BackZomato, ITC, ICICI Bank, SBI and more: MOSL lists 10 large-cap stocks to buy ahead of general election outcome
The Indian market declined in May due to rising US bond yields, foreign investor outflows, and global uncertainties. Motilal Oswal remains positive, listing 10 large-cap stocks to buy before General Election results, including L&T, SBI, ICICI Bank, Coal India, and Titan.
PremiumThe Indian market has been in the red in May after 3 consecutive months of gains. The decline this month has been on the back of rising US bond yields, continued foreign investor outflows as well as nervousness among investors due to the ongoing global uncertainties amid the Lok Sabha elections.
Overall, brokerage house Motilal Oswal maintains a positive view on the market and believes any dip can be viewed as a buying opportunity for long-term investors. It has listed 10 large-cap stocks that investors can buy in the remainder of this month, ahead of the election results. Let's take a look:
Read here: ‘Market expecting positive end to the elections’
L&T: MOSL noted that the green shoots are visible and the ordering momentum is expected to gather steam in the post-election period and is resulting in valuation re-rating for the entire sector. L&T is focusing on increasing market share by targeting large-sized projects that require high technical qualifications. The brokerage expects consolidated revenue growth of 11% YoY, led by 12% YoY Core E&C revenue growth. A Core E&C EBITDA margin of 9%, up 50bp YoY/130bp QoQ is expected as legacy orders are near completion. L&T’s growth is expected to be driven by 18% growth in order inflows, led by a strong prospect pipeline; and a gradual recovery in core EBITDA margin, it predicted.
SBI: SBI has made a swift recovery in earnings, from a loss of ₹6,500 crore in FY18 to profits of ₹61,100 crore in FY24, highlighted MOSL. It noted that the lender's business growth remained robust, with a healthy recovery in the corporate segment. SBI's asset quality also remained healthy as GNPA improved & slippages moderated. GNPA/NNPA ratios moderated to 2.24% (lowest in >10 years)/0.57% as on 4QFY24, it added. The lender reported a steady quarter with steady growth in revenues, while robust asset quality helped the bank maintain strong control over provisioning expenses. It is well positioned to deliver steady earnings, with FY26E RoA/RoE of 1.1%/18.5%, predicted MOSL.
Read here: Equities or other asset classes? What should you pick ahead of election results
ICICI Bank: ICICI Bank reported a healthy performance in 4QFY24, with 17% YoY growth in net earnings. Credit growth was healthy at 16% YoY/3% QoQ, led by healthy traction in the Retail, SME, and BB segments. Deposit growth surprised positively at 20% YoY. The stable mix of a high-yielding portfolio (Retail/Business Banking) and continued traction in BB, SME, and secured retail drove broad-based growth, which helps to retain healthy business diversification, stated MOSL. The brokerage expects the bank to sustain a ~14% CAGR in PAT over FY24-26E and RoA/RoE of 2.26%/18.0% in FY26.
Coal India: Coal India remains MOSL's top pick in the metals and mining sector. With a robust volume outlook, healthy e-auction premiums, and lower costs, the outlook for COAL remains positive, it said. In Q4, COAL's production stood at 242mt (+8% YoY/+22% QoQ) and dispatches came in at 201mt (+8% YoY/+5% QoQ). COAL supplies 90% of its production to the power sector and thermal power accounts for +80% of total power generated in India. To meet the increasing coal requirements of the power sector, Coal India has made a long-term commitment. It targets to achieve a production of 838mt in FY25, with dispatches under e-auction at 15% of total volumes, noted the brokerage.
Read here: Shankar Sharma's election prediction: No major market movement if BJP wins
Titan: Titan is one of the few consumer companies that have been growing revenue at a steady pace despite the high base and discretionary nature of the product segments. This underscores the superior brand positioning and the prowess of its franchise, said the brokerage. It further added that the firm is on track to achieve the existing jewellery revenue guidance of 2.5x FY22 revenue by FY27, implying an impressive 20% CAGR during the period. The gradual recovery in the studded ratio is expected to support an improved gross margin in the future, stated MOSL. With a current market share of 8% in a sizable ₹5 lakh crore market, there is significant headroom for growth. Titan's healthy growth outlook, favourable industry trends, and strong balance sheet make it a compelling option in the discretionary space. Management expects jewellery EBIT margin to be at 12-13% in FY25, predicted the brokerage.
