Stocks to buy: APL Apollo Tubes and INOX India among 6 stocks that can give solid double-digit returns in 1 year

Stocks to buy: Indian stock market benchmark Nifty 50 fell almost a per cent in intraday trade on Friday, April 12, indicating a cautious sentiment in the market ahead of the start of the March quarter earnings.

Indian IT major TCS is expected to report modest numbers for the March quarter of the previous financial year (Q4FY24) on Friday.

The Q4 earnings, macro numbers and global cues are expected to move the Indian stock market in the near term. Experts expect the market to witness some correction as it is at an all-time high level. However, experts believe a price correction in the market will be a buying opportunity as a robust economic outlook, a strong influx of retail investors and the prospects of political stability after the Lok Sabha elections will augur well for the market for the medium to long term.

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Two experts - Narendra Solanki of Anand Rathi and Chirag Shah of ICICI Direct - suggest the following six stocks to buy for the next 12 months. As per them, they can give solid double-digit returns in the next one year. Take a look:

Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers

APL Apollo Tubes | Previous close: ₹1,568.50 | Target price: ₹1,800 | Upside potential: 15%

The company's management focuses on expanding to 4 million tonnes of capacity by the end of FY24 and 5 million tonnes by FY26. It plans to set up plants in eastern India and the Middle East respectively. The company aims to reach 10 million tonnes of capacity by FY30.

APL aims to establish a new plant in East India with a capacity of 0.2 MTPA. The land acquisition is in process for the project and is expected to be completed by the end of FY25.

The company remains confident on the growth path with a core focus on capacity expansion, geographical dispersion and product mix enrichment.

"We believe that in the coming quarters, profitability will improve due to the focus on VAP products, the ramp-up of the Raipur plant, the introduction of new products and favourable market conditions," said Solanki.

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INOX India | Previous close: ₹1,353.45 | Target price: ₹1,675 | Upside potential: 24%

INOX India provides a full spectrum of services encompassing design, engineering, fabrication, and deployment of equipment and systems tailored for cryogenic environments. Specializing in the provision of cryogenic equipment, particularly tanks, INOX India delivers integrated solutions for equipment and systems functioning under extremely low-temperature conditions.

The company has recently received patent rights innovative method of suspending inner vessels in dewar-type containers used for storing cryogenic fluids. Which aims to minimise the risk of damage during handling and transportation, thereby increasing the overall efficiency and reliability of the containers.

Going ahead, the company foresees a significant uptick in demand for cryogenic gases across various sectors including metallurgy, oil and gas, the chemical industry's decarbonisation efforts, electronics, healthcare, and space and satellite applications.

Specifically for LNG, the company anticipate robust demand from countries in Asia such as India, South Korea, and other nations in the region. These countries are progressively transitioning away from traditional energy sources like coal and crude oil towards cleaner options like nuclear energy and natural gas.

Due to the strong demand scenario for the company’s current product offerings, higher cash flows, debt-free position and strong return ratios, we remain positive on the company’s outlook.

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Jindal Steel and Power | Previous close: ₹897.75 | Target price: ₹1,070 | Upside potential: 19%

The demand for steel in India is expected to grow rapidly in the next two decades as the country enters a multi-year nation-building phase. As consumption of steel is expected to rise, most domestic steel manufacturers are investing heavily in increasing crude steel capacities with Jindal Steel, one of India’s largest integrated steel manufacturers, being in the forefront.

The company’s ongoing expansion would significantly enhance its crude steel capacity, by 65 per cent, to 15.9 million tonnes and finished steel capacity, by 90 per cent, to 13.75 million tonnes, catapulting it to the fourth largest steel manufacturer in India by FY26.

The company is not only expanding capacity or strengthening raw-material integration but also undertaking many cost-saving initiatives, which significantly help manage margins through extreme raw material and steel cycles.

As part of the ongoing capex, it is setting up an 18 million-tonne 200km slurry pipeline connecting Barbil and Angul. The pipeline, which is expected to come on stream by Q1FY25, would not only help reduce costs but also lower transportation time, emissions and fuel consumed in logistics.

The company has a strong portfolio of value-added products, which spans the steel value chain. Its strong focus on operations and R&D enables it to manufacture many high-margin products such as five-metre plates (the widest steel plates in India), one of the longest rails, medium and light sections, bars, wire rods, etc.

