1 Auto Ancillary And 1 NBFC Stock To Buy After Q4Fy22 Results: ICICI Direct

Buy Mahindra CIE Automotive for a target price of Rs. 275 for 12 months

Mahindra CIE (MCI), part of the Spain-based CIE Automotive Group, is a multi-technology, multi-product automotive component supplier. The company's total revenue mix comes from Europe and India. Forgings typically account for close to 60% of the company's consolidated sale.

Q1CY22 Results: MCI posted healthy Q1CY22 results

Consolidated net sales came in at Rs. 2,558 crore, up 25% QoQ. EBITDA margins were at 11.5%, up 170 bps QoQ. PAT at the company nearly doubled QoQ at Rs. 161.4 crore

View on the stock as per the brokerage

The brokerage maintains its 'BUY', tracking portfolio attributes i.e. strong CFO, FCF yields(~11%, 5%, respectively) & ex-goodwill healthy return ratios (RoIC: ~30%)

 

Target Price and Valuation:

Rolling over our valuation to CY23E, we now value MCI at 8x CY23E EV/EBITDA for revised target of Rs. 275 (earlier target: Rs.245).

Key triggers for future price performance:

Sales seen to grow at a CAGR of 8.4% over CY21-23E, led primarily by growth in the Indian business.

Efficiency efforts to report margin uptick to 12.4% by CY23E with CY23E

EPS seen at ~Rs. 18.3/share with consequent RoCE at around 12% by CY23E.

Constant effort to de-risk base business amid global thrust on electrification with order book gaining traction in EV specific as well as EV neutral products.

Alternate stock idea:

Within the auto ancillary space, the brokerage also likes Apollo Tyres and recommend it as a 'Buy' for a target price of Rs. 270. The rationale for a buy on the stock is the company stands to benefit from the CV revival and is focused on debt reduction, higher return ratios

Buy Bajaj Finance for a target of Rs. 9500 for 12 months:

The buy on the stock is recommended and given the current price of Rs. 7241, it implies a chance to make 21% probable gains in the next 1 year. Bajaj Finance is a dominant players in the consumer finance space and has within some time got a good presence even in the housing finance space.

"Bajaj Finance maintained strong operating metrics over various credit and rate cycles leading to >18% RoE and >3.5% RoA consistently", said the brokerage report.

Q4FY22 Results: Healthy business momentum, improved asset quality

Strong NII growth at 30% YoY largely in line with estimates at Rs. 6064 crore. C/I steady to 34.6% vs. 34.7% QoQ as costs were controlled GNPA, NNPA ratio declined to 1.60%, 0.68%, respectively, in Q4FY22PAT  grew 80% YoY and 14% QoQ to Rs 2420 crore

Brokerage's viewpoint on the Bajaj Finance stock

"We believe since the fin-tech story is embedded in this business, valuations should stay at premium. The digital web platform, similar to app is the new strategy in FY23. We raise PAT estimates for FY24 by 17.8%".

Target Price and Valuation: The core business has got potential and is well on track to get transformed into an adaptable new age fin-tech. No plans to convert to a bank on immediate basis. Maintain TP of Rs. 9500 by valuing at ~8.4x FY24E ABV.

Key triggers for future price performance:

Digital transformation with robust customer additions and wallets to boost profitability factoring initial cashbacks as part of opex, no impact on profit.

Asset quality performance continues to improve

RoE at ~18% and RoA at >3.5%

Alternate Stock Idea:

Brokerage is also bullish on the counter of HDFC.

"HDFC Ltd is the largest housing finance company in India with AUM of Rs. 5.2 lakh crore. With housing demand picking up, we believe HDFC would be the largest beneficiary of the same. We have a BUY rating with a target price of Rs. 3350 per share", adds the report.

Disclaimer:

The stocks mentioned above are taken from the brokerage report of ICICI Direct. Readers should not construe the report as an investment advice into these stocks.