As the headline indices gain by over 1 percent on December 2, 2021 and there is seen stock specific action amid expiry induced volatility, brokerage firm ICICI Direct has listed out 2 stocks to buy for the 3 months investment horizon and upside of up to 12 percent.
Notably the 2 recommended scrips from different segments are listed below along with the rationale as specified by the brokerage.
1. Greaves Cotton: Buy for 3 months for a target price of Rs. 170
For the engineering company, the brokerage firm has set out a target price of Rs. 170. The price at the time of recommendation has been Rs. 147. The stop loss suggested for the investment call is Rs. 131.
Considering the current pricing of Rs. 156.5 per share, the upside for potential investors in the scrip shall be 9 percent. Remember buying in the scrip is suggested at price levels of between Rs. 143-147.
Greaves Cotton technicals:
"The BSE capital good index continue to gain from strength to strength while maintaining higher high-low in all time frame after registering a resolute breakout from 13 year's broader range in August 2021 exhibiting structural turnaround. One of the preferred pick within the midcap capital goods space is Greaves Cotton as it is currently placed at major value area and has already seen a healthy base formation. Volumes has also started rising in last two weeks with last two weeks volume almost double of 60 weeks average volume of 1.2 cr per week highlighting larger participation. The stock has recently registered a breakout above the triangular consolidation and is seen sustaining above the same signalling strength", says the brokerage.
Fundamental view on Greaves Cotton
Weak Q2fy22 earnings amid disruptions
Standalone revenues at the firm declined YoY to Rs. 284 crore. Consolidated revenue however logged a surge of 13.4 percent YoY to Rs. 373.5 crore. E-mobility segment revenue growth more than doubled to Rs. 89.5 crore. Nonetheless, inspite of the revenue growth in EV segment, EBIT losses increased from Rs. 4.9 crore in Q2FY21 to Rs. 19 crore in Q2FY22 owing to higher contribution. The company reported standalone adjusted PAT of Rs. 0.5 crore vs. Rs. 3.4 crore in Q2FY21. The company reported exceptional items worth Rs.10.7 crore during the period toward profit on sale of immovable properties & PPE, factory relocation expenses
"E-mobility is expected to drive future growth (~12% of FY21 revenue). Going forward, Transformation strategy to increase E-mobility and new-initiatives business share to drive long term growth and help transform and de-risk its business. Consolidation of manufacturing operations into Megasites to bring higher operational efficiencies and reduced fixed costs in the long run. We expect revenue, EBITDA to grow at CAGR of ~18.5%, 47.3%, respectively, in FY21-23E on a very low base amid pandemic impact", said the research firm.
Greaves Cotton (Greaves) is a top diversified engineering company with a presence in automotive, nonautomotive, aftermarket, retail, electric mobility solution and finance.
2. Asian Paints: Buy Asian Paints for a price target of Rs. 3570
For the paint company- Asian Paint, the brokerage anticipates a target price of Rs. 3570 that considering the last traded price of Rs. 3179.5, implies an upside of 12 percent.
For the scrip, the buying is suggested at levels of between Rs. 3160-3200 with a stop loss maintained at Rs. 2989.
Technicals on the scrip of Asian Paints
"The stock is in a well established uptrend and has generated stable returns for long term investors on a consistent basis over the past many years. It has seen decent correction over the last two months and approached maturity of price/time wise correction. It is seen rebounding from the value area of Rs.. 2900-3000. The current fall in crude oil prices also provides support to the bullish stance, thus providing a good entry opportunity. The stock is seen to offer favourable risk/reward ratio. We expect the stock to maintain positive bias and head higher towards Rs. 3570 levels as it is the 123.6% external retracement of the entire correction (Rs. 3505-2858)", says the brokerage report.
Fundamental view on Asian Paints
"Despite loss of sales in FY21, Asian Paints reported strong volume growth of 13% making up the 38% volume loss that occurred in Q1 due to lockdown. This shows its brand strength and deep penetration. For FY21-24E, we believe the company will record revenue, PAT CAGR of 19%, 16%, respectively. The balance sheet condition of the company has remained robust with cash surplus status and RoE, RoCE of 25%, 30%, respectively. The dividend payout was higher at 56% in FY21". The company is also seen to be the top beneficiary of increasing paint penetration in the country.
The company is the leading paint entity and indeed ranked as the top 10 decorative coatings company globally with consolidated turnover of around Rs. 22000 crore in the FY21.
Disclaimer The stocks listed are taken from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.