. Capex for railway and metro in India.

As BEML is a divestment candidate (Govt. intends to divest 26% out of its 52% stake), we believe its valuation is likely to sustain and improve with improving earning profile. “We are not separately valuing the land assets, but assume its value to subsume under the overall P/E, though given the small number of equity shares, we cannot rule out further upside in the combined stock price due to land value. We feel investors could buy the stock at Rs. 1433.1 (38.5xFY23E PE) and add on dips to Rs. 1268(34x FY23E PE) for a base case target of Rs. 1564 (42x FY23E PE) and bull case target of Rs.1675 (45x FY23E PE)”, adds the brokerage.

2. Jubilant Ingrevia: Buy for potential upside of 13 percent

The brokerage is bullish on Jubilant Ingrevia– labs and life sciences services entity for a target price of Rs. 844, an upside 13 percent from the last traded price of Rs. 745.5 per share. The horizon suggested for the ‘Buy’ on the stock is for 2 quarters.

Brokerage’s take on Jubilant Ingrevia:

The company has operations in mainly 3 segments:

1. Speciality Chemicals (33% of revenue)

2. Nutrition and Health Solutions (18%)

3. Life Science Chemicals (49%), with strong backward integration and a leading market position.

During FY21, the company derived about 54% of its revenue through exports and deemed exports. The company’s varied product pipeline across businesses comprises 32 products in Speciality Chemicals, 24 in Nutrition & Health Solutions and 7 in Life Science Chemicals.

In Vitamin B3, the company has 19% global share, while for Vitamin B the domestic share is 60 percent. The company enjoys a strong moat of being a lowest cost producer of Pyridine -Beta & all value added products globally.

Volatility in operating margin to be offset by investment in niche segments

The company’s operating margin suffers volatility induced by its Speciality Chemicals and Life Science Chemicals business due to the cost-plus structure, nontheless the company is looking to invest in niche segments like Diketene products as this would lower volatility and improve margin in the segment.

Strong R&D Pipeline to aid revenue growth

The company’s strong R&D pipeline of more than 60 molecules will ensure development of new molecules over the next 3-4 years that will ensure growth in revenue. For the Fy 2022, the company will spent Rs. 360 crore out of its total capex plan of Rs. 900 crore for the next 3 years. The company plans to double its revenue by FY26, fuelled by scale up in the existing products and new products launches across its products segments.

Valuation & Recommendation: Specialty Chemicals has high entry barriers on account of extensive R&D focus and long gestation period before getting approvals from customers. “Life Science Chemicals business witnessed strong margin expansion over the past two quarters, which is expected to moderate in H2FY22. We estimate 14.5% CAGR in revenue led by double digit growth across all verticals. We project EBITDA/PAT CAGR of 20.5%/28% over FY21-23E led by strong margin and lower finance cost”, adds the brokerage.

Re-rating expected for the stock with uptick in sales of the company’s speciality products

HDFC Securities is positive on the company on the back of strong demand environment, healthy market share, strong capex programme in the medium term and new additions of products, healthy B/S, and China+1 policy adopted by the companies worldwide. “Jubilant will benefit from robust growth in specialty chemicals business and its focused initiatives to diversify from their animal feed (nutrition) business and move towards higher value added areas i.e. pharma and cosmetic-grade vitamins”, says the report. As the proportion of sales of speciality products rises over the next two years, the stock could get rerated further. “We feel investors can buy the stock at LTP and add more on dips to Rs 650 for base case target of Rs 795 (24.5x FY23E EPS) and bull case target of Rs 844 (26x FY23E EPS) over the next two quarters”, recommends the brokerage.

Disclaimer:

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only and investors should exercise some discretion, given that the Sensex is near the 60,000 points level.

Buy ICICI Securities stock, says Motilal Oswal

The brokerage sees an upside on the stock to a level of Rs 915, as against the current market price of Rs 765.

According to Motilal Oswal Institutional Equities, the company aims to improve market share to 10% plus in new customer acquisitions and reduce the cost-to-income ratio by 500 basis points over the next four years to greater than 40%. “It would achieve this through a high degree of digital integration and developing new revenue streams. Eventually, ICICI Securities would move away from being just a broking company to offering the entire gamut of financial products,” the brokerage has said.

The company is also looking to widen its customer base by targetting mutual fund business, insurance, and fixed income customers. According to Motilal Oswal this would propel the cross-sell ratio as well.

ICICI Securities: Valuations remain decent

According to the research firm, post the implementation of 100% margin norms from Sep’21, it expects some slowdown in cash volumes. Nevertheless, this could be partially offset by a surge in options volumes.

“Over the medium term – as seen empirically in the earlier phases of the margin norms – volumes are expected to recoup. ICICI Securities with its tech capabilities, is poised to see revenue and net profits CAGRs of 13.3% and 12.4%, respectively, over FY21-24E. We maintain our buy rating and a target price of Rs 915,” Motilal Oswal institutional equities has said.

Buy Bharat Electronics for an upside target of Rs 240

The brokerage is also bullish on the stock of Bharat Electronics Ltd and sees an upside potential of almost Rs 240, as against the current levels of Rs 205. “With strong order prospects in place, the management is confident of an order inflow run-rate of Rs 150-170 billion in FY22. It expects revenue growth of 12-15% CAGR over the next 3-4 years, led by a strong order book, robust order inflows, and the Ministry of Defence’s indigenization drive,” the brokerage has said. According to Motilal Oswal Institutional Equities, the management is targeting annual maintenance contracts and certain civilian segments to scale up its revenue from services.

“As against 10-12% of Defense business revenue currently, it aims to ramp up its services revenue share to 25% over the next five years. We maintain our Buy rating. Higher growth in the non-Defense business poses an upside risk to our EPS estimates, while working capital deterioration presents a key downside risk to valuations,” Motilal Oswal Institutional Equities has said in its research report.

Disclaimer:

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only and investors should exercise some discretion, given that the Sensex is near the 60,000 points level.