4 Stocks To Buy, Add From Exchanges & Staffing Sector For High Returns, Says HDFC Securities

Leading brokerage firm HDFC Securities in its Q3FY23E Results Preview report has picked 4 high-quality stocks from the Exchanges, Staffing sector with Buy & Add rating. These stocks are Multi Commodity Exchange, Teamlease Services, Central Depository Services, and BSE. Multi Commodity Exchange, Central Depository Services, and BSE are from the exchange sector while Teamlease Services is from the staffing sector.

1. Multi Commodity Exchange of India Ltd. (MCX)

The brokerage has recommended buy the stock of MCX with a target price of Rs 1,950/share. The stock is currently trading at Rs 1,586.40/share on NSE. With the given target price, the stock is likely to give a return up to 23%. 

The stock surged 5.48% in the past 1 week. It gave 15.49% in 3 years and the highest 90.2% in 5 years, respectively. Its 52-week high is Rs 1,697.10/share and the 52-week low is Rs 1,143/share on NSE, respectively. 

Brokerage's views

MCX revenue is expected to increase by 7.4% QoQ and the margin will expand to 52.3% (+82bps QoQ). We prefer MCX in the exchanges space, aided by continued traction in options volume, healthy new product pipeline (index and mini contracts) and expected cost savings due to a change in tech vendor. The extension of the support timeline by the existing technology vendor will impact profitability in the short term. "We have not assumed any additional payout to the tech vendor. MCX options ADTV continues to rise (+24% QoQ) and futures ADTV remained flat in a seasonally weak quarter. The options ADTV stood at INR 389bn, which is up ~3.5x YoY. The futures volume softness was led by crude (-11% QoQ). The effective ADTV (futures + options) is up 54% YoY, reaching INR 432bn in Q3FY23. Maintain BUY, with a TP of INR 1,950, based on 30x Sep-24E core EPS," the brokerage has said. 

2. BSE Ltd.

HDFC Securities has assigned an Add on the stock of BSE with a target price of Rs 610/share. The stock is currently trading at Rs 520/share on NSE. With the given target price, the brokerage claims a potential upside of up to 18% from its current level.

The stock has fallen 2.32% in the past 1 week and 26.56% in the past 1 year. However, it surged 185.46% in 3 years, giving the highest return. While in the past 5 years, it gave 71.55% positive return. The stock recorded its 52 week high at Rs 1,046.67/share and 52 week low at Rs 518.10/share on NSE, respectively. 

Brokerage's Views

BSE market share declined across segments, cash/derivatives/currency market share stood at 7.4/1.2/13%, down 46/46/550bps QoQ. The cash turnover remained weak, down 2% YoY. The exclusive/non-exclusive cash volume declined by 6/12% QoQ. The mutual fund platform (StAR MF) grew 37% YoY but the pace of growth has deteriorated. "BSE is expected to report a weak quarter, a revenue decline of 1.2% QoQ and an EBITDA margin of 28.2% (-169 bps QoQ). We have reduced revenue/EBITDA estimates by ~2/8% for FY24E. We maintain our ADD rating with a target price of INR 610, based on 20x core Sep-24 PAT (vs 25x earlier) + net cash + CDSL stake (15% discount)," the brokerage has said. 

3. Central Depository Services (India) Ltd. (CDSL)

The brokerage has assigned a Add call to the stock of CDSL with a target price of Rs 1,180/share. The stock's current market price on NSE is Rs 1,055.10/share. According to the given target price, the stock has the potential to give up to 12% return on investments. 

In the past 1 week, the stock has fallen 2.13%, whereas, in the past 1 year it fell 34.56%. However, The stock has given a massive 286.63% return in the past 3 years and 200.09% returns in the past 5 years. Its 52 week high is Rs 1,646.60/share and 52 week low is Rs 1,015/share on NSE, respectively. 

Brokerage's views on CDSL

CDSL added ~2.1mn accounts in Dec-22 and the market share stood at 71.9% (+300bps YoY). The pace of BO account growth has moderated to ~34% YoY vs >60% last year. CDSL's revenue is expected to increase by 1.6% QoQ on the back of some recovery in transaction revenue and stable issuer charges, offset by a decline in e-voting. Margin will improve by 53bps to 61.9%. The annuity component (BO linked) is driving growth for FY23E, while market-linked revenue (~60%) is declining, following two years of solid growth. "The regulatory requirement for dematerialising insurance policies could provide an additional trigger. The stock is trading at a P/E of 32x FY24E core PAT. We maintain ADD rating with a TP of INR 1,180, based on 33x Sep-24E core PAT + net cash," the brokerage has said. 

4. Teamlease Services Ltd.

HDFC Securities has a Buy on the stock of Teamlease Services with a target price of Rs 3,260/share. The stock is currently trading at Rs 2,493.15/share on NSE. If stock is purchased at the current market price, it would fetch a return up 31%. 

The stock has given 1.22% negative return in past 1 week. It has given a massive 40.69% negative return in the past 1 year and 11.5% negative return in the past 3 years, respectively. However, in the past 5 years, it has given 8.68% positive returns. On NSE, its 52 week high is Rs 4,688/share and 52 week low is Rs 2,236/share, respectively. 

Brokerage's views

Teamlease is expected to post a muted quarter due to softness in NETAP and IT staffing. We expect a net addition of ~5.5K associates in general staffing, while NETAP and specialised staffing addition will be flat QoQ. Revenue is expected to grow 2.0% QoQ and EBITDA margin will expand by 16bps QoQ to 1.8%. The margin expansion has been slower than expected due to rising wages and a flat PAPM. The regulatory issue is impacting NETAP additions and IT hiring is weak. "We expect the company to clock ~20% growth, led by volume growth of ~15% and wage inflation of ~5%. Margin expansion levers are better associate-to-core ratio, change in revenue mix, and better profitability in HR services, while general staffing margin expansion will be limited. We estimate +20/22% revenue/EPS CAGR over FY22-25E. Maintain BUY, with a TP of INR 3,260, based on 30x Sep-24E EPS," the brokerage has said. 

Disclaimer

The stocks have been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.