3 Stocks To Buy, Which Remain Undervalued Even In A Rising Market

ICICI Lombard

Emkay is bullish on on the stock of ICICI Lombard and has suggested buying the stock for an upside target of Rs 1470.

"We initiate coverage on ICICI Lombard General Insurance with a Buy rating and a September 2023 target price of Rs1,470 (+21.1% upside). Our target price implies September 2024 PE multiple of ~30x, a minor discount to its historical average multiple. After being driven by profitability-first strategy for many years, the company is currently pursuing the growth-first strategy and, rightly so, now by protecting its market share in its turf of motor and commercial lines, while charting plans to grow retail health.

ICICI Lombard: Business Prospects Look Brighter

According to Emkay Global, with Covid-19 turbulences behind and auto market outlook (PV, CV, and 2Ws) looking much brighter (post muted and declining past three years), the private sector market leader is well poised to grow. "The new growth-first strategy would mean that profitability in the near run would be suboptimal than pre-Covid trend, but this is the right strategy to protect its market position and make the business future ready," the brokerage has said.

"With its feet firmly placed on the accelerator by competing with aggressive players in the motor segment and widening its distribution to grow the so-far underwhelming retail health segment, the company will be operating at a slightly suboptimal (versus its own past) profitability ratio. Further, return to a ~100% CoR and 20%+ RoE will be a multiyear journey, depending upon digital and other distribution-related investment delivering efficiencies, and improving competitive environment that would lead to better pricing. Additionally, higher capitalization (Solvency at ~260% vs. 180-200% optimal) artificially suppresses the RoE figure," Emkay Global has said.

Buy Bharti Airtel stock for a price target of Rs 850

According to Emkay Global, Bharti Airtel delivered yet another steady quarter. India wireless ARPU grew 2.8% qoq to Rs183. The company delivered healthy data subscriber additions of 4.8mn, outpacing our estimates of 3mn, supporting 3.4% qoq revenue growth in the India mobile segment.

"After two successive quarters of double-digit growth, home broadband growth moderated but still grew at a healthy 5.7% qoq, while the enterprise segment's revenue accelerated to 4.7% qoq. DTH decline continued for the fourth consecutive quarter, down 0.9% qoq," Emkay Global has said.

Capex spends on 5G rollout

Capex spends will see an increase in FY23 due to advancement of 5G rollout (in-line with management's guidance at its analyst meet in March 2022). "We maintain our consolidated capex estimates of Rs290bn/year (excluding spectrum) till FY25E. We had tweaked our estimates post the auctions to factor in (if) spectrum purchase, (ii) SUC savings, and (iii) tariff hike in Q4FY23, and maintain those estimates. Capex spends and tariff hike timeline will be keenly watched. Retain Buy with an unchanged target price of Rs 850," the brokerage has said.

Indraprashtha Gas

Another stock that Emkay Global has a buy call is the stock of Indraprastha Gas. The brokerage has set a price target of Rs 450 on the stock.

Domestic PNG fell 14% qoq (flat yoy), while I/C declined 4%. Trading was largely flat.

Gross margin rose 12% qoq to Rs14.3/scm, with net realization up 29% and unit gas cost rising by 39%. Unit opex was 3% higher than expectations at Rs5.7/scm. Hence, EBITDA/scm was up 20% qoq at Rs8.6 vs. Rs7.5 estimated by us (up 9% yoy).

Target price of Rs 450 on Indraprastha Gas

We have cut our FY24E/25E EPS by 2%/4%, as we slightly adjust EBITDA/scm to Rs7.5-7.6 range. We roll over to Sept'24E and retain our TP at Rs450 with a Buy. Policy support for the CGD sector and resumption of price hikes not affecting demand are key triggers.