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Buy Shares Of NMDC & BEL, Says Motilal Oswal
Broking firm Motilal Oswal has placed a buy call on the shares of NMDC and Bharat Electronics (BEL). The firms sees the potential of a sharp rally in both the stocks and has advised investor to buy these shares for the long term.
NMDC
NMDC is the largest iron ore mining company in India. The company is also a good profit making company and has been regularly paying dividends.
"NMDC is a play on strong iron ore prices and volumes. We expect a strong 14% volume CAGR to 43mt over FY21-23E, aided by the resumption of the Donimalai mines and increased volumes at Chhattisgarh. While the non-renewal of export contracts implies higher domestic volume sales - given the robust demand and iron ore shortage domestically - we expect NMDC would be able to increase volumes in the domestic market," the brokerage firm has said. Recently, the prices of iron ore have been trending upwards, which is good for the company.
NMDC: Potential for a 20% upside
Motilal Oswal Institutional Equities has placed a target of Rs 215 on the shares, which is a solid 20% higher from the current levels.
"We value the stock at Rs 215 per share on SOTP, valuing the Iron Ore business at 5.0x FY23E EV/EBITDA. We add the value of the steel plant at 25% of the book value. At current market price, the stock is trading at 4.0 times the core Iron Ore Mining business and provides an attractive dividend yield of 13%. Reiterate Buy," the brokerage has said.
The shares of NMDC were last seen trading at Rs 175.60 on the NSE.
Bharat Electronics: Buy the stock with 16% potential upside
Motilal Oswal Institutional Equities has also placed a buy call on the stock of Bharat Electronics Ltd (BEL), which caters to the defence market.
According to the firm, the management of BEL aims to grow the non-Defense (Civil) part of the business, via categories like: a) medical equipment, b) metro projects, c) EV batteries, d) space systems, e) aerospace (sensors etc.), and f) smart city projects. It is aiming at an export growth of over 15% (over USD60m) in FY 2022.
"We forecast revenue/EBITDA/PAT CAGR of 11%/9%/11% over FY21-24E. We have built in a sufficient margin cushion as we assume an EBITDA margin of 21.7%/21.2% by FY22E/FY23E (v/s 22.6% reported in FY21). Our revised target price stands at Rs 195 per share (18 times FY23E EPS). At the current market price, the stock trades at 17x/16x FY22E/FY23E P/E, despite having an RoE/RoCE of 19%/20%, dividend yield of 3%, and FCF yield of 2-4%. Maintain Buy. Higher growth in the non-Defense business poses an upside risk to our EPS estimates, while working capital deterioration poses a key downside risk to valuations," Motilal Oswal Institutional Equities has said.
Disclaimer
Views mentioned herein are taken from the brokerage report of Motilal Oswal. Neither the author, nor the brokerage nor Greynium Information Technologies would be responsible for losses incurred based on the article. Please consult a professional advisor. Investing in stock markets is risky.