M&M: As per the brokerage, M&M is on track to achieve a Q4FY24-exit capacity of 49k units per month for SUVs. It expects the SUV portfolio to grow by mid-to-high teens in FY25 vs SIAM’s industry projection of 3-4 percent for overall PVs (passenger vehicles) and 10-12 percent for UVs (utility vehicles). MOSL believes FY25 is likely to witness better growth prospects on the back of a normal festive season and expectations of a healthy monsoon. MM’s auto business is expected to be the key growth driver for the next couple of years on the back of its healthy order backlog and new launches. It estimates a CAGR of 12 percent/15 percent/16 percent in revenue/EBITDA/PAT over FY23-26. However, the near-term outlook for tractors remains weak, it cautioned.
Read here: General Elections 2024: No major impact of polls on equity market, says FidelFolio
Hindalco: MOSL pointed out that Hindalco has undertaken a mammoth $6 bn multi locational-multi product growth capex over a period of the next five years. Meanwhile, Novelis achieved its EBITDA target of USD525/t in Q4 and expects further improvement in the medium term, driven by various operating levers: 1) capacity expansion, 2) favorable pricing, 3) higher recycle content, and 4) operating leverage. Novelis has recently submitted draft papers for IPO with the SEC. The said IPO is expected to be an OFS and will help in value unlocking for the subsidiary. Volume growth across geographies is expected to remain stable going forward. Hindalco expects Novelis to post EBITDA/t of USD600 in the medium to long term, forecasted MOSL.
ITC: The resilient nature of ITC’s core business amid an uncertain environment in the sector, along with a 3-4% dividend yield, makes it a good defensive bet in the ongoing volatile interest rate environment, said MOSL. The performance of other FMCG segments remained resilient, with 7.3% revenue growth. The contribution of digital and modern trade businesses was significant at 31% of revenue. Moreover, the agriculture business is focused on trading, and a new nicotine plant is set to commence operations in Mar’24, it added. The earning CAGR at the PBT level stood at 8.5% over FY18-23. MOSL expects ITC to post a 7% earnings CAGR over FY24-26. Concerns: Rising competitive pressure (local, regional players) and weak demand.
Read here: Lok Sabha Elections 2024: What should investors do amid market volatility?
HCL Tech: The brokerage pointed out that higher exposure to Cloud, which comprises a larger share of non-discretionary spending, offers better resilience to HCL Tech's portfolio in the current context, with higher demand for Cloud, Network, Security, and Digital workplace services. The Q4FY24 new Deal TCV was healthy at $2.3bn. HCLT has retained its margin guidance band of 18-19% for FY25 and aspires for a 19-20% margin in the longer run. Given its capabilities in the IMS and Digital space, along with strategic partnerships and investments in Cloud, MOSL expects HCLT to emerge stronger on the back of healthy demand for these services in the medium term. It sees an FY25 EBIT margin of 18.6%, which should translate into an INR PAT CAGR of 12.8% over FY24-26.
Zomato: MOSL remains positive on the long-term growth opportunity for Zomato and does not expect competition to intensify further despite the entry of ONDC in the space. Zomato retained Blinkit’s Adj. EBITDA break-even guidance on or before Q1FY25. Zomato is expected to deliver a strong 70%/41% YoY growth in FY24/FY25, with Blinkit outpacing the food delivery business because of geographical expansion, improvement in order frequency, and moderation in a competitive environment in the quick commerce industry, it said. After turning positive at the margin level in 3Q, MOSL now estimates Zomato to deliver a 4.5%/10.0% EBITDA margin in FY25E/FY26. MOSL further noted that the food delivery business is still in a nascent stage in India, with a long runway for growth. With a dominant market share and strong growth in the food delivery business and Hyperpure, it expects Zomato to report a strong 38% Adj. revenue CAGR over FY24-26.
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.
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