1 Bluechip Stock, 1 Auto Stock To Buy According To ICICI Securities

On robust global and domestic signals, Indian indexes in trade today achieved new highs on the Nifty of 17951.55, while the Sensex traded with tiny gains of 0.2 percent at 60,181. ICICI Direct in its recent report has highlighted the stocks of Tata Motors and TCS as two of its stock picks for upside potential.

Buy Tata Motors with upside potential of 17%

Tata Motors (TML) is a car manufacturer from the Tata family that operates in both domestic (PV, CV) and international markets (Jaguar Land Rover i.e. JLR).

ICICI Securities recommends buying this auto stock for a target price of Rs. 450 i.e. an upside of 17 percent from the last closing price of Rs. 3,83.

The scrip is recommended to be bought for a 12 months duration.

India volumes picking up pace, EV optimism persists
According to the brokerage, despite continued semiconductor supply difficulties, TML India reported healthy volumes of 1.7 lakh units in Q2FY22, up 49 percent QoQ. The India PV business produced decade-high quarterly sales of 84,000 units in Q2FY22. In Q2FY22, India CV volumes increased by 73 percent year on year to 86,887 units. JLR wholesale volume was 64,032 units in Q2FY22.

India volumes picking up pace, EV optimism persists

According to the brokerage, despite continued semiconductor supply difficulties, TML India reported healthy volumes of 1.7 lakh units in Q2FY22, up 49 percent QoQ. The India PV business produced decade-high quarterly sales of 84,000 units in Q2FY22. In Q2FY22, India CV volumes increased by 73 percent year on year to 86,887 units. JLR wholesale volume was 64,032 units in Q2FY22.

Target and Valuation

"TML's stock price has underperformed Nifty Auto index in past five years, having de-grown at ~9% CAGR (~Rs 555 in October 2016). 

We maintain BUY on continued EV proactiveness. Target Price and Valuation: Retaining our forward estimates, we now value TML at a revised target price of Rs 450 on an SOTP basis (15x, 3.3x FY23E EV/EBITDA on India, JLR businesses, respectively). We revise upwards our target multiples for India business amid continued outperformance at TML India and is in line with its peers", the brokerage has said.

Key triggers for future price-performance:

We anticipate a robust 20.9 percent revenue CAGR from FY21 to FY23E, backed by a 17 percent volume CAGR; margins are expected to be 14.9 percent in FY23E, with a 15 percent RoCE.
FCF generation projections based on cost control and efficiency improvements for the ongoing deleveraging push (net automotive debt of | 41,000 crore in FY21)

Buy TCS with upside potential of 15%

Tata Consultancy Services (TCS) is a significant IT services provider with operations in BFSI, communication, manufacturing, retail, and high technology.

ICICI Securities recommends buying this Bluechip stock for a target price of Rs. 4,530 i.e. an upside of 15 percent from the last closing price of Rs. 3,935. The scrip is recommended to be bought for a 12 months duration.

TCS Q2FY22 Results

Revenues increased 2.9 percent quarter over quarter to $6,333 million, with a 4 percent quarter over quarter increase in CC. EBIT margins improved 10 basis points to 25.6 percent. The company's deal pipeline remains strong at US$7.6 billion.

Target Price and Valuation of TCS

"TCS' share price has grown by ~3.6x over the past five years (from Rs  1,077 in October 2016 to Rs 3,976 levels in October 2021). We continue to remain positive and retain our BUY rating on the stock. Target Price and Valuation: We value TCS at Rs 4,530 i.e. 34x P/E on FY23E EPS, the brokerage has said.

Key triggers for future price-performance:

• TCS has benefited greatly from the multi-year rise (15-20%) in digital technology.
• Increased outsourcing in Europe, vendor consolidation, and deal pipeline will result in a revenue CAGR of 15.9% from FY21 to FY23E. Industry-leading margins will be maintained; expect margins to grow 190 basis points from FY21 to FY23E.
• Return ratios in the double digits, high cash production, and a comfortable dividend

Disclaimer

The above-listed stocks to buy are picked from the brokerage report. Please note investing in stocks is subject to market risks and one needs to be cautious at this point of time as markets have gone up sharply. Neither the author, nor Greynium Information technologies Pvt Ltd would be responsible for losses incurred based on a decision made from this article.