Stocks To Buy: NBFC Stock, Jewellery Stock To Consider As Suggested By ICICI Direct

Muthoot Finance: Leadership in gold financing

Muthoot Finance is India’s top gold financier, with an AUM of Rs 52613 crore in gold loans as of June 2021.

ICICI Securities suggested buying Muthoot finance stock at a target price of Rs. 800, representing an 18percent increase over the last trading price of Rs. 1523. The recommended investment horizon is for one year.

ICICI Direct believes that, there is a large market opportunity for long-term growth. Business growth will be steady, thanks to low gold penetration and management’s goal of achieving a 1 lakh crore book by FY24-25. Exceptional asset quality, with a GNPA of less than 2% and a recovery rate of more than 90%.. Healthy financials with a 12-14 percent margin, led by a gold loan earning 21%.

Muthoot Finance: Valuation

“Muthoot Finance’s share price has grown by ~4.2x over the past five years. We believe this is a good opportunity to play on the gold finance theme. We initiate coverage on the stock under Stock Tales format with a BUY rating and target price of Rs 1800. Target Price and Valuation: We value the core business (gold loan) at ~3.2x FY23E ABV and assign Rs 44 to subsidiaries to arrive at a target price of Rs 1800 per share,” the brokerage has said.

We commence coverage on Muthoot Finance under the Stock Tales format with a BUY rating and value the core business at 3.2x FY23E ABV with subsidiaries allocated at Rs 44 per share (after 20% discount) to arrive at a target price of Rs 1800/share, it said.

Key triggers for future price-performance:

• A crucial driver for growth is a gradual increase in ticket size, as well as an increase in working capital requirements.
• Lower credit costs lead to a stronger RoA and RoE of +5% and +25%, respectively. Solid asset quality, low leverage, positive ALMs, and sticky client base levers all contribute to strong operating performance.

Titan Company: Jewellery glitters with strong consensus beat in Q2

ICICI Securities suggested buying Titan Company stock at a target price of Rs. 2550, representing a 19 percent increase over the last trading price of Rs. 2148. The recommended investment horizon is for one year.

Titan has evolved from a watchmaker to a desirable lifestyle brand, with jewelry as its most prominent vertical (82 percent of revenues). A robust distribution network that spans 2.5 million square feet and includes over 1900 establishments.

Key highlights of Q2FY22 update:

• Titan saw a significant increase in demand across all segments. In Q2FY22, the overall number of store operational days surpassed 90%.
• Titan’s entire revenue for Q2FY22 was much above than analysts’ expectations. Standalone revenue growth (excluding gold bullion sales) was 78 percent year over year (compared to a consensus projection of 40%).
• Tanishq continued to gain market share in Q2FY22, despite strong topline growth of 78 percent YoY and a two-year CAGR of 32 percent. In H1FY22, it grew by 16 percent over FY20 levels, surpassing pre-Covid levels.

Titan: Valuation

“Titan has been an exceptional performer in the discretionary space with stock price appreciating at ~40% CAGR in last five years. We continue to remain structurally positive and maintain a BUY rating. Target Price and Valuation: We value Titan at Rs 2550 i.e. 65x FY24E EPS, the brokerage has said.

Key triggers for future price-performance:

• Its strong bank sheet and asset-light distribution approach have allowed it to outperform competitors in terms of store expansion (35 Tanishq outlets planned for FY22).
• Tanishq’s presence in the Indian jewellery sector is still in its infancy. The introduction of mandatory gold hallmarking is projected to boost market share gains in the unorganised sector.
• The focus on weddings is paying off, with wedding jewellery becoming a key growth driver and its share of overall jewellery revenue increased significantly.
• Going forward, a gradual rebound in the studded ratio would help margins.
• In FY21-24E, we factor in revenue and earnings CAGRs of 22% and 53%, respectively.

Disclaimer

The above is prepared from the recommendations of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies Pvt Ltd, the author, and the analysts are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only.