3 Stocks To Buy As Recommended By ICICI Securities with Strong Upside Potential

BPCL – Stake sale process to drive stock performance

The brokerage has set a target price of Rs 520 on BPCL for a 12-month period, implying a potential upside of up to 24% over the current market price of Rs 419.

Q2FY22 Results:

• In Q2FY22, BPCL announced better-than-expected performance.
• Revenue increased 13.3% from the previous quarter to Rs 101631.7 crore.
• GRM came in at US$6/bbl, which was higher than expected.
• The marketing segment saw an increase in inventories of Rs 227 crore. Subsequently,
• EBITDA came in at Rs 4477.7 crore, up 37.7% from the previous quarter.
• PAT came in at Rs 2694.1 crore, increasing 79.4 percent from the previous quarter.

Target and Valuation

“BPCL’s GRM improved during Q2FY22 and is likely to sustain at higher level given recovery in product cracks. We upgrade our rating on the stock from HOLD to BUY Target Price and Valuation: We value BPCL at Rs 520 i.e. average of P/BV multiple: Rs 527/share and P/E multiple: Rs 512/share,” the brokerage has said.

Key triggers for future price-performance:

Progress on divestment and favourable reaction from acquisition bidders Continued improvement in global refining product cracks (mostly diesel) Increased fuel demand and stable marketing margins.

Neogen Chemicals- Custom synthesis offers strong visibility ahead

The brokerage has set a target price of Rs 1570 on Neogen Chemicals for a 12-month period, implying a potential upside of up to 27% over the current market price of Rs 1236.

Q2FY22 Results:

• Because of improved utilisation of recently commissioned phase 1 capacity, numbers were higher than expected.
• Organic chemical segment (increased 36 percent YoY) and inorganic chemical segment (up 38 percent YoY) both reported revenue growth of 38 percent YoY to | 113.2 crore (up 63 percent YoY)
• Due to the absorption of fixed overheads, gross margins fell 184 basis points year over year to 43.3 percent, while EBITDA margin fell 80 basis points to 18.1 percent.

Target and Valuation

“The stock appreciated at 65% CAGR in last two years. We retain BUY rating on the back of better growth outlook from custom synthesis business Target Price and Valuation: We value Neogen Chemicals at 40x P/E FY24E EPS to arrive at a revised target price of | 1570/share (earlier | 1515/share),” the brokerage has said.

Key triggers for future price-performance:

A higher share of value-added business portfolio to improve profits profile of firm Allocation of incremental FCF towards organic/inorganic growth expected to expand return ratios further.

Indian Oil Corporation- GRM improvement drives profitability

The brokerage has set a target price of Rs 155 on Indian Oil Corporation for a 12-month period, implying a potential upside of up to 18% over the current market price of Rs 131.

Q2FY22 Results:

• On the profitability front, IOC’s results were better than expected.
• Revenue climbed 9.5 percent on a quarter-over-quarter basis to Rs 169770.8 crore (our estimate: | 157292 crore). Marketing revenues climbed 1% from the previous quarter to 18.9 MMT.
• GRM was reported at US$6.6/bbl, but core GRM was US$4.8/bbl. Core GRM improved from quarter to quarter. EBITDA was Rs 10628.1 crore, down 4.5 percent from the previous quarter.

Target and Valuation

“IOC’s core GRM improved in Q2FY22. We expect it to remain at current levels in coming quarters. Steady marketing margins and further sales pick-up are expected to lead to better profitability. We maintain our BUY rating on the stock. Target Price and Valuation: We value IOC at Rs 155 i.e. average of P/E multiple: Rs 151 /share and P/BV multiple: Rs 159/share,” the brokerage has said.

Key triggers for future price-performance:

Cracks in global refining product recovery (mainly diesel)

Demand for transportation fuels will continue to rise, while marketing margins will remain stable.

To promote total profitability, petrochemical prices are at a higher level. Profitability in the pipeline segment has remained stable over the last five years.

Payout of dividends on a regular basis.

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.