Retail, Telecom And Logistic Stock To Buy As Suggested By ICICI Securities

Shoppers Stop- Festive fervour to accelerate revenue trajectory

ICICI Direct expects shares to rise from their current market price of Rs 330, with an upside potential of 21%, and has set a target price of Rs 400 for the stock.

Shoppers Stop has 80 department stores and 160 beauty format stores with a total floor space of 4.0 million sq ft and locations in 47 cities.

Q2FY22 Results of Shopper Stop

• Consumer sentiment returned dramatically after store limitations were eased, and revenue quickly recovered to 75 percent of pre-Covid levels.
• Revenue increased by 116 percent year over year to Rs 631.6 crore on a favourable basis.
• SSL was able to save Rs. 62 crore in operational costs (vs. Q2FY20 levels).
• To some extent, this reduced quarterly cash burns.
• PBT losses were Rs 4.1 crore in Q2FY21, compared to Rs 136.5 crore in Q2FY20. The company reported a negative FCF of Rs 65 crore in H1FY22.

Outlook and valuation on Shopper Stop Stock

"The stock price has underperformed broader indices in the last five years due to weak SSSG, muted store addition pace and lower share of private label brands. With the new management team in place, we expect SSL to revive its revenue trajectory and margin profile. Reasonable valuations prompt us to be positive on the stock and maintain BUY. Target Price and Valuation: We value SSL at Rs 400 i.e. 8.5x FY23E EV/EBITDA, the brokerage has said.

Key triggers for future price-performance:

• The festive season is off to a strong start, with sales in the East regaining more than 100 percent, followed by the North.
• We believe the incoming MD (previous Westside CEO) will bring his expertise in private label brands to the table and will focus on increasing private label share.
• In FY22E, the business plans to increase space by adding 10 stores.
• SSL implemented cost-cutting actions in FY21, with 45 percent expected to be sustainable. With lower breakeven sales for new stores, this would help margins in the future.

Tata Communications- Steady performance; one-offs aid EBITDA, PAT

ICICI Direct expects shares to rise from their current market price of Rs 1427, with an upside potential of 21% and has set a target price of Rs 1725 for the stock.

Q2FY22 Results of Tata Communications

• With data segment revenues dropping 2.2 percent YoY (on a high base) but showing modest 1.1 percent QoQ growth, the topline at Rs 4174 crore was down 5.2 percent YoY but up 1.7 percent QoQ.
• Assisted by one-off $ 50 crore for timing difference led personnel cost-benefit and reversal of charges, the consolidated EBITDA margin was 26.7 percent (up 36 basis points YoY, 263 basis points QoQ). Due to one-time margin gains and a lower tax rate, PAT of Rs 425 crore increased 10.6% YoY and 43.7 percent QoQ.

Target and Valuation

"Share price has grown at ~18% CAGR over the past five years. We maintain BUY on the company. Target Price and Valuation: We value TCom at a target price of Rs 1725," the brokerage has said. 

Key triggers for future price-performance:

• Platforms such as a) cloud, edge, and security b) next-generation connectivity c) NetFoundry d) MOVE & IoT will drive growth, with each having a significant market size growth potential of 15-25 percent CAGR in the next four to five years.
• In the entire data segment, we forecast a 7% revenue CAGR in FY21-23E, led by likely acceleration in growth from H2FY22 onwards. Overall margins are expected to be 25.5 percent in FY23, up from 24.9 percent in FY21. Deleveraging will be aided by strong cash flow generation.

Gateway Distriparks - Primed for next leg of growth

ICICI Direct anticipates the stock to grow from its current market price of Rs 264, with a 33 percent upside potential, to a target price of Rs 350.

Container train operators (CTO), cold chain logistics, and container freight terminals are just a few of the logistics verticals where GDL has a strong presence.

Q2FY22 Results

• Rail margin held steady at Rs 9200+/TeU | Revenues up 28 percent year on year to Rs 336 crore (46 percent rail volume growth)
• EBITDA increased by 40% year over year to Rs 91 crore, with margins of 27.1 percent (up from 24.9 percent in Q2FY21).
• As a result, PAT increased to Rs 47 crore from Rs 4 crore in Q2FY21.

Target and Valuation

"Commercialisation of DFC has led a peculiar tailwind for the business, led by higher asset turnover due to better turnaround times for the rail segment (27 hours from Gujarat based ports to NCR). It entails higher spare capacity from existing infrastructure and better return ratios. We remain positive on the stock and maintain our BUY recommendation. Target Price and Valuation: We value the stock at Rs 350 i.e. 23x P/E on FY23E EPS," the brokerage has said.

Key triggers for future price-performance:

• With payments to NCD holders and renegotiation of better interest yields with loan holders, debt and interest expense are likely to drop significantly from FY23E onwards.
• In the medium term, management intends to achieve 10000/TeU margins while also achieving a 1 lakh TeU/quarterly rail volume run-rate.
• This would result in a high level of FCF generation (>9% yield in FY23E).

Disclaimer

The above 3 stocks to buy are picked from the report of ICICI Securities. Please note investing in stocks is subject to market risks and one needs to be cautious at this point of time as markets have gone-up sharply. Neither the author, nor Greynium Information Technologies Pvt Ltd would be responsible for losses incurred based on a decision made.