Motilal Oswal Institutional Equities has listed the stocks of Muthoot Finance and SUN TV Network as stocks to buy.
Buy Muthoot Finance
The brokerage has set a target price of Rs 1900 of Muthoot Finance.
According to Motilal Oswal the PAT (in line) grew by 11% YoY and 2% QoQ to INR9.94b. Despite higher-
than-estimated provisions, lower-than-estimated interest expenses (driven by lower CoB), and benefits of lower operating expenses led to an in line
Also, the brokerage believes that the NPAs in Gold financing are largely technical in nature, without any
significant write-offs. This deterioration - with gold prices remaining stable in 2QFY22 - suggests that Muthoot Finance is granting its customers (who would have perhaps borrowed at the peak of gold prices in Aug-Sep'20) leeway to repay their loans rather than rushing to auction the gold.
Target price of Rs 350 on the stock
Although Muthoot Finance has reported a deterioration in asset quality over the past two
quarters, it does not pose a significant concern. MUTH has aggressively avoided auctioning of gold until now.
This is driven by Muthoot's inherent philosophy of
granting customers time to repay their loans, rather than rushing to auction their gold. Gold prices have remained stable for the last two quarters, but the
risk of a default by customers (who would have borrowed at the peak of gold prices in Aug'20) persists.
"The RoA/RoE is likely to remain robust (6%/23%) over the medium term. We cut our FY22E/FY23E EPS estimate by 2%/1% to factor in slightly higher credit costs. We reiterate our Buy rating with a target price of INR1,900/share (3.1x Sep'23E BVPS)," the brokerage has said.
Sun TV Network
Motilal Oswal believes the stock of Sun TV Network can reach a price of Rs 670. Sun TV reported in-line nos - revenue/PAT was up 10%/14% YoY, with ad revenues reaching pre-pandemic (2QFY20) levels and delayed benefit from the IPL offering spillover. This was offset by a sluggish subscription revenue run-rate.
"Sun TV's healthy liquidity, with net cash of over Rs 32.3 billion presently, offers room to intensify investments in the linear as well as OTT space - along with high dividend payout potential (45-85% payout policy) and low valuation offer support. Furthermore, adjusted for the recent high auction price from the newIPL teams, the stock is at below 10x on a Sep'23E basis," the brokerage has said.
"However, an inherent risk is that while investments in movie production have delayed OTT investments by two years (now guided for FY23), the monetization
of the existing library remains a key concern as it has a risk of further delay.
We value the stock on P/E of 14x on Sept'23E to arrive at Target Price of Rs 670. We maintain a Buy rating," the brokerage has said.
The above stocks are picked from the brokerage report of Motilal Oswal Institutional Equities. 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. Please also do exercise some caution as markets are trading at record highs.