Chirag Shah, VP, Equity Research, ICICI Direct

PCBL | Previous close: ₹278.90 | Target price: ₹330 | Upside potential: 18%

PCBL (erstwhile Phillips Carbon Black) is the leading manufacturer of carbon black, which is used as a reinforcing material in tyres. PCBL also derives nearly 9 per cent of sales volume from speciality carbon black, which fetches high margins and finds application in paints, and plastics among others. It has a healthy margin profile and possesses a capital-efficient business model (RoCE more than 15 per cent).

PCBL has commissioned its new carbon black plant with a nameplate capacity of nearly 150 KT at a total capex outlay of nearly ₹800 crore. The company expects to fully utilize its plant in about three years thereby targeting double-digit volume growth over the next few years. 

With domestic macro drivers in place and a favourable export outlook, volume growth is seen at a healthy 12.4 per cent CAGR over FY23-26E to 6.35 lakh tonne in FY26E vs. 4.45 lakh tonne in FY23.

PCBL has, over the years, with indigenous R&D efforts developed grades in the speciality carbon black domain, which is a high-margin product (typically about 3-4 times normal tyre grade carbon black). Specialty-grade carbon black volumes are slated to grow at a CAGR of 23 per cent (higher than base business) over FY23-26E to 75 KT in FY26E versus 40 KT in FY23.

With volume growth on the anvil amid thrust on exports and increasing volume share of high-margin speciality grade carbon black sales (from 9.1 per cent in FY23 to 11.8 per cent in FY26E), EBITDA margins are slated to improve nearly 500 bps to 17.5 per cent in FY26E with EBITDA/tonne seen sustaining at nearly ₹ 20,000/tonne in FY26E. 

Consequent RoE is seen expanding from sub 16 per cent in FY23 to more than 20 per cent mark in FY26E, which should drive a re-rating of the stock.

Ramco Cements | Previous close: ₹848.55 | Target price: ₹1,000 | Upside potential: 18%

Ramco Cements is strongly positioned as strong earnings growth over FY23-26E is expected on account of healthy volume growth (led by timely capacity additions) and considerable margin improvement over the same period.

The company is in the process of expanding its cement capacity by 4 million tonnes (mtpa) to 26 mtpa by FY26E. Over FY23-26E, Shah expects volume growth of 12.6 per cent CAGR on account of timely capacity additions and pick-up in demand in its selling markets of southern and eastern regions.

In terms of margins, Shah expects EBITDA/ton to improve going ahead to ₹1061/ton by FY26E (from ₹794/ton in FY23), primarily led by benign fuel prices, focus on operational efficiencies (like an increase in the share of green power, expanding premium product portfolio) and positive operating leverage.

Shah expects revenue, EBITDA and PAT to grow at 11.6 per cent, 24 per cent and 31 per cent CAGR, respectively, over FY23 to FY26E. Valuation at 10.7 times EV/EBITDA on an FY26E basis looks attractive considering the strong growth ahead.

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South Indian Bank | Previous close: ₹28.80 | Target price: ₹35 | Upside potential: 22%

South Indian Bank has an advance book of ₹77,686 crore diversified across segments. 

The bank has witnessed asset quality issues in the past which has impacted earnings momentum, however, a change in leadership has brought business transformation in the last two years which has improved the performance of the bank. 

The new book, built in the last 2.5 years stands at nearly 67 per cent of overall advances with resilient asset quality evident from lower slippage at nearly 34 bps.

Under recently appointed MD & CEO - P.S.Seshadri, the bank is embarking on a multi-pronged strategy focusing on accelerating MSME & retail business, improving branch productivity and lowering the CI (cost-to-income) ratio (which is currently elevated at nearly 62 per cent).

Increased focus on the retail and MSME segment is seen to aid margins (at 3.19 per cent in Q3FY24) and improve granularisation. In addition, gradual improvement in productivity is expected to drive RoA to sustain at 0.9-1 per cent ahead.

Thus, improvement in business growth (expect nearly 13 per cent CAGR growth in FY25-26E) and operational efficiency (expect CI ratio at nearly 58 per cent in FY26E) should aid valuation further. 

At the current price, the stock is trading at nearly 0.7 times FY26E BV which provides an investment opportunity.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.