Jefferies Picks: 11 stocks set to deliver strong returns over next five years

With India already ranking among the top five equity markets globally by market capitalization, Jefferies’ bullish outlook sees the Indian stock market surpassing the $10 trillion milestone by 2030. This optimistic forecast is fuelled by increasing domestic flows, infrastructure investment, and consistent GDP growth.

This article takes a closer look at these stock picks and their performance since the report’s release on 18 March 2024.

Stocks in focus

Amber Enterprises: With market capitalization of ₹15,080 crore, Amber Enterprises specializes in manufacturing heating and ventilation equipment. Jefferies notes that the company stands to benefit from significant growth potential, given that air conditioner (AC) penetration in India is just 7%, compared to the global average of 30%.

Amber's leadership position in AC outsourcing, where it has increased market share from 22% to 29% over the past five years, and its diversification into higher-margin components are expected to drive future revenue and earnings growth.

Jefferies projects Amber’s share price to rise to ₹9,740 by March 2029, from its current level of ₹4,483. The stock has already gained 34% since the report was published.

Ambuja Cement: Is India’s second-largest cement producer with a market capitalization of ₹1.52 trillion. Since an ownership change in 2022, Ambuja has focused on capacity and volume expansion, as well as efficiency improvements. Jefferies has a five-year price target of ₹1,250, higher than the current trading price of ₹617.90.

Further, Jefferies expects Ambuja Cement to grow its Ebitda (earnings before interest, tax, depreciation, and amortization) by 19% annually through fiscal 2030 as it is positioned to benefit from solid cement demand.

Ambuja's current capacity is 75mtpa, which is expected to almost double to 140mtpa in the next five years. The stock has been up 5.8% since the report was published.

For more such in-depth analyses, read Profit Pulse.

Axis Bank: Jefferies projects that Axis Bank will grow its adjusted earnings at a compound annual growth rate (CAGR) of 18% between FY24 and FY29, leveraging an improved deposit franchise and enhanced digital and lending platforms.

Axis Bank deposits are set to increase due to the expansion of its wealth segment, corporate salary accounts, and improved branch productivity. In addition, Jefferies expects the integration of Citibank India to bring cost and revenue synergies.

Jefferies has a five-year price target of ₹2,810 for Axis Bank, higher than the current price of ₹1,181. Shares of the Indian banking giant have risen 11% since the report was published.

Bharti Airtel: Jefferies believes Bharti Airtel is well-positioned due to consistent market share gains, a favourable pricing environment, and potential for further increases in average revenue per user (Arpu) amid moderating capital expenditures.

The telecom sector has seen significant consolidation over the past five years, with Bharti Airtel and Reliance Jio now controlling 80% of the market. Jefferies forecasts Bharti Airtel’s revenue and Ebitda to grow between 12% and 13% annually through 2030, driving free cash flow growth by 21% and boosting return on capital employed (RoCE) by over 20%.

The five-year price target for Bharti Airtel is ₹2,530, up from its current trading price of ₹1,560. The stock has gained 27% since 18 March.

JSW Energy: Jefferies is optimistic about JSW Energy due to the company’s growing focus on renewable energy. By FY30, 81% of JSW Energy’s capacity is expected to come from renewable sources, up from 42% in FY23. JSW Energy’s pioneering efforts in green hydrogen production and energy storage position it well as India transitions to clean energy.

Approximately 85% of JSW Energy’s operating portfolio is tied to long-term power purchase agreements, providing stable earnings and insulation from commodity price volatility. Jefferies’ five-year price target for JSW Energy is ₹1,100, compared to its current price of ₹697. The stock has surged 43% since 18 March and 73% so far in 2024.

Larsen & Toubro: One of the largest beneficiaries of India’s capex upcycle is Larsen & Toubro (L&T). Despite a weak capex environment between FY10-19, L&T’s equipment and construction business achieved a CAGR of 12% in revenue and 10% in Ebitda. Jefferies now expects growth to accelerate to 20% between FY23 and FY26.

L&T’s sectoral and geographical diversification is anticipated to help the company perform well across market cycles. As the market leader in infrastructure, L&T has the scale and balance sheet strength to capitalize on opportunities. However, the stock has gained less than 5% since the report was published.

Macrotech Ltd (Lodha): Is a key beneficiary of the current housing upcycle, which is underway. Between FY21 and FY24, Lodha has grown sales at a CAGR of 35%, demonstrating a steady stream of project additions in key regions. Moreover, it has a 600 million sq. ft township in suburban Mumbai, which is seeing rapid infrastructure development.

With the property upcycle expected to last another five years, Jefferies has a five-year price target of ₹3,000 on Macrotech stock, higher than the current trading price of ₹1,251. The stock has gained less than 20% since the report was published in March.

Max Healthcare: Jefferies outlined that Max Healthcare has the potential to generate 2.5x returns in the next five years due to the sustained growth momentum in the hospital business. It expects Max’s Ebitda to grow at a CAGR of 20% between FY24 and FY30 as “new brownfield beds are added and most of them breakeven in less than 12-15m, while profitability of existing hospitals remain elevated."

The long-term growth story for Max Healthcare remains intact, given the recession-resistant nature of this business, strong execution capabilities, and quality financial and operating metrics.

The five-year target price for Max Healthcare stock is ₹1,925, higher than the current trading price of ₹882.70. The stock has risen over 20% since 18 March.

State Bank of India (SBI): Jefferies expects India's largest lender, in terms of customer deposits, to leverage its robust deposit franchise, improved digital offering, and leadership across lending segments to expand its loans by a CAGR of 13% in the next five years. A focus on profitability should drive profit margins higher, as Jefferies forecasts EPS (earnings per share) to expand by 18% annually.

The five-year target price for the SBI stock is ₹1,860, higher than the current trading price of ₹818.95. Since the report was published, the stock has risen more than 10%.

TVS Motor Company: The company is set to benefit from a revival in two-wheeler demand as its attractive product proposition has helped it gain market share across multiple segments. Jefferies estimates that the company’s earnings per share will grow at a CAGR of 26% through 2030 due to strong volume growth and margin expansion. Additionally, its rising investments in overseas entities should result in geographic diversification.

The five-year target price of TVS stock is ₹5,000, higher than the current target price of ₹2,788. Shares of TVS have gained over 35% since 18 March.

Zomato: India’s leading food delivery and quick-commerce platform, Zomato rounds out the list. Jefferies points to strong growth potential in food delivery, with higher margins expected as the industry matures.

Zomato’s quick commerce arm, BlinkIt, has surprised the market with its rapid adoption, expanding its product range beyond groceries and staples. Despite being under-penetrated, India’s food services market shows promise for significant growth, with online food delivery penetration at 13%, compared to 50% in developed markets. 

Jefferies has set a five-year price target of ₹400 for Zomato, compared to the current trading price of ₹248.60. The stock has nearly doubled in 2024, up 57% since 18 March.

The takeaway

Most companies on this list are blue-chip giants with strong competitive moats and robust fundamentals. However, given the dynamic macroeconomic environment, Jefferies' price targets may be subject to revisions, either upward or downward, depending on future developments.

Note: The purpose of this article is only to share interesting charts, data points and thought provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.

Aditya Raghunath has over 15 years of experience in the field of finance and financial writing. His interest extends to global stocks as well. He has studied commerce at the Mumbai University, and done his management in finance and from the prestigious TA Pai Management Institute.

Disclosure: The author owns shares in State Bank of India.