Buy These 2 Stocks For 23% Gains Says Motilal Oswal

Updated: Tuesday, August 10, 2021, 12:00 [IST]

Broking firm, Motilal Oswal has a buy call on the stocks of Bank of Baroda and Bharat Electronics with a price target that is up to 23% higher than the current levels.

Buy Bank of Baroda with a price target of Rs 100

Current market price, Bank of Baroda	Rs 81.50
Target price	Rs 100
Gains	23.00%

Bank of Baroda reported a strong earnings performance, supported by a healthy core operating performance, despite sluggish business trends. Domestic Net Interest Margins improved sharply by 39 basis points on quarter to quarter basis to 3.12%.

Asset quality trends were stable sequentially in a challenging environment, with fresh slippage at Rs 51.3 billion (annualized slippage rate of 3.1%).

"Bank of Baroda reported a healthy earnings performance, supported by strong Net Interest Income and sharp improvement in domestic NIMs. The margin expansion was supported by an improving asset mix, as retail growth held strong, while corporate loans declined 11% QoQ.

The bank expects growth to pick up, led by retail segments, while corporate growth would see gradual recovery as the economic situation normalizes. The bank reported stable asset quality in a challenging quarter, with stable CE at 93%. Furthermore, SMA 1/2 declined to 2.7% of loans. We increase our earnings estimates by 47%, 22% for FY22/FY23E and estimate RoA/RoE of 0.7%/10.3% by FY23E. Therefore, we upgrade our rating to BUY, with revised target price of Rs 100 (0.7x FY23E ABV)," the brokerage has said.

Buy Bharat Electronics, target price Rs 205

Current market price, Bharat Electronics	Rs 172
Target price	Rs 205
Gains	20.00%

Bharat Electronics is working on entering newer segments, including lithium ion battery manufacturing. The lithium ion technology is not a new area for the company has been using it in defense applications for over a decade. It has initiated discussions with OLA and could start manufacturing lithium ion batteries if the discussion materializes. In this case, Bharat Electronics would apply for PLI as well.

According to Motilal Oswal, the company maintained its revenue guidance at 15-17% growth and margin guidance at 22% for FY22, and is confident of achieving this despite the miss in 1QFY22.

On the order front, Bharat Electronics expects more than Rs 150 billion worth of order inflows in FY22. Large orders such as D-29 and Himshakti are expected to come in 2QFY22. The management expects Rs 10-15 billion worth of orders per year from the Metro business from FY23

"We maintain a Buy rating. 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 has said in its report.

Disclaimer

The stocks are taken from brokerage report of Motilal Oswal and is for informational purpose only. You should analyse your risk and other aspects before participating in the equity markets. Further a more cautious approach is needed when markets trade at record highs. Investments mentioned here need not be construed as investment advice, the company and the author shall not be responsible for any decisions taken based on the above report.