Author: root

Stocks to buy: Gujarat State Petronet

According to Motilal Oswal, Gujarat State Petronet reported a marginally higher (+5%) transmission volume than its own estimate at 36.8 mmscmd (+11% YoY and +9% QoQ), with implied tariff at Rs 1,282/mscm. Demand recovery from the refining and petrochemicals segment offset a weak demand from CGDs, while demand from the Power sector recovered quarter-on-quarter.

Gujarat State Petronet: Strong growth likely

Motilal Oswal believes that the company can easily record an 8-10% CAGR in transmission volumes over the next 5-6 years (in line with the 10% volume CAGR over the last five years).

Since Gujarat State Petronet is currently operating at 90-95% utilization rate, the company needs to incur a capital expenditure of Rs 45.4 billion to accommodate the rise in volume. This would ensure that tariffs are not cut for the HP gas grid. The stock trades at 16 times FY23E EPS of Rs 20 and 10x FY23E EV/EBITDA. We maintain our Buy rating with a target price of Rs 500 per share,” Motilal Oswal has said in a report.

The firm has also noted the investments in Gujarat Gas and Sabarmati Gas, at a 25% holding discount, offer a valuation of Rs 360 (after a huge run up of 45% in Gujarat Gas’ share prices over the last two months).

“Valuing the core at 7x adjusted Sep’23E EPS of Rs 20 and adding the value of investments, we arrive at a valuation of Rs 500 per share. Buy the stock, ” the brokerage has said.

Indian Hotels: Buy for an upside target of 28%

Motilal Oswal has suggesting buying the stock of Indian Hotels and sees an upside potential of as much as 28% from current levels.

“Faster demand revival in the Leisure Travel segment has aided Indian Hotel’s performance in FY21. The second COVID wave has delayed recovery in the Hospitality sector. However, the impact this time is less severe and the recovery is quick when compared with last time,” the brokerage has said.

According to the brokerage, new revenue generating avenues have a higher EBITDA margin, and this is being done without deploying capital or with very minimal capital, which bodes well for the returns on capital employed.

“Revenue/EBITDA in 1QFY22 was above our estimate. Factoring the same, we have increased our FY22E revenue/EBITDA estimate by 2%/4%, and have maintained our estimate for FY23E. We maintain our Buy rating on the stock, with a Sept’23E SoTP-based target price of Rs 183,” the brokerage has said.

Disclaimer

The 2 stocks or mentioned above are taken from brokerage report of Motilal Oswal institutional Equities. Investments mentioned here need not be construed as investment advice, the company and the author shall not be responsible for any decisions taken based on the above report. Investors are advised caution as the markets are now at a new historic peak.

Buy Jindal Steel and Power: Motilal Oswal

According to the brokerage, despite the COVID-related delays, JSP’s steel volumes increased by 21% in FY21, reflecting a utilisation rate of 88 percent. The company’s announced 85 percent increase in steel capacity to 15.9 million tonnes per annum in stages by FY25, at a competitive cost of USD390 per tonne, should be RoCE accretive and support volume outperformance in the long run.

“We raise our FY22E EBITDA by 13% on expectations of higher steel prices in the fiscal. Strong cash flows, coupled with cash proceeds of INR30.1b from the JPL divestment, should lead to a fall in net debt to INR34.5b by FY23E, implying 0.3x FY23E EBITDA. We reiterate our Buy rating.

Our TP of INR495/share is based on 5x FY23E EV/EBITDA and factors in further net debt reduction of INR30.1b from the divestment of JPL. At the CMP, the stock trades at an attractive 4.5x FY23E EV/EBITDA,” the brokerage has said.

Buy Motherson Sumi with target price of Rs 285

According to Motilal Oswal, exogenous problems in all of Motherson Sumi‘s businesses (COVID in India and supply-side issues in abroad businesses), significant copper price inflation, and non-recurring charges at PKC hampered the company’s 1QFY22 performance.

“Our positive view on MSS remains intact (led by cyclical recovery, turnaround at the greenfield plant, and the execution of SMRPBV’s strong order book). It trades at 28.8x/19x FY22/23E consol. EPS. Maintain Buy, with TP of ~INR285 (Sep’23 SOTP).

We cut our FY22E EPS estimates by 8%/3%, factoring in headwinds from the semiconductor We cut our FY22E EPS estimates by 8%/3%, factoring in lower production, while maintaining our FY23 EPS estimates. Our positive view on MSS remains intact (led by industry recovery, turnaround at the greenfield plant, and the execution of SMRPBV’s strong order book). The stock trades at 28.8x/19x FY22/23E consol. EPS. As we shift our TP to Sep’23, which factors in total normalization as well as the peak cycle, we normalize the multiple for SMRPBV and PKC to 20x (v/s 23x earlier). Maintain Buy, with TP of ~INR285 (Sep’23 SOTP), the brokerage has said.

Buy Indian Hotels, Says Motilal Oswal

Motilal Oswal believes that, despite the second COVID wave, standalone RevPAR nearly doubled year over year due to ARR growth and occupancy increase, as the impact was less severe this time and the recovery was faster than the first. In addition, IHIN’s operational performance was excellent.

The EBITDA margin of new revenue-generating avenues is better, and it is done without or with very little capital, which bodes good for RoCE.

“Revenue/EBITDA in 1QFY22 was above our estimate. Factoring the same, we have increased our FY22E revenue/EBITDA estimate by 2%/4%, and have maintained our estimate for FY23E. We maintain our Buy rating on the stock, with a Sept’23E SoTP-based TP of INR183.

While FY21 earnings are weak, we expect a gradual/sharp recovery in FY22E/FY23E on: a) a low base, b) improvement in ARRs once things normalize, c) improved occupancies, d) positivity in cost rationalization efforts in FY21, e) an increase in F&B income as banqueting/conferences resume, and f) higher income from management contracts, the brokerage has said.

Disclaimer

Views mentioned herein are taken from the brokerage report of Motilal Oswal. Neither the author, nor the brokerage nor Greynium Information Technologies would be responsible for losses incurred based on the article. Please consult a professional advisor. Investing in stock markets is risky.