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Buy Aditya Birla Fashion and Retail stock with a price target of Rs 350

Aditya Birla Fashion and Retail is home to some of India’s most iconic brands – Louis Philippe, Van Heusen, Allen Solly and Peter England – all market leaders within their segment.

Apart from this it also owns Pantaloons and fast fashioned brands. Motilal Oswal has set a price target of Rs 350 on the stock of Aditya Birla Fashion and Retail. According to the broking firm the management expects a strong and a sustained recovery on the back of tailwinds from the festive season and opening up of the economy after the lifting of COVID-related restrictions.

In the last quarter, the company witnessed a margin improvement on an improved share of Retail and private labels, lower mark downs, and cost control measures.

The management has also indicated that it would continue with its aggressive store expansion plans across segments. Ethnic Wear and Pantaloons will see over 100 new stores annually.

Gross margins see an improvement

Gross margins at Aditya Birla Fashion and Retail improved significantly (590 basis points YoY) to 53.4% (340 basis points above pre-COVID levels) on lower mark downs and higher share of private labels. EBITDA came in 43% higher than our estimate at Rs 3.1b v/s an operating loss of Rs 76 million in 2QFY21 (and Rs 3.3 billion in 2QFY20). Net profit stood at Rs 59 million v/s an estimated loss of Rs 835 million.

Valuation and view

“We value Aditya Birla Fashion and Retail on a SoTP basis, rolling forward our valuation to Sep’23E. We assign an EV/EBITDA of 16x/15x to Lifestyle/Pantaloons and 1x EV/sales to other businesses, slightly upping our multiple, given the quick recovery and improving Balance Sheet. We arrive at a target price of Rs 350 per share (from Rs 280 earlier). We maintain our Buy rating,” the brokerage has said.

The shares of Aditya Birla Retail were last seen trading at Rs 278.25 on the NSE.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal Financial Services Limited. 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.

Motilal Oswal’s take on NOCIL

According to the brokerage “The prices of Aniline, a key raw material for NOCIL, have shot up by 20% MoM in Nov’21 (up 44% QoQ and 149% YoY) due to a supply crunch and other reasons mentioned below. This could result in a normalization of margin for NOCIL (recorded a peak margin of INR55/kg in the no Anti-Dumping Duty environment in 1QFY22). As the price of Aniline increases, the ability of the company to pass through the entire increase subsides (as highlighted in Exhibit 2), resulting in a margin compression.”

Motilal Oswal has said in its research report that “In the current environment, where: 1) the Centre has not accepted the Directorate General of Trade Remedies’ (DGTR) recommendation to impose ADD on one of its key products, PX-13; and 2) there exists a risk of increased dumping from China (China Sunshine would complete its expansion over the next 1-2 quarters), the stock may be under pressure in the near term.”

Buy National Organic Chemical Industries Limited (NOCIL) with a target price of Rs. 320

According to the brokerage’s call “We build in an EBITDA/kg of INR35 for 2HFY22 (in line with the last three year’s average), with an improvement to INR45/INR50 over FY23E/FY24E, as capacity ramp-up and raw material prices normalize from current higher levels. For NOCIL, the priority would be to undertake debottlenecking at existing units in the near term, while long-term planning is under evaluation. Specialized products form 25% of total revenue, and any new capex announcement in this category would be both realization and margin accretive.”

Motilal Oswal has further clarified in its research report that “NOCIL has an asset turnover of ~0.7x in FY21 (set to increase to 1.1x in FY24E). We expect return ratios to recover to 16-17% over FY23-24E (up from 7% in FY21). Valuing the stock at 22x Dec’23E EPS, we arrive at a TP of INR320. We maintain our Buy rating.”

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal Financial Services Limited. 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.

Target Price

The Current Market Price (CMP) of ITC Ltd is Rs. 231.85. The brokerage firm, HDFC Securities has estimated a Target Price for the stock at Rs. 272. Hence the stock is expected to give a 17.32% return, in a Target Period of 6 months.

Company performance

ITC’s FMCG business gained momentum due to Covid-19 as revenue in 9MFY21 grew by 14% Y-o-Y, while EBIT witnessed 2.3X growth (driven by hygiene and personal care categories) as margins doubled. The paper boards and packaging business grew by 17% in 9MFY21. The agri-business had a good Q3FY21 with 18.5% Y-o-Y growth, driven by trading opportunities in rice, soya, and wheat exports. However, leaf exports were impacted by subdued demand for leaf tobacco in international markets.

Comments by HDFC Securities

Maintaining a Buy rating HDFC securities said, “Taking the advantage of the favorable market, the company came up with 100+ launches post lockdown. We expect this strong momentum to continue in the near future.” The firm additionally mentioned that ITC’s hotels business (3.4% of revenue) is likely to stay impacted due to travel restrictions.

About the company

ITC has a diversified presence in cigarettes, FMCG, hotels, packaging, paper boards, and specialty papers, and agri-business. Apart from having a near-monopoly in its traditional business of cigarettes, ITC is the country’s leading FMCG marketer, a clear market leader in the Indian paper board and packaging industry. ITC is a globally acknowledged pioneer in the wide-reaching agribusiness and a pre-eminent hotelier in India – a trailblazer in ‘Responsible Luxury’ chain of hotels.

Disclaimer

The above stock was picked from the brokerage report of HDFC Securities. 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.

5 equity mutual funds with the best 5-year returns

Returns are mostly from technology or IT related funds

As we can see from the above table, almost all are from the IT or the tech pack. In fact, IT stocks have rallied a great deal, which had led to a solid out performance of the stocks from the sector when compared to other sectors.

Having said that we are advising caution as the markets itself are over valued at the current levels and there is a possibility that mutual funds even with the best returns could under perform in the coming days. The performance of mutual funds always rests on the performance of the stock markets and with the sharp rally over the last 1-year, big investors are getting a bit concerned on valuations. Therefore, as the markets rally there might be increasing selling pressure that might emerge and hence caution is warranted even when investing in equity mutual funds.

Recent reports suggested that BlackRock Inc. is trimming its investments in Indian equities and becoming more optimistic on China on attractive valuations amid expectations that policy hurdles will ease next year. Valuations of Indian stocks are leaving investors now worried.

Lumpsum investors can be risky

Goldman Sachs has downgraded Indian equities by one notch to ‘market weight’, citing a blistering run this year that has made them the best performing emerging Asian market. We have been seeing heavy selling by Foreign Portfolio Investors citing expensive valuations and if the markets fall from the current levels, it would also pull equity mutual fund returns lower.

Investing lumpsum amounts in equities poses a risk and investors are advised to go with the Systematic Investment Plans or SIPs to invest. We have been advocating for a long time now to stay away from lumpsum investments. The Sensex around that 58,600 points mark is certainly not cheap. Investors are therefore advised to be careful and not put big amounts even in mutual funds.

It’s also important to diversify your portfolio and include other asset classes in your portfolio. With interest rates slated to rise, there is a possibility that debt may turn attractive once again. Investors can also look at hybrid funds which invest through different asset classes including debt.

Disclaimer

Investing in mutual funds is risky. All readers and investors should note that neither Greynium nor the author of the articles, would be responsible for any decision taken based on this articles. Please consult a professional advisor. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates, and authors do not accept culpability for losses and/or damages arising based on information on GoodReturns.in