Budget Stock Picks: 4 Stocks To Buy Ahead of The Union Budget For Good Returns

The brokerage ICICI Direct has issued a buy call rating on the stocks Transport Corporation of India, Laurus Lab, United Spirits, and Mold-Tek Packaging. The brokerage has set a target period of 12 months for all of these stocks to reach their respective target price, which is briefly outlined below. Volatility may persist as the market is projected to see sharp price fluctuations, and these stocks may be good selections for investors ahead of the Union Budget.

Transport Corporation of India (TCI)

ICICI Direct has said in its research report that TCI's bouquet of services has dealt with increased disruption and volatility in the business environment. It has been able to post strong earnings momentum, even with its SCM vertical delivering a subdued performance. Due to continued strong margin performance and expected recovery of SCM segment in the medium term, we change our stance from HOLD to BUY. We value the stock at Rs 860 (SOTP).

Q3FY22 results according to the brokerage

• Revenues grew 6% YoY to Rs 759 Cr, led by freight, Supply Chain Management (SCM), shipping revenue growth of 8%, 10%, 43%, respectively.
• Absolute earnings before interest, taxes, depreciation and amortization (EBITDA) grew 42% to Rs 107 crore (EBITDA margins expanded 353 bps to 14.1%).
• Subsequently, profit after tax (PAT) nearly doubled to Rs 78 crore.

Key triggers for future price performance for TCI according to the brokerage

• TCI multimodal solutions cater to the needs of a diversified customer base and help it to capture a higher wallet share of its customers.
• Focus on margin improvement by controlled cost structure and higher value-added services.
• Strong fundamentals (b/s, CF) together with improvement in margins and higher asset turnover, are expected to push return ratios to 18-20% in FY24.

Laurus Lab

According to the brokerage "Laurus Lab's share price has grown by 4.6x over the past five years (from Rs 108 in January 2017 to Rs 500 levels in January 2022). Maintain positive stance with BUY rating on the back of optical product mix shift towards more margin accretive businesses via visibility CAPEX. We have a TP of Rs 625 i.e. 24x FY24E EPS of Rs 26.1."

Q3FY22 results as per the brokerage

• Sales were down 20.2% YoY to Rs 1028.8 crore.
• EBITDA was at Rs 285.3 crore, down 33.1% YoY with margins at 27.7%.
• Adjusted PAT was at Rs 153.7 crore (down 43,7% YoY).

Key triggers for future price performance of Laurus Lab as per ICICI Direct

• Formulations: Product launches in anti-diabetic (FY23) & CV portfolio (FY24) in US & Europe. Brownfield project to double capacity by April 2022.
• API: Robust order book in anti-diabetic, CV & PPI, brownfield capacity addition (FY22) & has a leadership position in APIs like ARVs, CVS, Oncology, etc.
• Synthesis: Well-positioned to meet fast-growing global demand for NCE drug substances and drug products. Setting up dedicated R&D center (operational FY23) & greenfield manufacturing unit (FY24).
• Biologics: Expanding the biologics CDMO at scale. Commercial scale-up of the new fermentation capacity (food proteins).
• Laurus is evolving as a strong vertically integrated player with strong order book visibility and incremental traction from custom synthesis.

United Spirits Ltd (USL)

The brokerage has claimed that "With its broad portfolio and focus on placing existing brands in the upper prestige segment, along with the introduction of several of its iconic brands from Diageo stable, USL is well placed to capitalise on the rapidly growing premiumisation trend in the sector. We remain positive on the long-term growth prospects of the stock and maintain our BUY recommendation. We value USL at Rs 1050 i.e. 52x P/E on FY24E EPS."

Q3FY22 results as per ICICI Direct

• Net revenues were up 16% YoY to Rs 2885 crore amid a 4% rise in volumes.
• EBITDA grew 28% to Rs 491 crore with margins at 17% (15.4% in Q2FY22).
• Consequent PAT grew 27% to Rs 292 crore, which includes one-off non-debt expense (Rs 18 crore) in interest expense.

Key triggers for future price performance of USL as per the brokerage

• Continued cost control measures and favourable product mix to negate hardening raw material inflation (both glass and ENA).
• Favourable regulatory environment (lower customs duty, higher distribution, composite shops, etc) in several states, leading to strong volume growth.
• Debt-free status, double-digit return ratios & strong cash generation.

Mold-Tek Packaging

ICICI Direct has claimed that "Mold-Tek's share price has grown by 3.5x over the past five years (from Rs 208 in January 2017 to Rs 725 levels in January 2022). We maintain our BUY rating on the stock. We have a target price of Rs 850/share on the stock. We value the stock at 23x P/E on FY24E EPS."

Q3FY22 results of Mold-Tek according to the brokerage

• Revenue grew 20% YoY to Rs 160 crore supported by high realisation. The volume growth came in lower by 6% YoY largely on a higher base and lower offtake in the paint segment.
• EBITDA margin declined 100 bps YoY to 19.7% mainly due to higher raw material costs.
• PAT increased 12% YoY to Rs 17 crore supported by higher revenue.

Key triggers for future price performance of Mold-Tek according to the brokerage

• Capacity addition (13% in the next two years), new launches (foraying into pharma packaging) and increasing wallet share from existing clients are expected to drive revenue.
• Aiming to increase EBITDA per kg to Rs 42/kg from Rs 35/kg in FY21. High margin pump and IML based QR-coded products to drive EBITDA/kg.
• Balance sheet to remain healthy with low debt, high return on capital employed (RoCE), return on equity (RoEs).

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.