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3 HDFC Securities Stock 'Buy' Recommendations For Good Gains In Short Term


Indian indices in line with Asian markets may open on a positive note after seeing correction for second day in a row. There are views suggesting that after running up to record high and then consolidating, correction in the markets is warranted. Nonetheless, HDFC Securities has come up with 4 short term picks for a maximum of 2 quarters:


1. Vishnu Chemicals:

1. Vishnu Chemicals:

The brokerage bets on the stock of chemicals company for gains of up to 17.55% seeing a target of Rs. 818 from the last trading price of Rs. 695.9 per share.

About the company: Vishnu Chemicals Ltd (VCL) is India's largest manufacturer of Chromium and Barium compounds. The company has a strong moat of being a low cost manufacturer and a leader in a niche industry, its products has varied applications across 20 sectors like Leather, Pharmaceuticals, Glass, Paints & Coatings, Tiles, Wood preservatives etc. The company's clientele span 57 countries. The company also acquired Barium carbonate facility of Solvay Barium GMBH in India and entered the barium segment.

Rationale for bullishness on the stock

"Going forward, we are positive on the growth prospects of the company on the back of 1) Constant expansion of its product application across industries 2) Backward integration by setting up Soda Ash unit which is expected to be commissioned by Q4FY22 at a capex of Rs. 120Cr for Chromium chemicals which will be margin accretive 3) Incremental capacity expansion in Barium segment provides good visibility of future growth and 4) Post completion of investment phase in FY22, we expect VCL to generate strong cash flows which will aid in deleveraging its balance sheet and thereby improve its return ratios", says the brokerage report.

"The brokerage expects the company's revenue, EBITDA and PAT to likely record a growth of 16/36% and 51% CAGR over FY21-23E along with consistent FCF generation and improvement in working capital. Higher PAT growth will be driven by strong operating performance across both Chromium and Barium segments where we expect segment-wise EBITDA margins to expand by 600/400 bps respectively over FY21-23E. At a consolidated level, we expect overall margins to expand by 430 bps to 15.9% in FY23E v/s 11.6% in FY21. Also strong cash flows on the back of better operating performance will result in lower debt, aiding lower interest cost which will further be earnings accretive", adds the brokerage.

The stock is currently trading at valuation of 10x FY23E earnings. We feel the base case fair value of the stock is Rs. 738 (11.5x FY23E) and bull case fair value is Rs. 818 (12.75x FY23E). We recommend investors to buy the stock in the band of Rs. 658-696 and further add at Rs. 593.

2. Nippon Life India:

2. Nippon Life India:

HDFC Securities is positive on the AMC for gains of over 15% and sets a target price of Rs. 505 to be realized in the next 2 quarters. The stock last traded at a price of Rs. 436.8.

In existence since last 25 years, Nippon is a leading non-bank run AMC with a strong global parentage. Product launches keeping in view HNI as well as retail clientele has been its key area. Also, the margin accretive PMS and AIF business helps the company that yield in a higher return. The company's debt funds have also been garnering investors after the company has got stringent with its debt portfolio mix.

"The brokerage envisages a rise of 15.5% CAGR for topline while PAT is expected to grow by 7.6% CAGR over FY21-23E. Operating margin is estimated to grow to 59% in FY23E compared to current 52.5%. Assets Under Management is expected to rise by 14% annually over same time frame. RoE is expected to hover around current level. Market share trend both in equity and debt segment will be the key thing to watch out for. Cash and investments of the company is Rs. 29,106 mn as at FY21 (~11% of the market capitalization). The company has been constantly paying healthy dividend to its shareholders", adds the brokerage report.

The company advices investors can buy NAM India at the LTP of Rs.440 (35xFY23E EPS) and add on dips to Rs.390 (31xFY23E EPS) band for Base case fair value of Rs.478 (38xFY23E EPS) and the Bull case fair value of Rs.505 (40xFY23E EPS) over next 6 months. In terms of Mcap to AUM, NAM India is available at a reasonable valuation (7.9x FY23E P/AUM) as compared to other peers.

3. IPCA Lab:

3. IPCA Lab:

The company sees this pharma player to gain up to 10% in the 2 quarter period and hit a target price of Rs. 2867, from the last traded price of Rs. 2596.15. The company's key therapeutic areas include cardiac, Pain Management (Rheumatology), Anti-Malarial and Anti-Diabetic etc. The company's constant endeavor in the direction of backward integration will provide it a cost advantage.

Re-rating of the stock can be seen in future

"Despite US FDA issues remaining unresolved, Ipca has managed to post strong performance in FY20 and FY21. It can be attributed to healthy growth from domestic business, export of APIs and UK business", says the brokerage. IPCA continues to maintain leadership position in segments such as rheumatoid arthritis and orthopedic therapies in the domestic market. Export growth momentum is expected to sustain on the back of healthy growth in API segment in the international market. Timely resolution of import alert issued by the US FDA could provide additional uptick to revenue growth and profitability. Any favorable outcome from US FDA for its facilities would further rerate the stock.

HDFC Securities is positive on Ipca Labs on the back of: i) strong volume growth in domestic formulation across therapeutic areas, ii) cost competitive and consistent quality driving better business prospects in API segment, iii) robust debt free B/S with strong liquidity in the form of cash, liquid investments to the tune of around Rs 920cr as on June, 2021 and strong return ratios and iv) better traction in the international markets such as Europe and Asia. We feel investors can buy the stock on declines at Rs 2359 and add more on dips to Rs 2080 (20.5x FY23E EPS) for base case target of Rs 2664 (26.25x FY23E EPS) and bull case target price of Rs 2867 (28.25x FY22E EPS) over the next two quarters.



The stocks are taken from brokerage report and is just for informational use and should not be construed for investment advice.

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