Analysts said the TINA (there is no alternative) factor was at play and that led to opening up of record demat accounts and enhanced retail participation. While the pace of earnings recovery has been slow, analysts are getting optimistic about the second half of FY22 and the whole of FY23. They say a handful of stocks could be in for good times due to depressed valuations or a likely rebound in their earnings growth. Here are seven stocks that brokerages are recommending to investors this Diwali.
Gateway Distriparks| Potential upside: 27-37%
ICICIdirect has suggested buying Gateway Distriparks (GDL) shares in the Rs 255-275 range for a target of Rs 350. GDL operates in varied segments of the logistics industry such as container freight stations, container train operations (CTOs) and cold chain logistics. The rail segment comprises nearly 70 per cent of its consolidated revenues.
ICICIdirect said the Dedicated Freight Corridor’s operations are expected to normalise (Rewari-Palanpur and up to Pipavav port) in Q3FY22, and the Mundra port would take three to four quarters to normalise. This should lift volumes of container train operations. DFC might also enhance the operational metrics of CTOs as the visibility on delivery time improves due to better time management and more double-stacked trains. This will enable better operational efficiencies and lead to, among other triggers, more freight moving from road to rail.
“Gateway has been actively reducing its gross debt position, which reached a high of Rs 740 crore in FY19 to Rs 480 crore in FY21. A strong balance sheet combined with strategically located infrastructure will help GDL to capitalise on future growth opportunities and improve its return ratios,” ICICIdirect added.
BPCL| Upside potential: 28%
Kotak Securities has recommended a buy on this stock for Samvat 2078 for a target of Rs 550. The brokearge’s bullish view stems from the fact that a recovery in refining margins is likely to be driven by sustained improvement in global demand. Kotak has predicted robust marketing margins for BPCL despite elevated oil prices, in addition to potential value unlocking from privatisation. “Notably, BPCL’s auto fuels volume growth was ahead of domestic consumption in 1QFY22. Two of the three PDPP units have been commissioned in Q1FY22, although stabilisation activities will take a few months,” it said, adding that marketing margins on auto fuels have remained elevated.
The brokerage said BPCL’s earning per share would jump 18.3 per cent in FY23 to Rs 39.90. The SoTP-based fair value for the stock has been estimated at Rs 550, based on 7 times EV/Ebitda, and the value of investments.
Action Construction Equipment | Upside potential: 25-40%
ICICIdirect is advising investors picking this stock in the Rs 215-240 range to have a one-year target of Rs 300. Action Construction (ACE) is an Indian construction equipment and material handling company. It has eight manufacturing and one R&D site in Faridabad, Haryana. The company commands a market share in excess of 60 per cent in the crane market and drives 70 per cent of the business.
ICICIdirect said it expects the segment to continue to grow at 15 per cent in the medium term, given the pickup in infrastructure and industrial cycle. Strong growth — in excess of 25-30 per cent — is expected in the material handling and construction equipment business over three to four years, which is still a low hanging fruit for the company, it said.
Despite a tough time during Covid second wave, the company has performed better on the back of some increased demand in the construction equipment segment and exports. ACE recently raised Rs 135.52 crore, which would mainly be used for debt repayment and inorganic growth. “We estimate total revenue to be Rs 1,750 crore in FY23 with absolute Ebitda at Rs 221 crore and margins in the range of 11-13 per cent,” the brokerage said.
Vardhman Special Steels| Upside potential: 32%
Anand Rathi has asked investors buying Vardhman Special Steels to have a one-year target of Rs 350. Vardhman Specialty Steels is a producer of special and alloy steels, catering primarily to the domestic automotive sector. The company has a strategic partnership with Aichi Steel Corp (a Toyota Group subsidiary), which has an equity investment of about 11.4 per cent in the company. This is expected to benefit the company in the long term as it has the potential for improvement in quality of special steel and could act as an enabler in enhancing global market reach. The management has said it expects business from Aichi to start coming through in the coming years. With the unlocking of the economy and a gradual picking up in auto volumes, the company stands to benefit in terms of revenues. Also, the increase in capacity and further value-addition benefits arising out of investment by Aichi Steel would expand the global reach to VSSL’s product portfolio, the brokerage said.
Welspun India | Upside potential: 36%
SMC Global has a target of Rs 193 on Welspun India, a global leader in home textiles. With a distribution network covering more than 50 countries, Welspun is strategic partners with top global retailers. According to the management of the company, the strong growth momentum that started in H2 of last FY21 continued in the ongoing financial year as well. SMC said the company was well placed to capture the growth opportunity on the back of strong customer relationships, superior distribution network, thriving global ecommerce channel and brands and digitalisation. The company has deployed capital in businesses, which has helped it to withstand disruptions and would generate strong growth in future, it said.
“The capital light expansion at Vapi and Anjar is on track and the benefits from this investment will start accruing in phases from the Q2 FY22. The company also plans to gradually expand the home textiles capacity to grab large opportunities in home textile exports. Company’s flooring products are not only gaining strong traction in the domestic market but also getting higher export enquiries from the international market,” it said, adding that the greenfield Spunlace capacity addition project in Telangana is on course and the company expected commercial operation to commence from H2 FY22.
Besides, hard flooring capacity might be doubled in January, it said.
