Stocks to buy: Satin Creditcare and ZF Steering Gear - two fundamental stock picks by HDFC Securities

Stocks to buy: The Indian stock market indices, Sensex and Nifty 50, traded lower on Tuesday dragged by selling in private banks, FMCG and pharma stocks. Broader markets outperformed the frontline indices as the midcap and smallcap indices were trading with decent gains.

While the Nifty 50 index has fallen 0.15% this month so far, Nifty Smallcap 100 and Nifty Midcap 100 indices have surged more than 4% each during this period, outperforming the benchmarks.

Market participants are likely to focus on the US Federal Reserve’s interest rate decision and Fed Chair Jerome Powell’s commentary which will likely influence the Foreign Institutional Investors’ (FII) strategy. Moreover, expectations regarding the Union Budget 2024 will also guide the market. 

HDFC Securities’ Retail Research has two smallcap stocks, Satin Creditcare Network and ZF Steering Gear (India) as its Fundamental Picks. The brokerage firm believes investors can buy these stocks and add on dips to get decent returns within a time horizon of 2-3 quarters.

Also Read: Budget 2024: Market may be volatile on Feb 1, reduce weight selectively, says Deepak Jasani of HDFC Securities

Satin Creditcare Network | Buy | TP: ₹279

Satin Creditcare Network has successfully navigated challenges and remains focused on its growth prospects over the near and the long-term. Post the strong performance by the company in Q2, HDFC Securities has tweaked its estimates. 

The company saw an improvement in its profitability metrics in H1FY24, after witnessing weak profitability in the past three fiscals due to the Covid-19 pandemic induced impact on its operations and asset quality. The improvement was on account of the increase in the net interest margin (NIM), driven by higher yields and lower credit costs, given the reduction in delinquencies. 

Satin Creditcare Network currently trades at 0.8x FY26E P/ABV which is attractive given the potential in the coming years, according to HDFC Securities. It has valued the company at 0.88x FY26E ABV for a base case target of ₹279 and 0.95x FY26E ABV for a bull case target of ₹303 over next 2-3 quarters. Investors can buy the stock in the band of ₹251-257 and add on dips in ₹221-225 for a time horizon of 2-3 quarters, it said.

Also Read: Buy or sell: Ruchit Jain recommends these two stocks to buy this week

ZF Steering Gear (India) | Buy | TP: ₹1,022

ZF Steering Gear (India) Ltd. (ZFI) is a key supplier of steering systems to the Commercial Vehicle (CV) and tractor segments of the automobile industry. Overall, the domestic M&HCV and tractor steering systems market is primarily duopolistic, with ZFI and the Rane Group driving around 90% of the market share. 

HDFC Securities expects ZF Steering Gear’s Revenue, EBITDA and PAT to grow at 12%, 17% and 32% CAGR over FY23-FY26E, led by the improvement in demand scenario for CV and tractors. It expects EBITDA margin to expand by 200 bps to 14.4% and RoE to increase from 6% in FY23 to 11% by FY26E. 

We believe investors can buy the stock in the band of ₹920-940 and add on dips in ₹825-845 band (13.25x FY26E EPS) for a base case fair value of ₹1,022 (16.25x FY26E EPS) and bull case fair value of ₹1,100 (17.5x FY25E EPS) over the next 2-3 quarters, HDFC Securities said.

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