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1 Large-Cap And Small-Cap Stock To Buy As Suggested By ICICI Securities

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Domestic markets opened higher on Tuesday morning, with key indices reaching new all-time highs. The S&P BSE Sensex rose 0.60 percent to open the day above 62,100 for the first time ever. Amid strong momentum, ICICI Direct recommends Hindalco and Tata Metaliks, two large and small category stocks, respectively.

 

Buy Hindalco with upside potential of 20%

Buy Hindalco with upside potential of 20%

Hindalco is the world's largest aluminum corporation in terms of sales, as well as a major copper player. Novelis, the company's fully owned subsidiary, is the world's largest manufacturer of aluminum beverage can stock.

From the current market price of Rs 543, ICICI Direct sees an almost 20% upside in the shares of Hindalco. The stock has a target price of Rs 650 set by the firm.

"Hindalco's share price has grown by ~3.5x over the last five years. We maintain our BUY rating on the stock. Target Price and Valuation: We value Hindalco at Rs 650, based on SoTP valuation", the brokerage has said.

Hindalco- Strength in aluminium prices augurs well
 

Hindalco- Strength in aluminium prices augurs well

Why one should consider Hildalco?

According to the brokerage, Hindalco's prospects are bright, thanks to high aluminium prices and a strong performance from Novelis.

  • During the current calendar year, global aluminium prices on the LME have risen dramatically. Aluminium prices on the London Metal Exchange (LME) climbed by 55 percent from US$2028/tonne on January 4, 2021 to US$3149/tonne on October 15, 2021.
  • Increased aluminium prices bode well for an integrated player like Hindalco (domestic operations).
  • Novelis has been reporting strong results in recent quarters, which has helped Hindalco's overall performance.

Key triggers for future price-performance:

Over the previous few quarters, global aluminium prices have risen sharply, and Hindalco is well positioned to capitalise.

Going forward, we project Hindalco's consolidated sales to expand at a CAGR of 16.8% between FY21 and FY23E, while EBITDA and PAT will likely grow at 26.3 percent and 58.1 percent, respectively.

Buy Tata Metaliks with upside potential of 20%

Buy Tata Metaliks with upside potential of 20%

Tata Metaliks (TML) is a Tata Steel subsidiary that was founded in 1990. TML has pig iron and ductile iron (DI) pipes manufacturing operations in Kharagpur, West Bengal.

ICICI Direct expects Tata Metaliks's stock to rise over 20% from its current market price of Rs 1080. The brokerage has set a target price of Rs 1300 for the stock.

"Tata Metaliks' share price has grown by ~2.5x over the past five years. We continue to remain positive and retain our BUY rating on the stock. Target Price and Valuation: We value TML at Rs 1300 i.e. 7x FY23E EV/EBITDA," the brokerage has said.

Tata Metaliks- Long term story remains intact

Tata Metaliks- Long term story remains intact

Q2FY22 Results of Tata Metaliks

TML's operational performance in Q2FY22 was low, owing to higher-than-expected operating costs.

TML reported sales of Rs 645 crore, up 24% year on year and 7% quarter on quarter.

EBITDA was Rs 100 crore, down 9% year on year and 35% quarter on quarter. EBITDA margin was 15.5 percent, down 560 basis points year over year and 1000 basis points quarter over quarter.

Due to higher iron ore costs (due to increased royalty) and higher coking coal costs, EBITDA and EBITDA margin were muted throughout the quarter.

The resulting PAT was worth Rs 55 crores (down 33 percent YoY and 42 percent QoQ)

Key triggers for future price-performance:

In Q4FY22, the first phase of DI pipe capacity expansion (of 1 lakh tonnes) is expected to be completed.

The second phase (of 1 lakh tonnes) is expected to be completed in Q4FY23. TML's DI capacity would be doubled after both stages are completed, from 2 lakh tonnes to 4 lakh tonnes.

Disclaimer

Disclaimer

The above 2 stocks to buy are picked from the report of ICICI Securities. 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.

Story first published: Tuesday, October 19, 2021, 11:39 [IST]
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