Broking firm Sharekhan has recommended buying the stocks of oil marketing company, HPCL and KEI industries. The brokerage sees gains of 25% on the stock of HPCL with solid dividend yields and around 22% gains on the stock of KEI Industries. Let's take a look at why the brokerage is bullish on the stock.
Good potential for the HPCL stock
|HPCL current market price||Rs 259.25|
|HPCL target price||Rs 325|
HPCL is one of the top oil marketing companies in the country. Broking firm Sharekhan believes that there is a potential to see an upside of at least 25% in the stock.
Sharekhan expects earnings to recover as volumes revive (petrol/diesel at >105%/91% of pre-COVID level), likely structural improvement in auto fuel margin, cyclical recovery in GRM and inventory gains.
"Commissioning of Mumbai/Vizag refinery in FY22E would drive refinery throughput and FCF," the brokerage has said.
Re-rating on HPCL possible with BPCL privatization
HPCL reported a Q1FY22 PAT at Rs 1,795 crore (down 41% q-o-q) lagged estimate by 20% as the company reported GRM of $3.3/bbl and sharply missed estimates.
"The refinery/pipeline throughput was weaker than expected at 2.5 mmt/4.3 mmt, down 42.8%/19% q-o-q. Implied marketing margins rose 7% q-o-q (against an expected q-o-q decline) to Rs. 3,101/tonne led by auto fuel price hikes. Marketing sales volume of 8.8 mmt was in-line; refinery throughput fell due to shutdown for Mumbai refinery," the brokerage said.
According to Sharekhan, BPCL's privatisation could re-rate oil marketing company stocks. Apart from this, the stock also has a solid dividend yield.
"Valuation of 4.3x/0.8 FY23E EPS/BV is attractive considering recovery in core earnings, RoE of 20% and dividend yield of 7-8%. We maintain a Buy on HPCL with an unchanged price target of Rs. 340 on the stock," the brokerage has said.
Buy the stock of KEI Industries for an upside of 26%, says Sharekhan
|KEI Industries current market price||Rs 718.20|
|KEI target price||Rs 909|
KEI Industries is a top player in the cable industry business and offers an extensive range of cabling solutions. The company manufactures and markets Extra-High Voltage, Medium Voltage and Low Voltage power cables.
KEI reported better-than-expected performance for Q1 FY22 with revenue/ EBITDA/ net profits at Rs. 1018 crores, Rs 114 crores and Rs 67 crores. The performance was driven by strong growth in cables and stainless steel wire segment.
KEI industries: An upside of 26% on the stock
According to Sharekhan, the stock price of KEI industries can reach a price of Rs 909, which is about 26% higher from the current levels.
"KEI's outlook is expected to be positive with its diversified user industries, increased focus on retail, high-margin EHV cables, and export sales along with focused industry approach as well as utilisation-driven capex plans which is likely to help in sustaining a strong growth trajectory.
An uptick in housing demand bodes well for KEI Industries given its increased focus on brand building, distribution expansion & increasing B2C sales ahead of proposed entry into FMEG products. The stock is currently trading at a P/E of 16x/14x its FY2023E/FY2024E EPS which leaves further room for upside. Hence, we retain Buy on the stock with a revised price target of Rs. 909," the brokerage has said.
Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets have hit a new peak. Please consult a registered professional advisor before you take a decision.