Indian indices after the previous day jolt due to Evergrande crisis in China made a swift recovery, led by gains in realty, metal and IT pack in particular. So, as the outlook given the huge liquidity remains positive, leading brokerage firm has recommended two stocks for gains up to 54 percent.
1. Buy Nuvoco Vistas for a target price of Rs. 827, upside of 54%
The brokerage firm is bullish on the Nirma Group company i.e. the largest cement company in East India in terms of capacity and sees it to have a potential upside of 54 percent, having set a target price of Rs. 827 per share.
Buy call has been initiated given the company's strengthening of its leadership:
The company has consolidated its position in the East and grown inorganically to become the sixth leading cement company in the country. "A large retail presence in the high-growth east region buoyed its operating margin during FY20-21. It should further expand to Rs. 1,177/MT in FY23E, riding on cost initiatives and synergy benefits from the integration of the recently acquired NU Vista (erstwhile Emami Cements)", adds the brokerage. The other acquisition way back in 2016 of Lafarge Cement also helped.
Triggers abound to help the company in scaling up its operating margin:
The company is working to strengthen its low cost power consumption share to result in cost savings. Also, the acquisition of NU Vista into the company and focus on boosting its blended cement manufacturing is seen to unlock another Rs. 200/mt of of unitary EBITDA by FY23E. These moves along with healthy pricing should drive up consolidated unitary EBITDA by NR 235/MT by FY23E, despite factoring in fuel cost inflation and the impact of accelerated capacity additions by competitors.
Post IPO, balance sheet is healthy:
The huge inflow of Rs. 1500 crore from the proceeds of the just concluded IPO helped the company to de-stretch its balance its balance sheet. The brokerage adds that additionally from "strong operating cash flow outlook, and lower Capex outgo, we estimate its net debt/EBITDA to cool off to below 1x FY23E onwards vs ~4x during FY17-21. We estimate its debt reduction to continue despite its ongoing 8/15% clinker/cement expansion by FY23E and despite factoring in Capex acceleration towards the Karnataka greenfield plant by late FY25E."
Strong performance to drive multiple valuation re-rating
"We like Nuvoco for its balance sheet turnaround after two mega acquisitions and robust operating performance, led by structural revenue and cost triggers. We initiate coverage on the stock with a BUY rating and target price of INR 827/sh (11x its Sep'23E consolidated EBITDA). In our view, Nuvoco's continued strong performance should drive valuation multiple rerating", adds the brokerage.
2. Gujarat Narmada Valley Fertilizers- Buy for 21% gains
It is a technical positional pick by the brokerage firm for a short term, wherein the brokerage suggests a buy in the stock for a target of Rs. 465, from the current levels of Rs. 383, implying upside of Rs. 21.41 percent. Stop loss for the trade is suggested at Rs. 332 per share.
Downward sloping channel breakout is seen on the daily charts. Price breakout is accompanied by jump in volumes. Stock has been holding levels above its medium to long term moving averages. Inverted head and shoulder breakout is seen on the daily charts Indicators and oscillators have turned bullish on daily and weekly charts Short term moving averages are trading above medium to long term moving averages. These are some of the observations considering which the stock has been given a ‘Buy' for 21 percent gains.
Gujarat Narmada Valley Fertilizers & Chemicals Limited.(GNFC), is a joint sector enterprise promoted by the Government of Gujarat and the Gujarat State Fertilizers & Chemicals Ltd.(GSFC). Set up in Bharuch, GNFC draws on the resources of the natural wealth of the land as well as the industrially rich reserves of the area. The company at first set up its largest single-stream ammonia-urea fertilizer complexes.
The above stocks are picked from the brokerage report of HDFC Securities. 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.