Stocks to Buy: Motilal Oswal Says These 4 Stocks Can Deliver Good Returns

Motilal Oswal Says These 4 Stocks Can Deliver Good Returns

ICICI Prudential

India's life insurance industry is well positioned to generate sustainable long-term growth. Insurers should expect good company growth thanks to a growing share of financial savings, higher discretionary incomes, and favourable demographics.

Indian insurers are expected to trade at a premium to their global counterparts, according to Motilal Oswal.
"The share of banca (excluding ICICI Bank) increased to ~11% v/s 5% in FY18. Persistency rate has improved, reflecting strength in business quality. We expect this trend to continue, aided by a higher mix of the Non-Linked Savings/Protection business, both of which have a higher persistency rate. Howe ver, profitability has been affected due to higher settlement of COVID-19 claims (3.2x rise over FY21) and increased provisions. We estimate IPRU to deliver ~32%/36% CAGR in new business APE/VNB growth over FY21-23E, led by improving margin (29% by FY23E), thus enabling an improvement in operating RoEV to ~17%. We maintain our Buy rating with a TP of INR700/share (2.6x FY23E EV)," Motilal Research report said.

ICICI Prudential

Large corporations have a significant opportunity to offer Group term plans because employee immunization rates have improved dramatically. Credit Life has also recovered to pre-COVID levels. As a result, while short-term difficulties in Retail persist, the share of Group Protection has climbed.

CMP: Rs 605
TP: INR700 
Upside: 16%
Rating: BUY

HCL Tech

HCLT grew by 0.7 percent QoQ (CC), falling short of our forecast of 2.4 percent, due to weak growth in IT Services. EBIT margin was down 80bp QoQ in 4QFY21, excluding the impact of a one-time bonus, and missed our forecast by 130bp due to COVID-related charges of 90bp, according to Motilal Oswal research report.

"We downgrade our FY22E/FY23E EPS estimate by 4%. We factor in a revenue miss and lower growth in the Products and Platforms business. We have reduced our margin estimate to factor in higher sales and marketing investments in FY22E. We maintain our Buy rating as we expect traction in the Services business in 2HFY22E and FY23E, driven by higher IMS/Cloud focused deals. Our TP of INR1,180 per share implies 20x FY23E EPS." Motilal Oswal said in its research report.

HCL Technologies

Broad-based sequential growth, coupled with healthy deal wins and a robust pipeline, indicates an improved outlook. We estimate strong performance in the Products business, led by HCLT's capabilities to rightly align and sell these products in the long run, added further.

CMP: INR1,000
TP: INR1,18
Upside: (+18%)

EPL

The results and significant initiatives in the Personal and Oral Care categories are highlighted in EPL's FY21 Annual Report. The research also examines company performance and trends in each of the four geographies: AMESA stands for Americas, EAP stands for Europe, and Europe stands for Europe.

"We expect a revenue/EBITDA/PAT CAGR of 13%/17%/24% over FY21-23E. With the impact of COVID-19 gradually subsiding, we expect Personal Care products to gain traction across geographies, particularly in Americas. We value the stock at 26x FY23E EPS. A steady increase in revenue share from the Personal Care segment (higher margin business and lower sensitivity to RM cost) and new product launches is expected to aid growth. Our TP of INR320 per share implies a 34% upside. We maintain our Buy rating" Motilal Oswal said in its report.

EPL

The earnings momentum would continue on the back of:
a) higher revenue sustainability owing to long-term contracts in the Oral Care segment
b) a steady increase in revenue contribution from the Personal Care product category,
c) growing traction in the volume of recyclable tubes (viz. Platina), along with an increasing shift toward Laminated Tubes (from plastic/aluminumtubes), and
d) a volume uptick across product segments and geographies (with the impact of COVID-19 gradually subsiding).

CMP: Rs 238
TP: Rs 320
Upside: (+34%)
Rating: Buy

Bajaj Finance

Bajaj Finance's (BAF) 1QFY22 PAT was up 4% YoY but down 26% QoQ to INR10 billion (27 percent miss). Opex was generally in line, with NII at INR37b (5 percent miss) up 12 percent YoY. Provisions came in at INR17.5 billion, compared to our expectation of INR15 billion. The company wrote off INR9.2 billion in loans while keeping COVID overlay provisions at INR4.8 billion, resulting in significant provisions, Motilal Oswal said.

"We estimate ~4.8% RoA / 23% RoE over the medium term. BAF's return ratios have not only been consistent but are also the highest in our Coverage Universe (ex-gold financiers). Given the strong recovery in Jul'21 and the healthy progress made in the digital transformation program (including wallets/payments), we reiterate Buy, with Target Price of INR6,750 (7x 1HFY24 BV), Motilal Oswal said in its research report.

Bajaj Finance

The Auto Finance (AF) division was the hardest hit, accounting for the majority of the asset quality decline during the quarter. Auto finance is a type of secured loan in which the item can be repossessed. As a result, it expects to be able to reclaim asset quality in the AF market if there are no additional lockdowns. Even in this area, the 3W business (30 percent of the AF market) has been the most badly damaged.

CMP: Rs 5,938
TP: Rs 6,750
Upside: 14%
Rating: Buy

Disclaimer

These four stock picks are from a Motilal Oswal Research report; however, before betting on any of the stocks, investors should conduct their own analysis and research. The brokerage recommendation made here should not be interpreted as investment advice.