3 Stocks To Buy With Strong Support, Says ICICI Securities

3 Stocks To Buy With Strong Support, Says ICICI Securities

Company	Buy Target Price in Rs.	CMP	Time frame	LTP
SKF India	3300	2839.75	1 year	2832
Crompton Greaves	540	467.75	1 year	470
United Spirits	770	657.65	1 year	656.8

SKF India

SKF India is a renowned bearing manufacturer that specializes in deep groove ball bearings and has a presence in the industrial and automotive sectors.

SKF India Results:

SKF announced strong Q1FY22 performance. Revenue for the quarter was Rs 693.5 crore (I-direct estimate: Rs 638.3 crore), up 130.2 percent year over year but down 18.2 percent quarter over quarter.

In Q1FY22, EBITDA was Rs 113.8 crore, down 23.3 percent from the previous quarter. With a tax rate of 25.2 percent, subsequent PAT in Q1FY22 stood at Rs 79.1 crore.

“SKF has been making strides towards innovation and R&D and has made significant inroads in REP. Going ahead, a recovery in auto, upcoming e-market & commencement of DFC should augur well for the company. Build-in revenue, EBIDTA, PAT CAGR of 18.6%, 22.2%, 25.2% respectively Target Price and Valuation: We value SKF at Rs 3300 i.e. 35x P/E on FY23E EP,” ICICI said in its research report.

• CMP: Rs 2852
• Target: Rs 3300 (16%)
• Target Period: 12 months

SKP India: Key triggers for future price performance

• The auto industry’s recovery should help the manufacturing sector.
• The upcoming DFC in mid-CY22, which will push out Class K bearings, as well as metro developments in 25-26 new cities, would give the industrial industry a boost.
• A new e-market is set to launch, with the goal of increasing reach and market share while also reducing counterfeit products.

Alternate Stock Idea:

In addition to SKF, we like NRB Bearings in our capital goods coverage. It is based on needle roller bearings, which are commonly used in automobiles. BUY with a price target of Rs 175 per share, it added.

Crompton Greaves Consumer

Crompton Greaves Consumer (CGCEL) is one of India’s largest fast moving electrical goods (FMEG) companies, with a 78 percent revenue share in electrical consumer durables and lighting (22 percent of revenue).

With a value market share of 24 percent in the domestic fan sector, it is the market leader.

With a three-year average RoE and RoCE of 34% and 39%, respectively, and a strict working capital management, the balance sheet is robust.

Crompton Greaves Consumer Q1FY22 Results:

• Higher other costs slowed the EBITDA margin’s recovery.
• Revenue increased by 46% year on year to Rs 1050 crore (down 31 percent QoQ) Price increases (5-6 percent )
• A better product mix helps to keep gross margins consistent year over year.
• However, higher advertising costs and other costs resulted in a 215 basis point EBITDA margin reduction to 12% YoY. PAT climbed by 27% year on year to Rs 95 crore, in line with topline growth.

“CGCEL’s share price has grown by ~3x in the past five years (from ~| 157 in July 2016 to ~| 467 levels in July 2021). We maintain our BUY rating on the stock Target Price and Valuation: We value CGCEL at Rs 540 i.e. 45x P/E on FY23E EPS,” according to ICICI securities.

• CMP: Rs 468
• Target: Rs 540 (16%)
• Target Period: 12 months

Crompton Greaves Consumer: Key triggers for future price performance

• Under the government’s main plan, PMAY, 1.7 crore new dwellings will be built and 20 million water pumps will be replaced.
• Home appliance demand is boosted by KUSUM, urbanisation, and rising ambition. In the next five years, add dealers in locations with populations of 10 to 100 thousand people.
• Focus on premium product introductions to drive margins.
• In FY21-23E, model sales and earnings CAGRs are 17 percent and 10%, respectively.

Alternate Stock Idea:

In addition to CGCEL, we enjoy Havells in the same area. The restoration of Lloyds revenues and increase in margins would be a trigger for Havells’ future revenue growth. BUY with a price objective of Rs 1345.

United Spirits

United Spirits (USL) is India’s largest alcoholic beverage firm and a part of Diageo plc, the world’s largest alcoholic beverage corporation. Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Royal Challenge, McDowell’s No 1, Smirnoff, and Captain Morgan are among the premium liquor brands it produces and sells.

Q1FY22 Results:

• USL had a strong first quarter of FY22. Revenues were up 57 percent year over year, with volumes up 61 percent to 15.8 million cases.
• In Q1FY22, EBITDA was Rs 168 crore, with margins of 10.4%. (vs. loss of Rs 78 crore in Q1FY21)
• As a result of the extraordinary loss of Rs 36 crore, subsequent PAT was at Rs 69 crore (vs. a loss of Rs 215 crore).

“USL with its new CEO (earlier stint ~2.5 years as MD, Diageo Africa Emerging Markets) is charting a newer course for its next leg of growth (focus on building newer alliances for growth and stability of supplies, strategic review of popular brands to get finished in December, 2021). We remain positive on the long term growth prospects of the stock and maintain our BUY recommendation Target Price and Valuation: We value USL at Rs 770 i.e. 46x P/E on FY23E EPS,” ICICI said in its report.

• CMP: Rs 655
• Target: Rs 770 (18%)
• Target Period: 12 months

United Spirits: Key triggers for future price performance

• Double-digit return ratios and substantial cash generation are expected in the future.
• Newer distribution channels (e-commerce) and portable packaging (Hipster) are expected to engage with a younger client base.

Alternate Stock Idea

Apart from USL, we remain bullish on Radico. It has been reporting volume growth well ahead of the industry and is planning to enter the premium whisky category. It has been steadily reducing its overall net-debt from a peak of Rs 950 crore in FY21 to Rs 198 crore in FY21, and generated Rs 380 crore in CFO.

Disclaimer

Stock investing is risky, and investors must exercise caution. Neither Greynium Information Technologies Pvt Ltd nor the author are liable for any losses caused as a result of decisions made based on the information provided in this article. Investors should exercise prudence while the markets have reached new highs. Please seek professional advice before investing large sums of money.