Sharekhan Sees Potential Upside Of Nearly 39.08% From 2 Stocks: 1 Small Finance Bank Stock & 1 Auto Stock

Sharekhan has asked investors to buy shares of Au Small Finance Bank Limited and Bosch Limited. The brokerage feels that the share price of both the companies has the potential to rise nearly by 39.08% from the current levels. Given below are the details

1. Au Small Finance Bank

Near to medium-term outlook looks stable to positive for AU Small Finance Bank Limited

Au Small Finance Bank Limited was started as a vehicle finance company and in 1996 converted to small finance company. The bank caters to low and middle income individuals, and micro and small businesses that have limited or no access to formal banking and finance channels. It offers loans, deposits and payment products and services. The current market capitalisation is of Rs 38,927.91.

According to the brokerage research report, the near to medium-term outlook looks stable to positive for the small finance bank, except for the cost of funds. Although there has been a steep rise in the incremental cost of funds (~100 bps) in the past 12 months, at the book level, spreads have remained broadly stable, aided by an uptick in book yield (driven by higher disbursement yield and repricing of the commercial banking book, which is a floating rate book). The bank has been guiding for 25-30% loan growth in the near to medium term. We believe upside risk to loan growth guidance remains, although balance-sheet growth focus has shifted from asset-led to liability-led strategy. Margins are expected to be range-bound/stable and the overall outlook on asset quality continues to remain stable to positive. The bank has demonstrated its ability to execute and deliver superior performance.

Valuation based guidance: buy stock of AU Small Finance Bank, with a target price of Rs 800 per share

Shrekhan sees a potential upside of 39.08% from the share price of AU Small Finance Bank,as per the research report. The stock is currently trading at 3.1x/2.7x its FY2024E/FY2025E ABV estimates. Accelerated investments to uplift the franchise to sustain growth and expand more steams of revenue and activities, with the eventual goal of becoming a universal bank. The objective is to maintain a strong credit filter, granular growth in assets and liability along with sustaining stable spreads, all of which should bode well for future earnings growth. We maintain our Buy rating on the stock with an unchanged price target of Rs 800 per share.

Share price movement of AU Small Finance Bank Limited

The stock price of this small finance bank ended 3.62% higher to Rs 583.85 per share than the previous day's closing. Its 52-week is at Rs 732.90 per share and 52-week low is at 538.80 per share. In one year the stock has fallen by 2.86% but over three years it has surged by 129.47%

2. Bosch Limited

Bosch Limited reported subdued performance but would report healthy improvement

Bosch Limited is the flagship company of the Bosch Group in India and is large cap company founded in 1951. It is a leading supplier of technology and services in the areas of Mobility Solutions, Industrial Technology, Consumer Goods, and Energy and Building Technology, largely for auto mobiles. Additionally, Bosch has in India the largest development center outside Germany, for end-to-end engineering and technology solutions. The Bosch Group operates in India through twelve companies.

The brokerage believes that despite the subdued performance in the past, Bosch has potential to show improvement and have health growth. "Bosch has reported subdued performance over FY2016-FY2021 owing to volatility in the MHCV segment, moderation in its capex cycle, increased raw-material outsourcing, and organisational restructuring. Bosch has seen continuous EBITDA margin erosion from 19.4% in FY2016 to 12% FY2021 and registered marginal improvement at 12.4% in FY2022. We believe revival in the CV growth cycle along with the implementation of new emission norms would improve content per vehicle and gradual increase capex to support its EBITDA margin expansion on the shift in opex to capex in the medium term.

Valuation based guidance: buy stock of Bosch Limited, with a target price of Rs 21,929 per share

Sharekhan feels that the share price will grow by 16.33% for it has strong capabilities We assume a 270-bps expansion in EBITDA margin over FY2022-FY2025 to 15.1% in FY2025E. Further, Bosch would have a competitive edge in new power train technologies (EV and hydrogen) due to the supportof its parent. The company's order book remains buoyant, providing growth visibility. We retain our Buy rating with a revised PT of Rs. 21,929 (30x its FY2025E EPS), in expectation of increasing content per vehicle on implementation of BSVI phase 2 norms from April 2023, EV opportunity, and revival in financial performance. The stock trades at a P/E of 25.3x and EV/EBITDA of 16.9x its FY2025E estimates.

Share price movement of Bosch Limited

The stock price of this small finance bank ended 3.62% higher to Rs 18995.40 per share than the previous day's closing. Its 52-week high is at Rs 19,118.30 per share and 52-week low is at 12,940.10 per share. In one year the stock has grown by 31.53% but over three years it has surged by 92.42%.

Disclaimer:

The stocks have been picked from the brokerage reports of Sharekhan, Greynium Information Technologies and 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.