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2 Stocks Given A 'Hold' And 'Buy' Rating By ICICI Direct
Indian indices have been trading with gains even as the big Fed meeting policy stance is awaited. Nifty has regained 17,600 levels, while the broader market outperforms with gains of over 1 percent on the Nifty Midcap 100.
Meanwhile, ICICI Direct has suggested a 'Buy' and a 'Hold' on a small cap and large cap stock, respectively. Let us look at which are these two stocks and why such ratings are accorded to the 2 scrips:
Buy Neogen Chemicals for gains of 19%
From the current price level of Rs. 1273.7 per share, brokerage firm sees an upside of close to 19 percent and has set a target price of Rs. 1515 to be realized in a short term of 12 months.
Neogen Chemicals is a specialty chemicals company into manufacturing of specialty organic bromine-based chemical compounds as well as specialty inorganic lithium-based chemicals compounds. The company's products find usage in pharmaceutical intermediates, agrochemical intermediates, engineering fluids, polymers additives and water treatment chemicals among others.
Revenue visibility of Rs. 350 crore after commissioning of Dahej plant
The capital expenditure at the Dahej plant, both of the phases, catering to different businesses, is expected to provide for asset turn of 2.7x, which provides incremental revenue visibility of Rs. 350 crore. Since both these business verticals are margin accretive thus, incremental revenue share from both segments is expected to aid gross margins and thereby OPM. This should inch up return ratios and thereby valuations in medium term, adds the brokerage firm.
Target Price and Valuation: The brokerage values Neogen Chemicals at 40x P/E FY24E EPS to arrive at a revised target price of Rs. 1515/share (earlier Rs. 1095/share).
Key triggers for gains in the stock
• Phase 1 and Phase 2 capital expenditure at Dahej seems to be lucrative for both advance intermediates and custom synthesis revenue growth.
• Higher component of the value added portfolio to expand company's margin.
• Increased allocation of free cash flow towards organic/inorganic growth likely to expand return ratios further.
2. Reliance Industries: Hold Rating
The brokerage firm has recommended a 'Hold' rating on the scrip of the oil to telecom giant RIL having operations across varied segments including retail, digital services etc. The firm has set out the target price of Rs. 2480, i.e. an upside of 2.5 percent from the current price levels of Rs. 2420, with the target period of 12 months.
"On a consolidated basis, O2C and oil & gas contributed 62% to revenue, while retail, digital and others contributed 28%, 3% and 7%, respectively However, at the EBITDA level, O2C and oil & gas contributed 43% while retail, digital and others contributed 11%, 38% and 8%, respectively, says the brokerage report.
Triggers boosting the future price:
Reliance Jio valuations catch up:
Over the years of operation, Jio is fast collaborating with start-ups or niche companies with presence into digital technologies. The company has invested over US$1.9 billion over the last five years. We believe these investments provide an option value in the overall opportunity and complete the digital ecosystem creation objectives, as per the brokerage firm.
Aggressive Reliance retail footprint expansion:
The company has continued to maintain same store sales growth (SSSG) and also registered improvement in operating profitability, which has enabled it to demonstrate revenue and EBITDA CAGR of 50% and 58%, respectively, over FY16-21. Also, the steady free cash flow will enable the company to be low on debt as well as invest in future inorganic endeavour.
O2C hive off to unlock value:
The hive off of the company's O2C business into a subsidiary is likely and the regulatory approval process is underway. Furthermore, the stake sale to global player will unlock value for the conglomerate company.
New energy initiatives:
The company plans to invest Rs. 60000 crore on new energy and materials over the next three years. Additionally, RIL is expected to invest Rs. 15000 crore in the value chain, partnerships and future technologies, including upstream and downstream industries leading to total investment of Rs. 75000 crore in the new energy business.
So, given the company's leadership hold in each of its product and service portfolio together considering the long term prospects, ICICI Direct recommends a Hold on the scrip and values it at on an SOTP basis at Rs. 2480 per share.
Disclaimer:
The stocks listed in the report are taken from the brokerage report of ICICI Direct and is not a recommendation to buy into these stocks. Stock market investment pose financial risk. Please consult a financial advisor before betting on such risky investment avenues.
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