Samvat 2077 ended on a high note with Nifty and Sensex both hitting record highs, Samvat 2078 has kicked off and amid it, brokerage firm has a buy on a PSU lender and an auto stock. Here are the details on the 2 stocks and why the brokerage is bullish on it:
1. SBI- Buy SBI for a target price of Rs. 572
The PSB lender is expected to see gains of up to 8 percent from current price levels. The price target for the stock is Rs. 572. The stock last closed at a price of Rs. 530.45 per share.
The bank has surprised the street with its positive results despite fully accounting for one-time accelerated pension cost of Rs. 74bn, given a
sustained improvement in asset quality. Gross slippages came in at 0.7 percent
There has been reported growth in loan category led by increase in retail loans."With favourable trends on impairment and recoveries/upgrades resulting in gradual credit cost normalisation, SBI's incremental RoA reflation to potential ~1% is now contingent on higher asset yields. We revise our FY22 earnings estimates by -8% to factor in accelerated pension costs and credit cost normalisation. We maintain BUY with a revised SOTP-based target price of INR572 (core at 1.2x Sep'23 ABVPS)", says the HDFC Securities' report.
Steady-state asset quality: SBI's GNPA/NNPA stood at 4.9%/1.5% (Q1FY22: 5.3%/1.8%), benefitting from recoveries (large HFC) and sharp inter-quartile
upgrades. Net slippages, at 0.7%, stemmed from the corporate segment and included one NBFC exposure.
"Need for growth and reflation in asset yields: SBI's P&L performance was skewed by accelerated pension costs, large write-backs, and low interest
reversals. As back book asset quality issues recede, our incremental focus is likely to be on how SBI can potentially reflate asset yields to drive 1% RoA
through gradual portfolio repricing and re-risking (without adding to credit
costs) and better operating efficiencies", adds the report.
2. Tata Motors- Buy Tata Motors for a target of Rs. 560
The Nifty Auto stock is expected to see gains of up to 14 percent from current price level of Rs. 489.7 to a price target of Rs. 560 per share. The 'Buy' on the stock is recommended by the brokerage house even as the company reported Q2FY22 loss of Rs. 45bn due tothe ongoing chip shortages. The management expects production trends to improve over H2, as suppliers are recovering from the plant fires/lockdownsin Asia. The dealer inventory at JLR is at a multi-year low of 30Kunits - at the same time the order book is robust at 125K units ( about 3-month sales). Tata has monetised its India passenger car EV business at a valuation of USD6.7-9.1bn,by selling a 11-15% stake to TPG Rise (which is a marquee PE firm). We are raising our SOTP value to INR 560, based on Sep'23 earnings (from Jun'23 earlier). We ascribe a higher value to the India business of INR 330 to factor in the EV business valuation, as stated above. We also value the JLR business at 2.75x on EV/EBITDA (from 2.5x earlier) to factor in an improving supplyoutlook as well as the expected roll-out of the new Range Rover in Q4FY22.
JLR accounts for INR 218 per share (including CJLR).
Key highlights on the scrip as described by the brokerage
(1) Supplies to improve in H2: The chip production is
likely to improve from here on as vendors are coming out of the lockdown. Cash flows (-GBP 664mn) were impacted due to higher working capital,
which will normalise.
(2) New RR launch in Q4: The new RR will drive
volumes in FY23E. The PHEV variant offers class leading EV range of 100kms, with the BEV option to be rolled out in 2024. The model is built on
the new MLA Flex platform.
(3) India car business is gaining share: With
the launch of the new 'Punch', Tata has received a 50% increase in bookings.
The OEM is steadily gaining market share - Q2 share at 11.3% (+130bps QoQ) is at a eight-year high. Electric traction: Domestic EV car sales have crossed the 1,000 unit p.m. milestone, with a sharp rise in the order backlog. Post TPG's infusion, the EV business is valued at 5-7x on FY26/27E revenue.
The 2 stocks are taken from the report of HDFC Securities and are not a recommendation to buy into these stocks. Remember Indian equities are highly expensive and investors need to do their own stock study and analysis before taking a dig into this risky asset class.