Stocks to buy: NCC, Talbros Automotive among three fundamental stock picks by HDFC Securities

Stocks to buy: The Indian stock market indices traded flat on Tuesday dragged by selling in auto, IT and pharma stocks, amid mixed global cues. 

The domestic equity markets have witnessed a decent rally over the past three months with the benchmark Nifty 50 scaling record high on Monday.

Over the last year, the key benchmark indices Nifty 50, Nifty Midcap 100 and Nifty Small-Cap 100 have delivered returns of 22%, 56% and 66% respectively. 

Given such returns, analysts have flagged concerns over the current stretched valuation levels of these indices and believe that they are unlikely to see further expansion of multiples.

According to an analysis by HDFC Securities, all three indices seem overvalued at the aggregate level advocating bottom-up stock picking for future returns from here.

Read here: Nifty 50, midcap, smallcap indices, most sectors overvalued, says HDFC Securities; advocates bottom-up stock picking

Meanwhile, HDFC Securities’ Retail Research has named three stocks as its fundamental picks. These stocks are NCC, Talbros Automotive Components and Kovai Medical Center & Hospital.

The brokerage firm suggests investors buying these stocks at current market price (CMP) and add on further dips, expecting a decent upside due to their strong fundamentals and growth potential, for a time horizon of 2 - 3 quarters.

NCC | Buy | TP: ₹248

NCC has a well-diversified order book, robust execution capabilities, strong focus on debt reduction and improvement in working capital. Segment diversity across building, mining, railways, electrical, water & environment is one of the key differentiators at NCC, HDFC Securities noted.

It believes the government’s infrastructure push may have a positive impact on NCC. 

The brokerage expects NCC’s revenue, EBITDA and PAT to grow at a CAGR of 19.9%, 20.8% and 26.9% over FY23-26E. 

“We think the base case fair value of the stock is ₹248 (13x FY26E EPS) and the bull case fair value is ₹267 (14x FY26E EPS) over the next two-three quarters. Investors can buy the stock in the band of ₹223-228 and add more on dips to ₹198-202 band (10.5x FY26E EPS),” HDFC Securities said.

Talbros Automotive Components | Buy | TP: ₹313

Talbros Automotive Components Ltd (TACL) manufactures gaskets and forgings products which are used across the automobile industry as well as in the industrial segment. 

With continuous innovation in new products like heat shields, strengthening EV portfolio, growing orders from non-automotive segments, strong clientele, and manufacturing E20 biofuel hoses, TACL is likely to achieve strong growth, the brokerage firm noted. 

The company is aiming to double its group level revenue to ₹2,100 crore by FY27 led by increasing exports and strong order booking.

The brokerage expects TACL’s Revenue and PAT to grow at 20% and 31% CAGR over FY23-FY26E, led by strong growth in CV and off-road/ tractor segment and realization from the recent order wins. 

It believes investors can buy the stock in the band of ₹283-288 and add on dips in ₹250-255 band (12.5x FY26E EPS) for a base case fair value of ₹313 (15.5x FY26E EPS) and bull case fair value of ₹343 (17x FY26E EPS) over the next 2-3 quarters.

Also Read: Indian stock market: Why you should have SBI, HDFC Bank shares in your stock portfolio?

Kovai Medical Center & Hospital Ltd | Buy | TP: ₹4,311

Kovai Medical Center & Hospital Ltd is well poised to capture the growing potential in the healthcare space in India. Strong revenue growth along with EBITDA margin expansion, improvement in return ratios and moderation in capex are some of the key triggers for the stock, HDFC Securities said.

It estimates 23% revenue and 29% EBITDA CAGR along with strong improvement in RoE and RoCE over FY23-26E. EBITDA margin is likely to remain strong around 28-29% over the next 18-24 months, driven by operating leverage on the back of double-digit revenue growth and shift towards complex surgeries. 

“Despite the fact that operational data available in the public domain is limited, especially from a quarterly basis, we feel that the company can gradually improve the occupancy ratio, revenue and profitability. It is anyway available at a cheaper valuation than its southern peers,” HDFC Securities said.

It suggests investors can buy the stock in the band of ₹3,898 - 3,947 and add more on declines to ₹3,462 for base case target of ₹4,311 and bull case target of ₹4,676 over the next 2-3 quarters.

Catch Stock Market Live Updates here 

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.