Economic activity seems to be gathering steam and there is no better bet than on the stocks of cement, steel and auto. All the three are great stocks to buy as the economy recovers, which should propel earnings. Here are some reasons why Motilal Oswal is betting on these 3 stocks.
Buy Ashok Leyland for a 28% Upside, says Motilal Oswal
Broking firm, Motilal Oswal has a buy call on the stock of Ashok Leyland, India's second biggest commercial vehicle player. The firm believes that Ashok Leyland's Electrical Vehicle Strategy is in line with the technological revolution seen globally.
"We expect electrification in commercial vehicles to play out earlier in intra-city Buses and LCVs. While Ashok Leyland's strategy is exciting and leverages on the strengths of both Optare (Switch Mobility) and Ashok Leyland, details are awaited for a more concrete plan and timeline for their EV roadmap.
The brokerage believes that the company would benefit from an expansion of its revenue/profit pool by ramping-up in LCVs, Exports, Spares, and Defense. The stock trades at 18.3x FY23E EPS and 9.9x EV/EBITDA. We maintain our Buy rating," the brokerage has said.
Ashok Leyland recently showcased growth opportunities in the electrical vehicles segment. Its latest strategic initiative, through Switch Mobility, is in shaping the commercial e-Mobility space in India and overseas. Shares of Ashok Leyland were last seen trading at Rs 123 on the NSE.
Motilal Oswal is also bullish on another economy play, cement. The brokerage has recommended buying the stock of Dalmia Bharat in its latest report. Among the positives that the firm sees include margins led growth and a gain in market share for the company.
"Led by expansions, Dalmia Bharat is well-placed to gain market share. We estimate a 14% volume CAGR over FY21-23E," the brokerage has said.
The company aims to be a pan India pure play Cement company, having a significant presence in its operating geographies, and plans to grow capacity at 14-15% CAGR to 110-130mt by CY31. "Around Rs 50 billion has been allocated towards its new expansion plan, of which Rs 13 billion will be spent on clinker debottlenecking. We reiterate our Buy rating with a target price of Rs 2,480 per share on 12x Sep'23E EV/EBITDA, " the brokerage has said.
Motilal Oswal has set a 16% higher target on the stock of JSW Steel. The firm believes that the high debt levels are not a concern, as growth capex improves outlook.
"The announcement of the 7.5mtpa capacity expansion at Vijayanagar - coupled with the acquisition of Bhushan Power and Steel Ltd (BPSL) and the completion of the 5mtpa Dolvi expansion - indicates the management's focus to grow its market share and the comfort to manage its cash flows and leverage," Motilal Oswal has said.
"We like JSW Steel given its strong project pipeline and cost reduction initiatives, which should support margins. Over FY21-23E, we expect an above-industry volume CAGR of 17%, driven by the Dolvi expansion. We value JSW Steel at 6x FY23E EV/EBITDA to arrive at target price of Rs 840. Maintain Buy," the brokerage has said.
The stock recommendations mentioned above are from the report of Motilal Oswal. However, neither the author, nor Greynium Information Technologies Pvt Ltd would be responsible for the losses incurred based on a decision from the article. Investors are advised caution given that the Indian stock markets have rallied significantly from the lows of last year. Only investors who have the appetite to take risk should buy.