Stock market fluctuations are marked by turbulence, and while stock prices responded significantly amid the worries of Omicron, the market rallied strongly yesterday and even today. The major brokerage company Sharekhan Limited has advised two stocks to purchase amid the present market action, one from the large-cap space and the other from the small-cap space. The brokerage has placed a buy call on the stock of Greenpanel Industries Ltd with a target price of Rs. 510 and Indraprastha Gas Ltd with a target price of Rs. 650.
The brokerage’s take on Greenpanel Industries Ltd
According to the brokerage's research report "Greenpanel Industries Limited (Greenpanel) is expected to benefit from continued growth momentum being witnessed in the residential real estate market. The top seven cities saw strong y-o-y and q-o-q growth in launches and sales in Q3CY2021 apart from a dip in inventory q-o-q. Demand momentum is expected to sustain led by low-interest rates and peak affordability ratio which would aid in healthy domestic demand for MDF and Plywood for the company. The company's 20% incremental brownfield expansion along with full capacity utilisation at existing capacity would provide 20-25% y-o-y volume growth for FY2023. It would further chalk out the next phase of expansion by Q4FY2022 end. In the near term, the company is expected to incur a Rs. 4 crore loss on account of delay in commencement of Rudrapur plant due to delay in import of components."
Sharekhan in its research report has claimed that "Greenpanel is expanding its capacity from 540,000 cubic meters to 660,000 cubic meters which will be available from Q4FY2022. It expects capacity utilisation to be at 90-95% during Q4FY2022 on the expanded capacity. The company expects full capacity utilisation on expanded capacity during H2FY2023. As per the management, its existing capacity can be run at 110-112% which along with a 20% addition would provide for 20-25% y-o-y volume growth in FY2023. Further, by the end of Q4FY2022, it would also chalk out its next phase of expansion plans. The management expects to achieve Rs. 1500 crore by FY2023."
Buy Greenpanel Industries Ltd with a target price of Rs. 510
According to the brokerage's call "Greenpanel has strong structural growth drivers along with a favourable environment led by weak imports affected by logistics issues. Brownfield expansion along with anticipated another round of capacity expansion would provide healthy growth going forward. The company's limited CAPEX requirement towards brownfield expansions, strong operating cash flow generation, tight working capital management and reducing leverage would propel its return ratios over FY2021-FY2024E. The company is currently trading at a P/E of 15x its FY2024E earnings, which we believe is quite attractive considering over 60% CAGR in net earnings expected over FY2021-FY2024E. Hence, we retain our Buy rating with an unchanged price target (PT) of Rs. 510."
The brokerage’s take on Indraprastha Gas Ltd
Sharekhan Ltd in its research report has noted that "The high share of CNG at ~73% in Indraprastha Gas Limited's (IGL) overall gas sales volumes makes the company well-positioned to protect margins at >Rs. 8/scm as it would be able to hike CNG prices given that the running cost of CNG cars would remain at half the running cost for petrol cars, even if domestic gas prices double. High double-digit volume growth outlook seems achievable as CNG conversion rate increases in IGL's existing GAs and we see volume ramp-up of 1.5-2 mmscmd from new GAs (Rewari, Karnal, and Gurugram, and development of three new GAs won under the 10th CGD bidding round). We have fine-tuned our FY22-FY24 earnings estimate and expect EBITDA/ PAT to clock 24%/21% CAGR over FY21-24E."
According to the brokerage "Domestic gas prices are expected to be further hiked to $5-5.5/mmBtu from April 2022 after a steep 62% increase to $2.9/mmBtu in October 2021. Our analysis shows that even in the case of a 100% hike in domestic gas prices, CNG will remain cheaper by 45% than petrol in terms of running costs. Thus, we believe that IGL has enough room to hike CNG prices and pass on any potential steep gas price increase in the coming quarters. IGL has already passed on the entire domestic gas price hike to $2.9/mmBtu to the customers and is taking continuous CNG prices (cumulative price hike of Rs/5.6/kg since October 13) to pass on potential price increase from April 2022. Thus, we remain confident of sustained strong margin of >8/scm for IGL over FY22E-24E."
Buy Indraprastha Gas Ltd with a target price of Rs. 650
The brokerage has claimed that "The sharp 17% correction in IGL's stock price from a 52-week high of Rs604 makes valuation attractive at 19.8x FY24E EPS while volume led earnings growth outlook (we expect a 21% PAT CAGR over FY21-24E) remains intact along with strong RoE/RoCE of 21%/30%. Hence, we maintain a Buy rating on IGL with an unchanged PT of Rs. 650. Keeping the risk factors in mind, Sharekhan has also stated that "Lower-than-expected gas sales volume in the case of third of COVID-19 while the steep decline in crude oil price could affect CNG economics versus petrol. Delay in development of new GAs, a sharp rise in LNG prices and adverse regulatory changes (revision in APM gas-pricing formula) could affect outlook and valuations. OMC demand of high dealer commission would remain an overhang on IGL until it is resolved."
The stock has been picked from the brokerage report of Sharekhan Limited. 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.