Stocks to buy: IDFC, GNA Axles, Zen Technologies among top fundamental picks by HDFC Securities

The Indian stock market indices Sensex and the Nifty 50 witnessed minor gains in the month of September despite concerns over higher interest rates, foreign capital outflow and global economic slowdown.

For the month of September, Nifty 50 gained 2% while the Sensex rose 1.5%. The BSE Smallcap index also rose about a percent, while the BSE Midcap index jumped 3.7% in September.

HDFC Securities Retail Research has come out with a list of its fundamental picks for a time horizon of two to three quarters.

The brokerage advises investors to buy these stocks based on their strong fundamentals and growth prospects.

IDFC Ltd

HDFC Securities expects advances of the bank to increase at 23% CAGR over FY23-FY25E, while improvement in profitability would drive RoA to 1.4% by FY25E and moderation in credit costs could result in further re-rating. 

Further IDFC Ltd. is available at a 14% discount to the value derived from the swap ratio providing margin of safety, although the merger may take a few quarters to fructify, HDFC Securities said. 

In its base case, the brokerage has a target price of ₹145 and in the bull case, it has a target price of ₹158 per share for IDFC Ltd.

It advises investors to buy IDFC Ltd in ₹130-133 band and add on dips in ₹116-118 band, for a time horizon of 2-3 quarters.

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Narayana Hrudayalaya

Higher maturity mix in hospitals, steady performance of flagship hospitals in India and improving profitability of new hospitals solidifies Narayana Hrudayalaya’s position in India. Prioritizing debottlenecking and brownfield expansion at its existing centres and expansion in Cayman support growth going forward, HDFC Securities said.

However, operationalising of new hospitals which would account for large part of the growth could pose risk on the margin front. 

It expects revenue/EBITDA/PAT to grow at CAGR of 12.3%/12.2%/6.5% over FY23-25E. 

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The brokerage suggests investors can buy the stock in the band of ₹1,080-1,105 and add more on dips to ₹967-987 band for 2-3 quarters time horizon.

In the base case, it has a target price of ₹1,195 and the bull case target price of ₹1,265 per share.

LG Balakrishnan & Bros

LG Balakrishnan & Bros mainly caters to the two-wheeler industry and operates in two segments - Transmission products and Metal forming products.

Considering better demand prospects in the domestic and exports market, entry into industrial chains, completion of RSAL takeover and increasing aftermarket sales, HDFC Securities continues to remain bullish on the prospects of the company in the medium term.

The management has guided for 10% volume growth and a conservative margin of 15-17% in FY24. 

“We expect LG Balakrishnan & Bros’ revenue/EBITDA/PAT to grow at 9/12/14% CAGR over FY23-FY25, led by increasing share of business with existing customers and higher aftermarket sales,” HDFC Securities said.

It believes investors can buy the stock on dips in the band of ₹1,040-1,060 and add more on dips to ₹920-940 band (9.5x FY25E EPS) for a base case fair value of ₹1,150 (11.75x FY25E EPS) and bull case fair value of ₹1,225 (12.5x FY25E EPS) over the next 2-3 quarters.

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GNA Axles

Though the demand conditions in the export markets were challenging so far, there are early signs of turnaround. HDFC Securities believes GNA Axles could benefit due to this recovery and new SUV capacity. Reasonable valuation after the latest correction is another positive.

It expects Revenue/EBITDA/PAT of the company to grow at CAGR of 8/11/14% over FY23-FY25E on the back of higher volumes driven by higher CV sales in the domestic market and growing CV/SUV sales in the American market.

We believe investors can buy the stock in the band of ₹458-470 and add on dips in ₹410-420 band for a base case fair value of ₹508 and bull case fair value of ₹546 over the next 2 quarters, the brokerage house said.

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Zen Technologies

HDFC Securities feels investors can buy Zen Technologies shares in the ₹710-730 band and add more on dips to ₹639-653 band for the base target of ₹795 and bull case target of ₹854 over the next two to three quarters.

“Based on the Q1FY24 numbers and the fresh order inflow post the issue of our report we have revised upwards the estimates for FY24E and FY25E and upped the target price. Though the valuation of the company is not as attractive as at the time of our previous report, given the large order inflow since then and the revenue visibility for the next few years, we feel that some more rerating is possible,” it said.

Som Distilleries and Breweries

Som Distilleries and Breweries’ prospects seem exciting at this juncture as it has delivered strong operating performance over the past few quarters and the management is aggressively targeting market expansion in a growing liquor market. Company’s performance in Q1FY24 was a beat on all fronts, the brokerage firm noted.

It has revised upwards the FY24 and FY25 estimates (though higher tax would soften the increase in profit estimates) and upped the target price. 

We think the base case fair value of the stock is ₹357 and the bull case fair value is ₹385. Investors can buy the stock in the ₹320-328 band and add more on dips in the ₹285-291 band for 2-3 quarters, it said.

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La Opala RG

Given the size of India’s opal ware sector, the vast under-penetrated population, consistent population growth and rising aspirations of the fast expanding middle class, HDFC Securities believe that opalware remains one of the most sustainable consumption stories in India. 

La Opala is a leader in mass and premium product categories, which are mainly led by aggressive branding and strong distribution. The company has been consistently operating at best-in-class margins of 35%+, which is the highest in the entire consumer discretionary space. This has resulted in a strong debt-free balance sheet and decent return ratios, HDFC Securities said.

It said investors can buy the stock in ₹422-430 band and add more on dips in ₹374-382 band for a time horizon of two to three quarters.

In the base case, it has a target price for the stock at ₹468 and for the bull case, the target price is ₹499 per share.

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