2 BSE 500 Stocks To Buy With Potential To Rally & For Dividends of 240% & 550%

Voltas and Grindwell Norton, two BSE-500 listed companies have released their Q4FY22 results and proposed a dividend to shareholders. For the financial year 2021-22, Voltas' directors have recommended a dividend of Rs. 5.50 per share on a face value of Re.1 per share (550 per cent), whereas Grindwell Norton's directors have recommended a dividend of Rs. 12/- per equity share (240 per cent) of Rs. 5/each. Both stocks have received a buy call rating from brokerage firms which investors can take a look at.

Grindwell Norton (GNL)

For the shares of Grindwell Norton, the brokerage firm ICICI Securities has said in its latest report that "Going forward, accelerated growth in performance plastics & ceramics and exports are expected to drive long term incremental growth. We remain long term positive and change our rating on the stock from HOLD to BUY. We value GNL at Rs 1908 i.e. 50x P/E on FY24E EPS."

Q4FY22 results of Grindwell Norton according to the brokerage

• Revenues came in at Rs 558.9 crore, up 9.8% YoY owing to better demand.
• EBITDA in Q4FY22 came in at Rs 123.6 crore, up 9.4% YoY with margins at 22.1% with improved gross margins.
• Consequently, PAT grew 12.5% YoY to Rs 90.6 crore.

Key investment rationale for Grindwell Norton as per ICICI Securities

• Ambition to maintain market share in abrasives and increase market share in ceramic & plastics with gradual penetration of new value added products.
• High margin value added products and solutions oriented approach to drive margin expansion (from ~16.7% in FY20 to 20.5% in FY24E).
• We expect revenue, EBITDA to grow at CAGR of 18.6%, 20.1%, respectively, over FY21-24E.
• Net debt free b/s, double-digit return ratios & strong cash generation.

Voltas

"VOLT's Q4FY22 revenue was flat YoY at Rs 26bn as growth in the UCP (unitary cooling) and engineering product segments was negated by a poor performance in the electromechanical segment. Gross margin declined 307bps YoY to 21.8% as the company failed to pass on higher raw material prices to customers. EBIT margin contracted 305bps YoY to 8.3% primarily due to the lower gross margin and higher employee cost. Net income fell 23% YoY to Rs 1.8bn," said the brokerage firm BOB Capital Markets Ltd. (BOBCAPS).

As per the brokerage "VOLT saw its market share fall to 23.4% in FY22 (vs. 25.2% in FY21) as South India, which has an early summer, had a higher share in the sales mix. While the company ceded some ground to Lloyd, Samsung and LG, it is optimistic of returning to its original market share of 25- 26% by the end of summer as sales in northern regions kick in. It has already gained share in the western and eastern markets this season. Also, subsidiary VOLTBEK has sold 1mn units in FY22 and has a market share of 3.5% in refrigerators and 4% in washing machines."

The brokerage has claimed in its latest report that "Rising summer temperatures and pent-up demand augur well for the AC and refrigeration industry as a whole. However, supply chain constraints and rising input costs are expected to sap margins. VOLT enjoys the highest margins among peers and is better positioned to weather the storm, in our view, making it our preferred pick in the AC space. We value the stock at 50x FY24E EPS, a 40% premium to its 5Y average, and assume coverage with BUY for a TP of Rs 1,250. Negative drivers for the stock include weak AC sales in the event of higher product prices or an economic downturn."

"VOLT's stock price has rallied more than 100% since FY21 but declined by 13.3% since Jan'22 to underperform its closest peer BLSTR. We believe the ongoing inflationary environment will dent the demand recovery, though VOLT's market leadership and robust distribution network could help it buck the trend and grow market share. Further, its superior margins and ability to procure raw materials could enable it to better withstand cost inflation than peers," said BOB Caps.

Disclaimer

The stocks have been picked from the brokerage report of ICICI Securities and BOB Caps. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.