Buy These 3 Stocks For Good Long-Term Returns

Buy Hindalco for 25% returns, says Motilal Oswal

The broking firm sees an upside of nearly 25% in the stock of Hindalco. The stock trades at 4.8x/5.8x our FY23/FY24 EV/EBITDA estimate, according to Motilal Oswal. Novelis has reduced its net debt/EBITDA ratio to 2.3x from 3.8x in the last seven quarters, driven by strong operating cash flows.

"Novelis is the largest secondary aluminum producer and the largest aluminum recycling company globally. Hindalco is one of the lowest-cost producers of alumina at its Utkal refinery. The same has been fully ramped up, driving costs down further. We retain our Buy rating with an increased SoTP-based target price of Rs 750 per share (from Rs 700 earlier). The key downside risk to our call is a slowdown in China. A sharp reduction in LME prices will impact Hindalco's capex plans adversely," the brokerage has said.

The shares of Hindalco were last seen trading at Rs 578.

Axis Bank

Motilal Oswal also sees an upside of almost 24% in the stock of Axis Bank from the current levels.According to the brokerage, the acquisition of Citibank's Consumer business will add 2.6m Credit Cards to Axis Bank's outstanding cards.

"It will increase its market share by 3.6% to 15.6%. While synergies in terms of cost savings and RoA accretion will take more than two years to accrue, the deal, at 18.7x P/E on CY20 normalized earnings, makes limited economic sense from medium term perspective given the declining revenue profile /cards base of Citi's business, higher capital charge and high integration cost to be absorbed over the next 2 years. However, over the long term, the success of deal would depend on how well Axis Bank is able to cross sell its entire bouquet of banking products to Citi customers and also gain from Citi's well recognized digital and operation processes. CET I ratio is likely to moderate by 230bp to 13%, the lowest in the past three years, and may necessitate another round of capital raise over FY23. However, the small acquisition size (4% of loans) will limit the impact on overall profitability (integration cost of Rs 15 billion to be incurred over two years). We maintain our Buy rating, but reduce our target price to Rs 930 per share (2x FY24E P/ABV for the standalone bank)," the brokerage has said.

Shares of Axis Bank were last trading at Rs 758 on the NSE.

ACC

Brokerage firm , Motilal Oswal also has a buy call on the stock of ACC. Coal and petcoke prices remained volatile (current South African coal price is at USD260/t v/s peak of USD460/t in Mar'22 and average consumption price is at USD155-160/t for most of the companies in 3QFY22). The prices, however, are likely to cool down. The companies are also trying to take price hikes that will ease concerns of a steep margin contraction going forward.

"We maintain our buy rating on ACC with a target price of Rs 2,470 (premised on 11x CY23E EV/EBITDA), implying an upside of 15% from the current level," the brokerage has said.