1 Industrial, 1 Insurance & 1 NBFC Stock To Buy For Good Potential Upside

Markets are continuing to tumble, resulting in extreme stock market volatility. The Nifty fell below 17,000 in the closing session on April 25th, 2022, while the Sensex fell 617 points. Amid geopolitical tension and growing covid instances, the volatility in the equity market may continue. However, the brokerage company ICICI Securities has identified three stocks with a buy recommendation for excellent potential upside in 1 year following Q4 results.

PCBL Ltd

The brokerage has said "PCBL has been one of our early finds wherein it grew ~3x in the past five years (~Rs 40 in April 2017 to ~Rs 120 as of April 2022). We maintain our positive view and retain BUY rating on the stock. Revising our estimates and rolling over valuations to FY24E, we value PCBL at unchanged target price of Rs 160 i.e. 12x P/E on FY24E EPS."

Q4FY22 results of PCBL as per ICICI-Sec

• Net sales for Q4FY22 were at Rs 1219 crore, up 5% QoQ, primarily driven by 10% QoQ growth in carbon black realisations at ~Rs 106/kg amid ~4% QoQ drop in sales volumes at 112 KT. Speciality grade volumes - 9,350 tonne.
• EBITDA in Q4FY22 was at Rs 137 crore with EBITDA/tonne at ~Rs 12,167/tonne. PAT for the quarter came in at Rs 90 crore, down 19% QoQ.
• For FY22, total carbon black sales volume was at 454 KT, up 17% YoY with EBITDA at Rs 656 crore (up 26% YoY) and PAT at Rs 427 crore (up 37% YoY).

Key investment rationale according to ICICI Securities

• Healthy double digit growth on anvil. We expect sales, PAT to grow at 26%, 17%, CAGR, respectively, in FY21-24E, building in 11.4% volume CAGR.
• With greenfield expansion (~150 KT) under execution and successful strides made in the speciality carbon black domain, long term growth prospects are robust amid limited competition in overseas markets.
• Trades at inexpensive valuation of less than 10x P/E on FY23E EPS of ~Rs 11.8/share.

ICICI Lombard General Insurance

ICICI Securities has said "Since our initiation in March 2022, the stock has moved up by just over 10%. We believe long term sustainable growth opportunity and market leadership along with focus on digital adoption provides a good opportunity to invest. We maintain our BUY rating on the stock. We continue to value ICICI Lombard at 3x FY24E premium (50% weight), 1.5x FY24E float (50% weight) and maintain our target price of Rs 1550 per share."

Q4FY22 results of ICICI Lombard General Insurance as per ICICI Securities

• Gross direct premium growth was 4.5% QoQ to Rs 5000 crore.
• Commissions declined 21% QoQ to Rs 160 crore while claims increased 4% sequentially to Rs 2389 crore.
• Combined ratio fell 130 bps QoQ to 103.2%; underwriting loss at Rs 309 crore.
• Overall PAT came in at Rs 312 crore, down 9.6% YoY and 1.6% QoQ.

Key investment rationale as per ICICI-Sec

• Indian non-life insurance is highly under penetrated.
• Shift in focus towards market share; open to lower RoE.
• Combined ratio to take precedence on loss ratio in business selection.
• Investment in digital and agency channel to aid distribution strength and business growth.

Aditya Birla Capital

The brokerage firm ICICI Securities has said "Aditya Birla Capital's (ABCL) Board, based on the NRC recommendations, has approved appointment of Ms. Vishakha Mulye (ED, ICICI Bank) as CEO. Mr. Ajay Srivinasan (current CEO) shall be taking up another role in Aditya Birla Group. Ms. Mulye will join on 1 st Jun'22 and operate as CEO (designate) with an overlap of one month with Mr. Ajay Srinivasan to ensure smooth transition. We believe further push and acceleration in the group's structural strategy of rebalancing its NBFC portfolio (in favour of retail + SME) and its HFC portfolio (towards affordable segment + informal segment) will imbibe confidence."

"ABCL's earnings trajectory reflects superior and quality operating performance led by its strategy of granularisation, retailisation and diversification within business segments. Further franchise investment, cross-sell/up-sell and leveraging digital and analytics will help the company boost its RoE profile. The stock is currently undervalued and our target price of Rs169 provides significant upside. Maintain BUY," the brokerage has claimed.

Disclaimer

The stocks have been picked from the brokerage report of ICICI Securities. 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.