1 Finance, 1 Hotel And 1 Auto Ancillary Stocks To Buy According To ICICI Securities

Buy Indian Energy Exchange with upside of 18%

The Indian Energy Exchange (IEX) is the country's leading electrical exchange, facilitating electricity transactions.

Long term outlook positive

ICICI Securities recommends buying this finance stock for a target price of Rs. 910 i.e. an upside of 18 percent from the last closing price of Rs. 770.

Target Price and Valuation of Indian Energy Exchange

"For the past year, IEX has remained richly valued given its clean balance sheet, near monopoly, regulatory tailwinds and introduction of newer products, which will drive strong double-digit volume growth in the medium term. We continue to remain positive and retain our BUY rating on the stock. Target Price and Valuation: We value IEX at Rs 910 i.e. 58x P/E on FY24E EPS," the brokerage has said.

Reasons to consider: 

• After the Supreme Court resolved a dispute between the Central Energy Regulatory Commission (CERC) and the Securities and Exchange Board of India (Sebi), electricity can now be traded on exchanges like other commodities, with forwarding contracts and derivatives.
• This agreement will pave the way for the implementation of longer-term delivery contracts on electricity exchanges, with IEX as a beneficiary.
• This will increase volumes while also introducing new products to the market.
• From FY24E onwards, a shift in power buying patterns from power purchase agreements (PPAs) to the short-term market, facilitated by MBED, is likely to result in a significant increase in volumes. This can help power exchanges like IEX gain traction in terms of volume growth.

Buy Motherson Sumi with upside potential of 17%

Motherson Sumi (MSS) primarily serves the global PV industry with key product lines such as wiring harnesses, vision systems (mirrors), and plastic body parts.

ICICI Securities recommends buying this Auto Ancillary stock for a target price of Rs. 280 i.e. an upside of 17 percent from the last closing price of Rs. 240.

Reasons to consider:

• CIM Tools, a Bengaluru-based company that specialises in machining, treatment, sub-assembly, and testing of intricate aircraft parts, was acquired for a 55 percent interest. It had sales of Rs 129 crore in FY21and a backlog of orders worth >Rs  1,500 crore that can be fulfilled over the following five years.
• Through its 50:50 JV Ningbo SMR Huaxiang Automotive Mirrors, the company's SMR subsidiary purchased a 60 percent stake in Nanchang JMCG Mekra Lang Vehicle Mirror Co. in China. In China, the latter produces mirrors for PVs, pickup trucks, and light and heavy CVs. The acquisition was carried out at a rate of 0.4x CY20 P/S.
• This company provides parts to automakers such as Ford and Isuzu.

Target Price and Valuation of Motherson Sumi

"MSS stock price has grown at ~10% CAGR from ~| 147 levels in October 2016, widely outperforming the Nifty Auto index. MSSL's acquisition in the aerospace is strategic in nature wherein MSSL will now have access to marquee clients (Airbus, Boeing) in this space amid enhanced capabilities. This represents progress on outlined MSSL's desire for diversification (non-automotive to form 25% of revenues in future). We retain BUY rating on the stock amid limited EV risk to its product profile.

Target Price and Valuation: Revising our forward estimates, we now value MSSL at Rs 280 i.e.30x P/E on FY23E EPS of Rs 9.3 (previous target price of Rs 270)," the brokerage has said.

Buy Indian Hotels with upside potential of 16%

Indian Hotels, with a room inventory of 19,425 rooms, has a diverse presence in the hotel sector, including brands such as Taj, Vivanta, SeleQtions, and Ginger.

ICICI Securities recommends buying this hotel stock for a target price of Rs. 240 i.e. an upside of 16 percent from the last closing price of Rs. 207.

Reasons to consider according to brokerage

• In the leisure destinations, the company is seeing a lot of demand for rooms. Some leisure destinations' revenue per occupied room (RevPAR) has already surpassed pre-pandemic levels, indicating a positive trend along with an increase in the average length of stay from two to four days to five to seven days.
• From Q2 onwards, the corporate category, which had been a laggard due to the work-from-home culture until Q1FY22, is gaining traction.
• International destinations such as the United States, the United Kingdom, and Dubai are rebounding, with demand reaching 55-60% of pre-Covid levels in Q2 compared to 39% in Q1FY22.

Target Price and Valuation of Indian Hotels

"The balance sheet provides strong levers to growth while efficient operations would drive healthy margin expansion. We remain positive on the company and maintain our BUY rating. Target Price and Valuation: We value IHCL at Rs 240 i.e.31x FY23E EV/EBITDA," the brokerage said.

Over FY21-23E, we anticipate a solid 62.9 percent revenue CAGR. Expect business to rebound to 93 percent of pre-Covid levels in FY23E, with EBITDA exceeding pre-Covid levels in FY23; margins to reach above 24 percent in FY23E, with the potential to reach 30 percent or higher. Improved cash flows, equity infusion, and disposal of non-core assets are all helping to keep debt under control.

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.