3 Stocks Motilal Oswal Recommends For Gains In One-Year

On Friday, Indian equity indexes fell, echoing a mixed trend in other Asian markets, as investors worldwide became cautious ahead of Fed Chair Jerome Powell's long-awaited speech.

Motilal Oswal, a brokerage firm, has recommended investing in consumer goods company P&G Hygiene and Healthcare, Bajaj Finance, and capital goods company Larsen & Toubro. Here are some of the facts that led to these brokerages buying these stocks.

Buy L&T target price of Rs 1,950; Motilal Oswal

Motilal Oswal has set a target price of Rs 1,950 on the stock of L&T, as against the current market price of Rs 1,595.

According to Motilal Oswal, the best storey to play capex upcycle is still L&T: L&T's core E&C business, with its leaner asset-light business model and diversified sectors, is best positioned to benefit from any capex upcycle. As a result, while the Buildings and Power sectors were poorer in FY21, strong orders from the foreign Power T&D and Hydrocarbons segments more than offset this.
Rightly placed to benefit from macro improvement
"We maintain our earnings estimate, but increase Target Price to INR1,950 (prior: INR1,835), driven by (a) MTM of the CMPs of the listed subsidiaries (Holdco discount of 20%) and (b) an unchanged target PE multiple of 20x on the core business. We estimate an FY21-24E EPS CAGR of 24%, driven by a 15% CAGR in the core E&C business and declining loss from the Hyderabad Metro. Adj. for the subsidiaries' valuation (~INR850/sh), the core E&C business trades at an FY22/FY23E PE multiple of 15.6x/13.5x v/s the historical one-year fwd avg.

PE multiple of 22x. Should the stock revert to the historical average trading multiple of 22x, our Target Price would increase to ~INR2,060 on the stock. L&T remains the best play on the capex cycle in India. Maintain Buy," the brokerage has said.

The broking firm believes that during the second COVID wave, L&T made the correct decision to favour balance sheet strength over growth. While the second wave posed comparable issues as the first, construction activity was allowed to continue (unlike last year), resulting in a far smaller impact than in FY21.

Array

Motilal Oswal has set a target price of Rs R15,530 on the stock of P&G, as against the current market price of Rs 13,113.

According to Motilal Oswal, P&G Hygiene and Healthcare finished FY21 with a profit (June year-end company). This is the second year in a row that sales have increased by 19.1 percent. It has reported topline growth of over 19 percent for the past three years.

Topline momentum healthy; increase in ad spends affects quarterly margin.

"While valuations at 44.3x FY23E EPS are in line with staples peers, PGHH has a stronger topline and earnings track record, best-of-breed structural earnings growth potential, and strongly improving RoEs that deserve premium multiples. We maintain our BUY rating, with a Target Price of INR15,530/share (targeting 50x Sep'23E EPS).

Two factors make PGHH an attractive long-term core holding: a) huge category growth potential in the Feminine Hygiene segment (~67% of FY20 sales), coupled with potential for market share gains due to considerable moats, and b) potential for higher margin gains from premiumization in the Feminine Hygiene segment over the long term," the brokerage has said.

The brokerage firm believes that this is very good topline momentum for a non-discretionary corporation. The growth opportunity in feminine hygiene products is enormous, with just 20% penetration (67 percent of PGHH FY20 sales), overwhelming market leadership, and significant moats.

Buy Bajaj Finance with target price of Rs 7,700

Motilal Oswal has set a target price of Rs 7,700 on the stock of Bajaj Finance, as against the current market price of Rs R6,943.

According to Motilal Oswal, SEBI has given Bajaj Finserv preliminary approval to sponsor a mutual fund (MF). While the possibility is enormous, given the country's low savings penetration and financialization, the industry's competitive intensity is strong, with 44 players.

"We expect BAF to deliver ~4.8% RoA/23% RoE over the medium term. Given the positive outlook, we maintain our BUY rating, with a Target Price of INR7,700 per share (8x 1HFY24E BVPS)," the brokerage has said.

The brokerage has said, given its involvement in the retail finance, life insurance, general insurance, and securities industries, Bajaj Finserv has inherent benefits in its business model. BAGIC, BALIC, and BAF have demonstrated their expertise in gaining AUM by having a strong brand presence and a vast distribution reach. Cross-selling to these organisations' existing consumers is a tremendous opportunity.

3 Stocks Motilal Oswal Recommends For Gains In One Year

Company	Target Price	Upside	Recommendation
P&G Hygiene and Healthcare	15,530	+18%	Buy
Bajaj Finance	7,700	+11%	Buy
Larsen & Toubro	1,950	+22%	Buy

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only and is picked from the brokerage reports of Motilal Oswal.