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2 Stocks To Buy Recommended By Motilal Oswal For Good Returns In 1 Year

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Motilal Oswal, a brokerage company, has advised investors to purchase Eicher Motors and Bharti Airtel. The firm has recommended Eicher Motors stock for a return of 29 percent in a year at a target price of Rs 3,250. However, when this stock was recommended for buy, the market price was Rs 2,522, and it is currently trading at Rs 2,669.90. At the target price of Rs 860, Bharti Airtel stock has a potential gain of +21% in a year. The brokerage recommended the share at Rs 713 it is now trading at Rs 703.

 

Buy Eicher Motors with a target price of Rs 3,250
 

Buy Eicher Motors with a target price of Rs 3,250

Eicher Motors Limited, headquartered in New Delhi, is an Indian global automobile firm that manufactures middleweight motorcycles and is also the listed parent of Royal Enfield.

Company's performance according to the brokerage

The consolidated revenue/EBITDA/PAT grew 5%/flat/9% YoY and 14%/29%/57% QoQ to ~INR22.5b/INR4.7b/INR3.7b. Revenue/EBITDA/PAT grew 43%/75%/ 112% YoY in 1HFY22. Standalone revenue grew 3% YoY and 14% QoQ to INR21.8b (est. INR18.95b), while gross margin declined by 130bp YoY (+40bp YoY) to 41% (est. 40%). Gross profit per unit was the highest ever ~INR72k.

The company's all recent product launches of Royal Enfield has seen huge success, hence the brokerage has said "We expect 25% volume CAGR (FY21-23E), which would drive margin recovery (by 400bp) to 24.8% by FY23E and standalone PAT CAGR by ~56%."

What should investors do?

Motilal Oswal has said "We cut our FY22E consolidated EPS by 5% to account for lower volumes due to the ongoing semiconductor shortage while maintaining our FY23 earnings estimate. Demand for RE demand is expected to recover on the back of new launches and ongoing expansion in the international market. After witnessing severe headwinds over the last 24 months, we expect volumes to grow hereafter. The recent launches could be an inflection point for RE as a completely new and improved platform could drive a revival. VECV would see a cyclical recovery in volume and profit, in turn boosting consolidated PAT CAGR to 61%. The stock trades at 35.5x/19.2x FY22E/FY23E consolidated EPS. We maintain our Buy rating, with a TP of ~INR3,250/share (Mar'23E based SoTP)."

Buy Bharti Airtel with a target price of Rs 860

Buy Bharti Airtel with a target price of Rs 860

Bharti Airtel Limited is a multinational telecommunications firm with operations in 18 Asian and African countries. The firm, which is headquartered in New Delhi, India, is one of the top three cellular telecommunications providers in the world by customer base.

Company's performance according to the brokerage

According to Motilal Oswal. Bharti posted a strong 2QFY22, with consolidated EBITDA up 6% QoQ (above our estimate) on India Mobile/Africa EBITDA growth of 6%/5%, led by a 5% increase in India Mobile ARPU. The brokerage has said Bharti Airtel's consolidated revenue grew 5.5% QoQ to INR283.2b, consolidated EBITDA grew 6.4% QoQ (in-line) to INR138.1b on healthy all-around revenue growth and 330bp margin improvement, led by the nonWireless India business. The company has also reported net profit stood at INR11.3b and excluding exceptional costs, net profit after minority interest stood at INR5.9b (est. INR6.8b).

The brokerage has also said "Capex remained high at INR65.9b (INR241b in FY21). FCF, post interest, declined to INR17.1b v/s INR 22.7b QoQ due to higher taxes. Despite the healthy FCF, net debt (excluding lease liability) continued to increase by INR48.3b to INR1,313b due to reclassification of accrued interest capitalization. Including lease liability of INR349b, net debt stood at INR1,662b, with net debt-to-EBITDA ratio of 2.9x on a 2QFY22 basis, down from 3x QoQ."

What should investors do?

The brokerage has said "We expect 20% CAGR in consolidated EBITDA over FY21-23E on the back of 23% CAGR in Mobile India EBITDA. While the street has been concerned about the timelines of a potential tariff hike, we believe strong earnings growth can be achieved even without a tariff hike. We see the potential for a re-rating in both the India and Africa businesses on the back of steady earnings growth. We value Bharti on a Sep '22E basis, assigning an EV/EBITDA of 11x/5x to the India Mobile/Africa business, arriving at a SoTPbased TP of INR860. Our estimates do not factor in any upside from a tariff hike or steep market share gains from VIL's financial stress. We maintain our Buy rating."

Disclaimer

Disclaimer

The above stock is picked from the brokerage report of Motilal Oswal. 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.

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Story first published: Friday, November 5, 2021, 12:30 [IST]
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