Buy These 2 Stocks For 24% Gains, Says Motilal Oswal

Orient Electric

The brokerage sees an upside target of 24% on the stock of Orient Electric from the current levels. According to the brokerage the annual report highlights improving product reach of existing categories, increasing adoption of digitization, and focus on cost saving programs were among the key focus areas in FY21.

“The cost saving initiative titled Sanchay’ – has been repositioned into an entity-wide overarching ideation and cost consciousness platform, with the program enabled by a Cloud hosted digitized platform,” Motilal Oswal Institutional Equities has said.

Orient Electric: Buy with a target price of Rs 395

According to the brokerage there is a focus on innovative new launches. “The pandemic presented an opportunity to Orient Electric to leverage its innovation capability and stay agile. It launched ‘UV Sanitech’- a UV-C light-based sanitization chamber that can sanitize all inanimate and daily use objects in four minutes from viruses and bacteria, including coronavirus,” the brokerage has said.

“We believe Orient Electric is best placed to capture pent-up demand, with its strong manufacturing and distribution capabilities. We forecast a revenue/EBITDA /adjusted net profit of Compounded Annual Growth Rate of 17%/19%/23% over FY21-24E. We value Orient Electric at 45 times FY23E EPS, with a target price of Rs 395. At the current market price, the stock trades at a FY22E/FY23E P/E of 49 times and 37 times.

Our longer term thesis indicates a reduction in the margin differential between Orient Electric and leading FMEG peers (refer to our initiation report). On a FY23E P/E multiple basis, Orient Electric is trading at a discount of 33%/9% v/s Havells and Crompton, while on an EV/EBITDA basis, the discount stands at 43%/32%. We maintain our Buy rating on the stock,” the brokerage has said.

Divis Labs: Buy the stock for a price target of Rs 5,750

According to Motilal Oswal Institutional Equities, the backward integration efforts over the past 2-3 years have fructified at a time when peers are facing issues in terms of raw material and logistics cost increases. In fact, this has led to better profitability for the quarter. Divis Labs remains well poised in terms of both product development and manufacturing capacity to sustain superior return ratios over the next 4-5 years.

“We raise our EPS estimate by 5% and 4% for FY22/FY23 factoring in operational efficiency, higher business opportunities in the Sartans portfolio, and enhanced growth prospects in the CS segment.

We continue to value Divis Labs at 36 times 12 month forward earnings to arrive at target Price of Rs 5,750 on the stock. We remain positive on Divis Labs on the back of its strong chemistry skill sets driving opportunities in the CS/Generics segment and continued cost reduction in production driving market share and profitability. Reiterate Buy,” the brokerage has said.

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