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3 Stocks To Buy Post Their Q3FY22 Results For Good Returns In 12 Months

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ICICI Direct, a renowned brokerage company, has initiated a buy call on Axis Bank, Vardhman Textiles, and Supreme Industries. In a target period of 12 months, the brokerage anticipates a significant increase in the stock's current market price.

 

Vardhman Textiles Ltd (VTL)
 

Vardhman Textiles Ltd (VTL)

ICICI Direct has said in a report that "Despite being in the cyclical textile business, VTL's stock price has appreciated at 18% CAGR in the last five years. We continue to remain structurally positive and maintain a BUY rating. We value VTL at Rs 3125 i.e. 11x FY24E earnings."

Q3FY22 results according to ICICI Direct

  • Vardhman Textiles reported a strong operational performance for Q3FY22 with all-time high revenues. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin performance in Q3FY22 was strong amid enhanced demand in the yarn segment.
  • Revenues increased 49% YoY to Rs 2603 crore (QoQ growth of 9%).
  • Gross margin improvement of 405 bps YoY to 52.4% (QoQ decline of 350 bps on an exceptionally high base owing to use of low cost inventory) and operating leverage led to EBITDA margin expansion of 800 bps YoY to 23.8%. EBITDA was higher by 124% YoY at Rs 619 crore.
  • Consequently, profit after tax (PAT) grew 145% YoY to Rs 429 crore.

Key triggers for future price performance as per the brokerage

  • Global retailers are looking at de-risking their supply chains and VTL is expected to be a beneficiary in the yarn and fabric segment.
  • Strong demand coupled with supply constraint owing to closure of ~5-6% of capacities due to impact of pandemic is expected to result in stronger spreads in the yarn business.
  • Owing to strong demand from customers the company is expanding its yarn spindle capacity by installing 1,65,000 spindles with Capital expenditures (CAPEX) of Rs 1400 crore. Further, it is expanding capacity by 70000 spindles with CAPEX of Rs 600 crore.
  • We model revenue and earnings compound annual growth rate (CAGR) of 22% and 57%, respectively, in FY21-24E with return on capital employed (RoCE) of ~16% in FY24E.
Axis Bank

Axis Bank

The brokerage has claimed that "Axis Bank's share price has given ~10% return in the past one year. This was post some correction in past few months. We believe its healthy capitalisation and provision buffer would aid smooth earnings traction. We retain our BUY rating on the stock. We value Axis Bank at ~2.1x FY24E ABV and maintain our target price at Rs 970."

Q3FY22 results as per ICICI Direct

  • Axis Bank reported a good operating performance.
  • Net investment income (NII) up 17% YoY and 9.5% QoQ, Net Interest Margin Securities (NIMs) up 14 bps QoQ to 3.53%.
  • Provisions down 23% QoQ, PAT up 224% YoY Rs 3614 crore.
  • Loan growth at 16.7% YoY to Rs 6.6 lakh crore. Retail book up 18% YoY.
  • Gross non-performing assets (GNPA) down 36 bps QoQ to 3.17%. R/s book steady at 0.63%.

Key triggers for future price performance according to the brokerage

  • Multiple levers for improvement in return ratios.
  • Strong capitalisation (capital-to-risk weighted assets ratio (CRAR) at 17.4%, Tier-1 at 15.2%) to fuel growth.
  • Cumulative provisions of 130% of GNPA provide earnings comfort.
  • Healthy asset quality performance is positive.
Supreme Industries Ltd (SIL)

Supreme Industries Ltd (SIL)

ICICI Direct has said in its research report that "SIL's share price has grown at ~23% CAGR over the past five years. We maintain our BUY rating on the stock. We roll over our valuation on FY24E and value the stock at 28x P/E FY24E EPS with a revised target price of Rs 2625."

Q3FY22 results according to the brokerage

  • Overall performance was in-line with our estimates. However, channel inventory rationalisation & extended monsoon lowered volume offtakes.
  • The company reported price led revenue growth of ~6% YoY to Rs 1945 crore. Volume dipped 18% YoY (vs. I-direct estimate of -10%).
  • Gross margins came in lower by 502 bps YoY (up 50 bps QoQ) due to higher raw material cost. EBITDA margins declined 544 bps YoY.
  • PAT declined 21% YoY to ~Rs 246 crore, tracking lower EBITDA.

Key triggers for future price performance as per ICICI Direct

  • The government's flagship 'Nal Se Jal' scheme (with an outlay of ~Rs 3 lakh crore over the next five years) is a big booster for domestic plastic piping industry over the long term.
  • Rising contribution of value added product in overall topline (increased from 35% in FY18 to ~40% in FY21) to keep EBITDA margin elevated.
  • Overall manufacturing capacity to grow at a CAGR of 7% to 8 lakh tonnes with an investment of ~Rs 850 crore in FY21-23E.
  • Model revenue CAGR of 14% led by piping segment revenue CAGR of 16%.
Disclaimer

Disclaimer

The stocks have been picked from the brokerage report of ICICI Direct. 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.

Story first published: Tuesday, January 25, 2022, 14:26 [IST]
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