Motilal Oswal Has A “Buy” Call On These 3 Stocks For Solid Returns

Buy Lemon Tree Hotels

Motilal Oswal has set a price target of Rs 70 on the stock of Lemon Tree Hotels, as against the current market price of Rs 52, which means a sharp upside.

Revenue at the company grew 2 times YoY in 2QFY22, led by robust RevPAR growth of 80% on account of a 19pp improvement in occupancy. The latter was driven by a sharp recovery in retail demand and 14% rise in ARR. EBITDA surged 4.1x YoY benefitting from operating leverage.

Lemon Tree garners 85% of its business from domestic Indian travelers, it is expected to clock a faster recovery as international travel demand gradually revives.

Of the 5,200 owned rooms, 65% of rooms were constructed at a rate of INR5m per key and the balance at INR10m per key, due to increased prices of cement, steel, etc. At current commodity price levels, it is unviable for other players to add/build new supply. This, coupled with constrained
supply over the next 4-5 years, is expected to be benefit Lemon Tree.

"Factoring in better demand visibility, we increase our FY22E EBITDA estimate by 16% (on low base), but have maintained our FY23 EBITDA estimates. We maintain our Buy rating on the stock of Lemon Tree Hotels," the brokerage has said.

Buy Ceat

Motilal Oswal also has a buy call on the stock of Ceat Ltd. "Operating performance above our estimate led by strong revenue beat, PAT miss due to higher depreciation and interest," the brokerage has said.

Commenting on the quarter gone by, Mr. Anant Goenka, Managing Director, CEAT, said, "Overall market demand continues to remain robust, despite some lag in Commercial and Farm categories. We witnessed strong growth (28%) compared to the preceding quarter on account of a good performance in the Replacement market, particularly in the Passenger segment. Rising input costs
has impacted gross margin. However, it has been partially offset by price adjustments over the last quarter."

Buy MCX

The brokerage also has a buy call on commodity exchange company MCX. "We expect the company to see a significant EBIT margin benefit once the new trading software (currently being developed by TCS) goes live (Sep'22). This, along with a positive operating leverage, should aid consistent margin improvement. We expect a 12pp EBIT margin improvement over FY21-23E," the brokerage has said.

Motilal Oswal remains confident of higher institutional participation and an increase in the number of hedgers over the longer term. This should add depth to the market.

We adopt a positive stance on increasing volumes of underlying commodities, of which MCX would be a primary beneficiary. "We have cut our FY22E/FY23E EPS estimate by 14%/7%, factoring in an operational miss in 2QFY22 and lower other income led by migration of investments to low yield securities. We continue to like MCX for its near-monopoly in the Commodity Exchange segment in India (market share of 92%). We value the company at 37x FY23E EPS. Reiterate Buy," the brokerage has said.

Disclaimer

The above stocks are picked from the brokerage report of Motilal Oswal. 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.