ICICI Direct Bets On 4 PSU Stocks From Capital Goods & Power Sector, Buy For Gains Up To 54%

Leading Brokerage firm ICICI Direct in its January 9, 2023, published report on Capital Goods & Power sector has picked 4 PSU Stocks. These 4 stocks are Bharat Electronics, Cochin Shipyard, and HAL. According to the brokerage with the given target price to the stocks, it can surge up to 54% from there current level. Here are the key takeaways from the report.

1. Bharat Electronics Limited

ICICI Direct initiates a buy on the stock with a target price of Rs 135/share. The stock last traded at Rs 99.15/share on NSE. If you buy the stock at the current market price it could give return up to 37% gains. The stock has given 41.07% positive return in 1 year. It has given 206.02% multibagger return in 3 years and 65.3% positive return in the last 5 years, respectively.

According to the brokerage, Q3FY23 revenue is expected at Rs 4081.0 crore (+10.5% YoY) led by better execution. H1FY23 revenue growth also remained strong at 33.3% YoY on improvement in execution and recognition of some un-booked revenue from FY22 (as supply chain issues impacted FY22). EBITDA margin is expected at 22.2% (flattish YoY), resulting in absolute EBITDA increasing by 10.4% YoY to Rs 908.0 crore. PAT is expected at Rs 653.1 crore (+12% YoY). Order backlog was at Rs 52,795 crore as of September 2022 end (~3.1x TTM revenues). Orders inflow during FY23 are expected at Rs 18,000-20,000 crore.

About Company

Bharat Electronics Limited is a Navratna PSU under the Ministry of Defence, Government of India. It manufactures electronic products and systems for the Army, Navy & Air Force. It is a large-cap company with a market capitalisation of Rs 72,476.46 crore. 

2. Cochin Shipyard Limited

The brokerage has placed a buy on the stock with Rs 745/share target price. The stock last traded at Rs 486.50/share on NSE. According to the given target price, if you buy the stock at the current market price, it is likely to give a return of 54%. The stock moved up 39.48% in the last 1 year. It moved up 21.73% in the last 3 years. However, it moved down 8.89% in the last 5 years.

The brokerage said, "For Q3FY23E, we expect Cochin Shipyard to post muted revenue growth of 1% YoY to Rs 962.4 crore as large part of the order book is yet to see meaningful execution. Moreover, the company has already achieved 9.6% YoY growth in H1FY23 and H2FY23 revenue growth is expected to remain muted (as H2FY22 revenue jumped significantly on sequential basis on pickup in execution). We expect EBIDTA margin at 17.3% vs. 14.8% YoY leading to absolute EBIDTA growth at 18.1% YoY to Rs 166.9 crore. PAT is expected to grow 15.8% YoY to Rs 149.8 crore. Cochin Shipyard is preparing for the next set of orders to be executed."

About Company

Cochin Shipyard is a Miniratna-1 PSU under the Ministry of Ports, Shipping & Waterways, Government of India. It is a leading player in the construction of all kinds of vessels, repairs and refits of all types of vessels. With a market capitalisation of Rs 6,399.44 crore, it is a small-cap company. 

3. Hindustan Aeronautics Limited (HAL)

The brokerage has assigned a buy on the stock with a target price of Rs 3,300/share. The stock's current market price on NSE is Rs 2,479.35/share. If you buy the stock at the given target price, you can anticipate a return up to 34%, considering the given target price. The stock since its listing on 28 March 2018 has given 118.86% multibagger return. Whereas, in the past 1 year it gave 91.27% positive return. In the past 3 years, it has given 236.66% multibagger returns.

The brokerage said, "We expect revenue growth of 2.4% YoY in Q3FY23 to Rs 6032.1 crore as the base was considerably higher on better execution during Q2FY22, Q3FY22 after a muted Q1FY22. Moreover, H1FY23 revenue growth remained strong at 22.3% YoY (on lower base and improvement in execution) and FY23E revenue guidance remains at ~8% YoY (large part of order book in manufacturing segment is yet to start execution), which implies relatively muted growth during H2FY23. EBITDA margin is expected to remain at similar levels at 24.3% on a YoY basis leading to absolute EBITDA growth at 2.7% to Rs 1465.4 crore. PAT is expected at Rs 937.5 crore; flattish YoY. The order book was at Rs 83858 crore as of September 2022 end (~3.2x TTM revenues) led by large scale orders in manufacturing aircraft/helicopters (Tejas LCA Mk1A, LCH and ALH)."

About Company

HAL is a large cap Navratna PSU company with a market capitalisation of Rs 82,906.36 crore. The company is engaged in the business of Manufacture of Aircraft and Helicopters and Repairing, and Maintenance of Aircraft and Helicopters.

4. Bharat Dynamics Limited

The brokerage has a buy on the stock with Rs 1,200/share target price. The share price of the stock on NSE is Rs 916.40/share. With the given target price, the stock can fetch a positive return of up to 31%. Since its date of listing, 28 March 2018, the stock has given 135.09% multibagger return. Whereas, in the past 1 year it gave 129.33% positive return. In the past 3 years, it has given 207.67% multibagger returns.

The brokerage said, "We expect Q3FY23 revenue at Rs 862.6 crore, up 7.3% YoY led by better execution of orders received for surface to air missiles and anti-tank guided missiles over FY21 & FY22. EBITDA margin is expected to be decline 900 bps at 27% as margins in Q3FY22 increased sharply on improvement in gross margins and better operating leverage benefit on higher sales. Thus, absolute EBITDA is expected to decline 19.5% YoY to Rs 232.9 crore on lower margins. PAT is expected at Rs 172.2 crore; down 20.1% YoY. Order book was at Rs 12000 crore as of September 2022 (3.5x TTM revenues) gives strong revenue visibility. Moreover, Rs 22000 crore worth of orders are in the pipeline for the next three to four years gives more comfort on future earnings."

About Company

Bharat Dynamics Limited is a Miniratna PSU under the Ministry of Defence, Government of India. The company is engaged in the manufacturing base for guided missile systems and allied equipment for the Indian Armed Forces. It is a midcap PSU company with a market capitalisation of Rs 16,795.89 crore.

 

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. 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.