Indian Indices despite mixed global cues are notching fresh highs every other day. In the previous trading session, weighed by drag on metal, banking and realty pack among others, Sensex failed to hold its all time high levels of 56,000 points. Nonetheless experts are of the view that every dip is an opportunity to buy the large cap as they might lead the next leg of rally. So, considering the possible run up in large caps, here we list out 2 one such large cap stock pick of HDFC Securities and 2 other Real Estate sector stocks for possible upside of up to 28%.
HDFC Securities is bullish on the oil drilling and exploration major, ONGC and has set a target of Rs. 143, implying gains of over 26% from the last traded price as on the closing price of August 18, 2021 of Rs. 113.2.
Rationale for the 'Buy' on ONGC
Increase in crude price realisation as also improvement in domestic gas price realisation (at USD 2.5/mmbtu). Given the global recovery post Covid, the brokerage firm expects oil price realisation to increase to around USD 59/bbl in FY22E and USD 61/bbl in FY23E as against USD 44/bbl in FY21.
Q1FY22 performance fell short of estimates
Revenue, EBITDA all came in lower than estimates also APAT at the firm came in down by 15% as against expectations owing to higher-thanexpected employee cost, higher-than-expected depreciation, lower-thanexpected other income and higher tax rate, partially offset by lower-thanexpected other expenses and exploration cost.
Key highlights of the Con call as mentioned by the brokerage
(1) Capex target for FY22 is around INR 295-325bn.
(2)OPAL operated at approximately 87% capacity in Q1 and generated a profit of INR 650mn.
(3) Gas production target for FY22 is 24.79bcm and for FY23 24.7-27.3 bcm.
(4) Peak production from KG 98/2 field is estimated around 14.5mmscmd.
"We value ONGC's standalone business at INR 112 and its investments at INR 31. The stock is currently trading at 3.9x FY23E EPS", said the brokerage report.
|ONGC price at the time of recommendation||115.5|
|Last traded price as on the closing of August 18, 2021||113.2|
2. Dilip Buildcon:
For Dilip Buildcon, a civil construction and contracting company, HDFC Securities has maintained its previous ‘Buy' rating and at the same time raised its price target from Rs. 640 to Rs. 669, implying gains of over 28% from the last traded price of Rs. 522.2.
Revenue at the firm came in as per estimates but EBITDA and APAT saw a drag owing to higher input cost and fixed costs under absorption. For FY22, the civil construction major has guided an order inflow (OI) of RS. 100-120bn and revenue of Rs.100-150bn with 15- 15.5% EBITDA margin.
Asset monetization will help the company reduce debt
Sequentially, the company registered an increase in debt but the same is expected to reduce by Rs. 8 billion on the back of proceeds from asset monetisation in FY22 (RS. 10bn). There is no expectations around receipt of early completion bonus for this year end given the fact that NHAI is tightening the timelines.
"We maintain BUY, with an increased target price of RS. 669/sh (roll forward to Jun-23E), given its (1) diversified and robust OB (~2.7x FY21 revenue) and (2) higher proceeds from asset recycling than estimated in Q4FY21", said the brokerage in its report.
|Dilip Buildcon price at the time of recommendation||509.9|
|Last traded price as on the closing of August 18, 2021||522.1|
HDFC Securities for the South-based real estate major, Sobha Ltd., has given a ‘BUY' rating and at the same time raised its target price from the earlier Rs. 580 to Rs. 690.
Sobha's q1Fy22 remain subdued
Pre-sales volume registered gains on a YoY basis but declined sequentially and the same was seen for pre-sales value. Collections also slipped. Notably the positives that cannot be ignored are strong launch pipeline especially in Bengaluru. Further to lessen the impact of commodity inflation and protect margins, the company has withdrawn discounts and in fact went for raising prices for some of the projects.
Net debt which lessened QoQ will further be reduced given a host of positives such as pick up in sales momentum, forthcoming launches, and a stable pricing environment. "We roll forward our valuation to Sep-23; with a large part of launches coming in from the existing land bank, we increase our land valuation. We maintain BUY on Sobha Ltd. with an increased target price of Rs. 690/share versus Rs. 580/share earlier. We retain our financial estimates, given largely an in-line performance", added the brokerage report.
Land monetization to provide a value boost to the company
Pre-sales picked up in cities including Gurugram, Kochi, Thrissur and Pune on a YoY basis, while Bengaluru dominated in terms of bookings. "Sobha expects to monetise the Hoskote land bank in 2-3 years and expects it to be a key positive for the company"., said the report.
Balance sheet not a worry
Net debt at the company has been on a decline with net Debt/Equity at 1.15x (1.17x on Mar21). The average borrowing cost also registered a decline to 8.98% from 9.04% in Q4FY21. The expected cash flow from current ongoing and completed projects stands at Rs. 75.1 billion.
|Sobha Ltd. price at the time of recommendation||596.55|
|Last traded price as on the closing of August 18, 2021||586.45|
The stocks for gain up to 28% are taken for the purpose of information only and need not be construed as investment advice. The company nor the author will be liable for any losses met for any investment call taken based on the above report.