2 Nifty 500 Stocks To Buy For Decent Returns In 1-Year

The brokerage company ICICI Direct has given two Nifty 500 companies, Shoppers Stop and Syngene International, a buy call rating. The brokerage has set a target price of Rs. 480 for Shoppers Stop and expects the stock to rise 26 percent from its current market price of Rs. 378.25 as of 3:30 p.m. IST on January 21. Syngene International, on the other hand, has a target price of Rs 710 and anticipates the stock to rise 19% from its current market price of Rs. 595.55 as of 3:30 p.m. IST on January 21.

Shoppers Stop Ltd (SSL)

ICICI Direct has said in a report that "The stock price has underperformed the broader indices over the last five years on account of weak Same-Store Sales Growth (SSSG), muted store addition pace and lower share of private label brands. With the new management team in place, we expect SSL to revive its revenue trajectory and margin profile. Reasonable valuations prompt us to remain positive on the stock and maintain BUY. We value SSL at Rs 480 i.e. 8.5x FY24E EV/EBITDA."

Q3FY22 results according to the brokerage

• Healthy demand owing to strong festive and wedding season led SSL to reach close to pre-Covid levels in Q3FY22 (~96% of Q3FY20).
• On a favourable base, revenue grew 34% YoY to Rs 951.2 crore.
• SSL achieved operational cost savings worth Rs 42 crore (vs. Q3FY20 levels). Owing to positive operating leverage earnings before interest, taxes, depreciation, and amortisation (EBITDA) grew 2x YoY to Rs 183 crore.
• Profit before Tax (PBT) at Rs 66 crore vs. a loss of Rs 28 crore in Q3FY21 (Q3FY20 PBT: Rs 63 crore).
• Liquidity position remains fairly stable with cash & investments worth Rs 207 crore and debt worth Rs 194 (net surplus Rs 13 crore, D/E: 0.3x).

Key triggers for future price performance of Shoppers Stop according to ICICI Direct

• We believe the new MD (former Westside CEO) would bring in his expertise in the private label brands domain and focus on improving the share of high-margin private label brands (~14% of revenues).
• It has embarked on healthy store addition plans with the opening of five stores in Q4FY22 and 12 in FY23E. Majority of the store addition in Tier II/III cities. The capex for the same is expected to be Rs 100 crore, to be funded mainly through internal accruals.
• The management expects steady SSSG growth of 9-11% in the near term.
• Key thrust on accelerating investments in omni-channel with long term target of channel contributing 20% of sales from current ~8%.
• Higher focus on beauty segment (currently ~17% of revenues) through scale up of its own private brand Arcelia (75+ stock keeping units to be launched in Q4).

Syngene International Ltd

According to ICICI Direct "Syngene's share price has grown by ~2.1x over the past five years (from ~Rs 289 in January 2017 to ~Rs 607 levels in January 2022). Due to the structural story of outsourcing besides significant visibility, CAPEX and client stickiness, we remain positive and retain our BUY rating. We value Syngene at Rs 710 i.e. 40x FY24E EPS of Rs 17.8."

Q3FY22 results according to the brokerage

• Syngene reported upbeat numbers in Q3FY22.
• Revenues grew 9.7% YoY to Rs 641.4 crore.
• EBITDA margins improved 157 bps YoY to 31.7%.
• Net profit was at Rs 104 crore (up 1.8% YoY).

Key triggers for future price performance of Syngene according to ICICI Direct

• The client base has grown from 256 to more than 400 over FY16-21, with elite client additions like Amgen, Zoetis, Herbalife, GSK, etc, and multiple-year extension of BMS, Baxter contracts. With years of experience in operating in this niche of CRO/CRM, the company is well poised to capitalise on growth opportunities globally.
• Phase III expansion (~250 scientists) in Hyderabad to be completed in FY22 and a new dedicated laboratory for Amgen to scale-up small molecules.
• Completing an injectable fill-finish facility that will add a new capability to the formulation part of development services.
• Regulatory approvals from regulated markets for Mangalore facility.

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.