Losses in banking and financial services stocks such as Axis Bank, Bajaj Finance, Bajaj Finserv, HDFC Bank, and Kotak Mahindra Bank halted the Indian equity benchmarks' two-day gain streak on Wednesday. ICICI Direct has recommended two bank stocks and one sugar stock for a one-year period.
Buy Dwarikesh Sugar with upside potential of 47%
The brokerage has set a price target on Dwarikesh Sugar of Rs 1,10 with an upside potential of 47%.
- In Q2FY22, DSL reported good revenue and profit growth.
- Due to high domestic quotas and rising sugar prices, sales increased by 21.1 percent year over year.
- EBITDA was Rs 74.7 crore, up 64.1 percent year on year, with margins of 14.8%.
- PAT was 39.6 crore as a result of this (up 123.6 percent YoY).
Target and Valuation
"DSL's share price has gone up 180% in the last five years (from Rs 26 in October 2016 to 75 in October 2021). We expect 3x increase in distillery volumes to boost earnings with CAGR of 39.5% during FY21-24E. We continue to maintain our BUY rating on the stock. Target Price and Valuation: We value the stock at Rs 110, valuing the business at 2.5x FY23 BV," the brokerage has said.
ICICI Direct believes that increased exports, assisted by increased global sugar prices and sugarcane diversion to ethanol, have resulted in decreased sugar inventory and higher domestic sugar prices, boosting operating margins and profits.
Kotak Mahindra Bank- Steady performance; pick-up in advances growth
The firm has given a price target of Rs 2550 on Kotak Mahindra Bank, with a 15 percent upside potential.
- Consistent performance; business growth has accelerated.
- Advances increased by 14.7 percent year on year to 2.35 lakh crore, while deposits increased by 11.5 percent.
- NII growth slows to 3.2 percent year over year, while NIMs fall 5 basis points to 5.45 percent.
- PAT increased by 23.8 percent QoQ to Rs 2032 crore, thanks to steady operations and lower provisioning.
- GNPA fell 37 basis points QoQ to 3.19 percent, with restructured book down 54 basis points.
Target and Valuation
"KMB's share price has grown by ~3x over the past five years (from ~Rs 745 in March 2016 to ~Rs 2210 now). We stay positive on fundamentals expecting healthy business growth ahead. Thus, we maintain our BUY rating Target Price and Valuation: We value standalone bank at ~4.5x FY24E ABV and subsidiaries at Rs 523 post holding company discount giving SOTP target of Rs 2550," the brokerage has said.
ICICI Direct believes that return ratios are driven by a long-term focus on preserving risk-adjusted returns. Comfort comes from steady strained assets combined with a sufficient buffer. Consistent performance over time, healthy return ratios With good management, 1.8-2% RoA, and 12-13 percent RoE support values.
Axis Bank- Gradual loan growth pick-up to aid recovery
The brokerage has given a price target of Rs 970 on Axis Bank, with a 15 percent upside potential.
- The NII increased by 7.8% year over year and 1.8 percent quarter over quarter, while NIMs decreased by 7 basis points to 3.39 percent.
- Provisions are down 60% year over year, yet PAT is up 86% year over year | 3133 crore
- Loans increased by 10.1 percent year on year to 6.2 lakh crore. Retail sales are up 17% year over year.
- GNPA fell 32 basis points from the previous quarter to 3.53 percent. The R/S book is now at 0.64 percent, up 31 basis points.
Target and Valuation
" Axis Bank's share price has given over 65% return in past one year. We believe the bank's healthy capitalisation and provision buffer would aid smooth earnings traction. We retain our BUY rating on the stock. Target Price and Valuation: We value Axis Bank at ~2.4x FY23E ABV and revise target price at Rs 970 from Rs 900 earlier," the brokergae has said.
According to brokerage, strong capitalization (CRAR 19.2 percent, Tier-1 16.7%) to support corporate expansion. Comfort is provided by a healthy cumulative provision of 124 percent GNPA. A stable asset quality performance is a plus. By FY23E, RoA and RoE are expected to reach 1.4 percent and 13 percent, respectively.
The above stocks are 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.