3 Stocks Where Emkay Global Has A Buy Call For Good Profits

Brokerage firm, Emkay Global has recommended buying the stocks of Maruti Suzuki, Bandhan Bank and India Oil Corporation. The firm sees decent upside in all the three stocks going forward. Here are some reasons why the brokerage is upbeat on all the three stocks.

Maruti Suzuki: Price target of Rs 11,000

For Maruti the brokerage has set a price target of Rs 11,000 on the stock EBITDA in-line. Revenue grew by 46% YoY (3-yr CAGR at 21%) to Rs299.3bn (Emkay est.: Rs 290.9bn), slightly above our estimates. Volume grew by 36% to 517,395 units. Negative impact of supply constraints stood at 35,000 units. Realization grew by 7% to Rs551,677/unit, above our estimates, on better mix within models. EBITDA grew by 224% (3-yr CAGR at 20%) to Rs27.7bn, in line with our estimates. EBITDA margin expanded by 510bps to 9.3%. Other income grew 17% YoY to Rs6.1bn. Overall, adjusted PAT grew by 334% (3-yr CAGR at 15%) to Rs20.6bn (Emkay est.: Rs19.8bn), beating estimates owing to higher other income.

What Emkay Global likes about Maruti Suzuki

"What we liked: 1) Strong revenue and margin performance. 2) Production ramp-up continues, as supply-chain issues get resolved gradually. 3) Robust growth of >40% in the recently concluded festive season. 4) Strong order-book at 412,000 units. What we did not like: 1) Q3 commodity costs are expected to be broadly stable QoQ, in comparison to our earlier expectation of further reduction. Benefits of lower steel and precious metal prices are being offset by increase in price of crude derivatives," the brokerage has said in its report.

Emkay Global also has a buy call on the stock of Indian Oil

Emkay Global also has a buy call on the stock of Indian Oil. The company reported Q2FY23 S/A adj. (ex-subsidy) EBITDA loss of Rs 57.1bn vs. our loss est. of Rs86.8bn on better-than-expected GRMs. Adj. net loss stood at Rs82bn (vs. Rs107.9bn loss est). One-time LPG subsidy of Rs108bn led to reported net loss narrowing to Rs 2.4bn.

The marketing margin miss, nil refining inventory loss, and treatment of windfall taxes are unclear; and with continuing auto fuel RSP freeze and limited subsidy, FY23 earnings look clouded. Pricing should, however normalize post-Gujarat elections and inflation easing. 
"We have cut FY23E EPS by 33%, building higher marketing losses, lower petchem earnings, and forex losses (FY24/25E slightly changed). We have cut our Sept-23E target price by 5% to Rs 85 but retain Buy on a reasonable valuation of 0.7x PB. We expect a better H2," the brokerage has said.

Bandhan Bank

The third stock that Emkay Global has a buy call is the stock of Bandhan Bank. Bandhan Bank reported a miss on PAT at Rs2.1bn (vs. estimate of Rs5.4bn) due to higher-than-expected NPA formation leading to higher LLP/margins and elevated opex due to business normalization. The bank expects H2 to see recovery in growth/margins as asset-quality pain recedes.

The bank reported significantly higher slippages mainly due to stress flow from the restructured pool and impact of Assam floods, but higher write-offs led to a 6bps qoq fall in GNPA ratio to 7.2%. Overall, EEB stress pool still stands elevated at Rs95bn (18% of MFI loans/11% of overall loans), but better improved recovery (CGFMU recovery of Rs9.5bn in Q3 and Assam loan relief scheme) and higher write-offs should contain NPA formation.

Overall, AUM growth was moderate at 17% yoy/down 1% qoq mainly dragged by weakness in MFI book, which the bank expects would improve in H2FY23. Mortgage and commercial book continues to grow at a healthy pace and should help the bank diversify away from high-risk MFI book in the long run.
"We trim our FY23-24E earnings estimates by ~5%, factoring higher NPAs and opex, but we expect the bank to gradually move back towards normalcy with RoEs at 20-22% in FY24/25E. We reduce our target price to Rs 330 from Rs 340 (valuing the bank at 2x Sep-24E ABV); however, given reasonable upside (>15%), we upgrade the rating to Buy from Hold," the brokerage has said.