Stock To Buy: 1 Small & 2 Mid Cap Stocks Are Top Muhurat Picks By ICICI Direct

On the auspicious day of the Diwali festival Muhurat trading will take place on Indian stock markets. The one-hour Muhurat trading for Diwali will be held at BSE and NSE on 24 October. During Diwali, the Indian stock markets are trading down, however, on Friday, after experiencing volatility in the closing stages of trades, equity benchmark indices were able to close in the green. Amid rising Interest rates and market volatility, the leading brokerage firm ICICI Direct has placed a buy call on one small-cap and two mid-cap stocks. These three stocks are among the top Muhurat picks by ICICI Direct. These 3 stocks are City Union Bank, Apollo Tyres, and Healthcare Global Enterprises.

1. City Union Bank (CUB)

City Union Bank is an old private sector bank with primary focus on MSME and agri loans that form ~61% of overall advances. Total ~99% of its advances are secure in nature.

The bank reported ~10% CAGR in advances in the last five years and is expected to grow at a CAGR of 13% in FY22-24E. With a revival in economy, the management has also revised its credit growth guidance upwards to 15-18%, which is encouraging. Advances to top 20 borrowers constitutes ~5.3% of total advances (lower in the past few years), indicating the bank's focus on a granular loan book.

After impact of Covid lockdowns, asset quality hiccups seem to be fading away as incremental stress formation remains under control. Led by lower slippages, GNPA and NNPA were at 4.6% and 2.8%, respectively, as of June 2022. The management has guided that recoveries and upgrades will be higher compared to fresh slippages in FY23E. However, higher slippages from the restructured book can be a spoilsport.

"The bank is aiming to strengthen its digital platform and branch expansion, which will keep opex elevated in the near term. Revival in MSME is expected to benefit credit offtake as well as recoveries in stressed asset pool. Steady margins at ~4% and healthy business growth will aid operational performance and return ratios. We believe City Union Bank will deliver RoA, RoE of ~1.5%, ~13%, respectively, in FY22-24E," the brokerage said.

With healthy CRAR at ~20.5% (tier I at 19.4%), the bank is expected to continue higher business growth in FY22-24E without any significant dilution.

Stock Outlook - CMP, Market Cap, Target Price, Returns & Potential Upside

CUB is currently trading for Rs 185.45 per unit on the NSE. With a market capitalization of Rs 13,715.60 crore, it is a mid-cap stock.
 
 A target price of Rs 215 per unit has been set by the brokerage, with a buying range of Rs 170-185. It sees a 15% potential upside from its current level.
 
 In the past one year, the stock has given 8.83% positive return. In the past 3 years, it has given 13.96% negative return. In the last five years, it has returned a profit of 29.44%.

2. Apollo Tyres Limited (ATL)

Apollo Tyres (ATL) is a leading tyre manufacturer, with operations in India (~67% of sales) & Europe (~31% of sales). In India, ATL has a substantial presence in TBR (31% market share) & PCR space (21% market share). On a consolidated basis, segment wise mix is at truck, bus ~43%, PV ~35%, OHT ~10%, others ~12%. Channel mix for FY22 is as 81% for the replacement market, 19% through OEMs.

Domestically, ATL is expected to benefit from cyclical upswing in the CV space coupled with double digit growth in PV domain driven by greater consumer preference for SUVs. It has already restructured its European operations, which now on a consistent basis are reporting higher double digit margins with share of value added products on a continuous rise.

Natural rubber and crude derivatives form a majority (~65-70%) of raw material costs for tyre manufacturing. Both these commodities have witnessed a healthy correction with natural rubber down ~15% from April 2022 levels and are now hovering around the Rs 150-155/kg levels from the highs of | 170+/kg. Even crude is down ~20%+ from June 2022 levels and is currently hovering at ~US$90-95/barrel. This bodes well for all tyre manufacturers with ATL a key beneficiary.

With a target to achieve revenues of $5 billion by FY26, EBITDA margin of at least 15%, RoCE of 12-15% and net debt to EBITDA of less than 2x, ATL is currently focusing upon capital efficiency, sweating of assets, controlled capex spends, healthy FCF generation & deleveraging of b/s. With a reduction in debt, RoCE at ATL is seen at 13% by FY24E. It is currently trading at inexpensive valuation of ~5x EV/EBITDA on FY24E.

Stock Outlook - CMP, Market Cap, Target Price, Returns & Potential Upside

The current market price of ATL is Rs 281.75 apiece on NSE. It is a mid-cap stock having a a market cap of Rs 17,893.97.60 crore.

With a buying range of Rs 260-275, the brokerage has set a target price of Rs 335 per share. It sees a potential upside of 19% over its current level, considering the given target price.

The stock in a week surged by 3.93%. The stock has given 24.59% positive return in past 1 year. 51.44% positive return in past 3 years. It has given 16.76% positive return in the past 5 years.

3. Healthcare Global Enterprises (HCG)

HCG operates one of the largest private cancer care networks in India with end-to-end solutions available under a single corporate entity. Most centres are on a lease or rental basis with some in partnership with local doctors or hospitals. Owing to an exclusive agreement with vendors, HCG procures equipment on a deferred payment basis. Milann offers seven fertility centres in India 

HCG network has 22 comprehensive cancer centres (one in Kenya), four multi-specialty hospitals. HCG India, capacity beds: 1944; 1702 operational. Revenue mix FY22: HCG: 96%, Milann: 4%; occupancy FY22: 58.3%; ARPOB FY22: 36,697.

HCG, with its integrated, one-stop-solution and focused model, is well poised to capture growing potential with pan-India focus on cancer therapy. Oncology cases are expected to increase by 100,000 to 350,000 cases a year, which bodes well for HCG with hybrid presence (Metros/Tier-2,3 towns).

It is focused on consolidating existing network through cost optimisation measures to improve margin and ramping up patient's footfall by engaging in direct-to patient promotion strategies. De-leveraging of balance sheet (debt reduction from ~Rs 900 crore to ~Rs 650 crore by FY24E), reduction of losses across new centres have substantially eased legacy overhangs.

"We value HCG at Rs 345 (HCG existing centres, new centres at 12x FY24E EV/EBITDA and Milann centres at 1x FY24E EV/sales)," the brokerage said.

Stock Outlook - CMP, Market Cap, Target Price, Returns & Potential Upside

On NSE, the current market price (CMP) of HEAGLO is Rs 287.95 per share. It is a small-cap stock with a market cap of Rs 4,004.835 crore.

The brokerage has estimated a target price of Rs 345 apiece with buying range between Rs 285-305. It sees a potential upside of 20% from its current level.

The stock in a week surged by 3.93%. The stock has given 24.59% positive return in the past 1 year. 51.44% positive return in the past 3 years. It has given 16.76% positive return in the past 5 years.

Disclaimer

The stocks have 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 check with certified experts before making any investment decision.