1 Large Cap Insurance & 1 Small Cap Textile Stock To Buy Post Their Q3FY22 Results

HDFC Life Insurance and Gokaldas Exports both have given a buy call from brokerage company ICICI Direct. The brokerage has set a target price of Rs. 800 for HDFC Life Insurance, a large-cap company, and Rs. 480 for Gokaldas Exports, a small-cap textile company. Both stocks are expected to reach their target price within a year, according to the brokerage.

HDFC Life Insurance

ICICI Direct has said in a report that "HDFC Life's share price has grown by ~2x over the past four years. We retain our BUY rating on the stock. We value HDFC Life at 3.4x FY24E EV with TP of Rs 800."

Q3FY22 results according to ICICI Direct

• Gross premium grew at a healthy pace of 27% YoY to Rs 12255 crore.
• Value of new business (VNB) margins remained healthy at 26.5%, aided by a balanced product mix.
• Continued moderation in Covid claims; provision buffer at Rs 105 crore.
• Profit After Tax (PAT) at Rs 274 crore; up 3% YoY, impacted by lower investment income.

Key triggers for future price performance of HDFC Life according to the brokerage

• Moderation in Covid claims & buffer to aid VNB margin at ~26% ahead.
• New product launch and select growth to aid business growth.
• A strong distribution network remains core to maintain business momentum.
• Approval from the Insurance Regulatory and Development Authority (IRDA), Competition Commission of India (CCI) for the merger of Exide Life is expected in Q4FY22.

Gokaldas Exports Ltd (GEL)

According to the brokerage "Since our initiation report, the stock price has appreciated ~6x (from Rs 60 in September 2020 to Rs 370 in January 2022). We like GEL as a structural long term story to play in the apparel export space. We maintain a BUY recommendation on the stock. We value GEL at Rs 480 i.e. 20x FY24E EPS."

Q3FY22 results of GEL as per ICICI Direct

• GEL reported its best quarterly performance driven by healthy demand for apparel in the US apparel market.
• On a high base of Q2FY22, sales grew 17% QoQ (up 97% YoY) to Rs 520.7 crore (highest quarterly revenue).
• On a QoQ basis, the company maintained its gross margin levels at 49.7% (down 560 bps YoY). Despite higher operating expenses (OPEX), GEL delivered strong earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin of 11.4% (Q2FY22: 11.7%, Q3FY21: 7.9%).
• Profit before tax (PBT) grew 36% QoQ (up 6x YoY) to Rs 38.7 crore.

Key triggers for future price performance of GEL according to the brokerage

• Production is currently running at peak utilisation levels with a robust order book for the next six months.
• Charted out capital expenditures (CAPEX) of Rs 340 crore over the next four years (by FY25E), which will have the potential to generate incremental revenues worth ~Rs 1300 crore.
• GEL is planning to backward integrate and start a fabric processing unit for knitted segments with a CAPEX of Rs 100 crore. The management believes the knits market is growing faster than the woven market (97% of sales). It provides an immense opportunity to diversify its product offering.
• With the recent fundraise (qualified institutional placement (QIP): Rs 340 crore), the company has strengthened its balance sheet with repayment of ~Rs 240 crore debt, post which GEL has become net debt-free (net cash surplus: Rs 71 crore).
• Enhanced government focus on apparel exports and China +1 strategy of global brands provide long term growth opportunities for players like GEL.

Disclaimer

The stocks have been picked 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.