No one can predict how the market will perform in the year 2022 but the volatility will remain constant. The market trends may be driven by the new Covid-19 variant, inflation risk along with a variety of factors, but one may expect stellar returns this year also from the outstanding sectors such as oil, telecom, pharma, IT, infra and FMCG. The outlook for 2022, according to brokerage company Axis Securities, is expected to be varied from that of 2021, and the market may not provide outstanding returns as it has in the previous year. As a result, in the face of sustained volatility, here are some top stock picks for 2022.
Bharti Airtel Ltd
The brokerage firm has set a target price of Rs. 780 for one of the country's largest telecom companies. Axis Securities has noted in its research report that "The Digital TV grew by 5.5% QoQ backed by strong customer addition of 282K during the quarter. Airtel continues to make good progress through innovative propositions and providing differential experiences to accelerate its business growth. It strengthened its network by deploying additional spectrum in multiple circles to significantly bolster its high-speed data capacity. The company's business fundamentals remain strong and continue to improve. The management foresees significant revenue and profit growth potential, supported by expanding distribution in rural areas, investment in the network, and increasing 4G coverage. Further strategic investment opportunities are available in tower sales, minority, and IPO investments in mobile money, among others."
The brokerage has claimed in its research report that "Airtel is gaining business momentum backed by strong customer addition and market share gains. The management is confident of gaining further momentum with favorable macroeconomic conditions diving data consumption, increasing penetration in tier 2 and 3 cities, rising use of DTH and other digital services. The management also guided for the ARPU of 200/month by FY22-end and eventually to 300/month levels. Bharti Airtel is to maintain an industry-leading ARPU in India with leading per-user data consumption (16.4 GB/month). We expect the company to benefit from the operating leverage as ARPU improves with 60-70% of the revenue pass-through to EBIT. Enterprise revenue was up 2.2% QoQ while the operating margin expanded by 145bps QoQ. Furthermore, Enterprise and Africa margins are expected to witness operating leverage as revenue increases with the addition of more subscribers."
According to the brokerage "Airtel reported better-than-expected results with strong revenue growth in Q1FY22. Revenues stood at Rs 26,854 Cr, improving by 4.3% QoQ and 15.3% YoY. The company's EBIDTA grew by 2.3% QoQ to Rs 12,331 Cr and EBITDA Margins expanded by 40bps QoQ to 48.3%, aided by strong execution and richer customer mix. Capex for the quarter at Rs 6,846 Cr was in line with expectations. The management has a marginal decline from the peak levels. We maintain our BUY recommendation based on SOTP valuation and arrive at a TP of Rs 780/share, implying a significant upside of 15% from CMP."
Larsen & Toubro Infotech (LTI) Ltd
The brokerage is bullish on India's one of the largest IT services companies Larsen & Toubro Infotech and has set a target price of Rs. 8335 for the stock. According to the brokerage "IT service provider's engagement with its partner network has expanded beyond certifications into the setup of co-innovation centers, building industry solutions, ISV partnerships and joint sourcing of deals. These partnerships play a significant role in implementation, rollouts & upgrades, validation and support services. The recent deal trend continues to be robust for LTI and is reflective of traction in BFSI, Retail & CPG, Manufacturing and BFSI verticals. LTI will continue to invest in Its digital product, Digital Talent and S&M which is imperative to drive growth. We believe that COVID outbreak will create huge opportunity across geographies for LTI to post strong organic growth over different verticals."
Axis Securities has claimed that "LTI management has taken cost optimization efforts which help them to gain long term sustainable operating margins. There are some tailwinds like better service mix, reducing the marketing spend, lowering travel cost, employee restructuring and improving utilization. We believe gaining efficiency over business will help them to get more profitability and higher return ratios. LTI deal pipeline remained industry-leading in Q2 FY22. LTI won many large transformation deals despite uncertainty and across verticals like BFSI, Communication, manufacturing, Automobile. This healthy deal pipeline will help to improve revenue visibility for FY22E and FY23E."
According to the brokerage "LTI reported better-than-expected Q2FY22 results. The company reported revenue of Rs 3,767 Cr (above our expectations) and registered a growth of 8.9% QoQ in CC terms. In line with the revenue growth, operating profit showed a considerable growth of 14.1% QoQ and stood at Rs 648 Cr. The company's Operating Margins expanded 80bps QoQ to 19.5% led by strong volume growth and its superior service mix. Net income for Q2FY22 stood at Rs 552 Cr, registering a growth of 11.1% QoQ. We recommend a BUY rating on the stock and assign a 49x P/E multiple to its FY24E earnings of Rs 170.3/share to arrive at a TP of Rs 8,335/share, implying an upside of 14% from CMP."
Birla Corporation Ltd (BCL)
For this cement stock, the brokerage has set a target price of Rs. 1750 in 2022. According to the brokerage "BCL is expanding its capacity by setting up a greenfield facility of 3.9 mtpa in Mukutban, Maharashtra which is expected to get operational in Q4FY22. The company's volume growth concerns are expected to subside post commercializing this facility, which in turn, will open new growth avenues for it moving forward. Factoring in the new capacity addition, we expect the company to deliver healthy volume growth of 12% CAGR over FY21-FY23E.
According to Axis Securities "The company's continued focus on increasing the sale of its premium cement has paid off well which is being reflected in the fast-growing popularity of premium brands such as MP Birla Cement Perfect Plus and MP Birla Cement Samrat Advanced in the independent home builders (IHB) segment. This has significantly improved premium cement's share in the overall trade sales to 50% from 40% last year, which in turn, has enabled the company to achieve higher realization during the year. Moreover, the company's focus on selling blended cement (which forms 92% of its overall cement sales) and increasing its trade sales by over 80%, further yields into higher realization. It helps the company in optimizing its costs as well as blended cement requires lower utilization of natural resources such as limestone.BCL is on track to expand its capacity by 25% which will reduce concerns over its volume growth moving ahead."
"We expect the company to register Revenue/EBITDA/APAT growth of 15%/16/%/21% CAGR over FY21-FY23E, driven by volume CAGR of 12% and consistent realization improvement of 2% CAGR over the same period. The stock is currently trading at 10x and 7.5x FY22E and FY23E EV/EBITDA which is attractive compared to other similar peers in the industry. We recommend BUY with a TP of Rs 1750/share," the brokerage claims.
H.G. Infra Engineering Ltd (HGIEL)
Axis Securities has set a target price of Rs. 855 for this infrastructure stock. According to the brokerage "HGIEL's order book, comprising road projects (both EPC and HAM), stood robust at Rs 6,843 Cr (2.70x of FY21 revenue) as of Sep'21 end. Furthermore, its cumulative order book stands healthy at Rs 9,066 Cr, reflecting comfortable revenue visibility for the next 2-3 years. We estimate HGIEL to deliver healthy revenue growth of 23% CAGR over FY21-FY24E backed by its strong and diversified order book as well as emerging opportunities in construction space."
"Road sector is witnessing massive development backed by government support in the form of construction of highways, expressways and other roads. Proactive policy support has increased the pace of road construction in India. Various policy initiatives such as the Land Acquisition act, fast-tracking arbitration claims process, introduction of new EPC (Engineering, Procurement, & Construction) policy, implementing Hybrid Annuity Model (HAM) and Toll Operate Transfer (TOT), asset monetization, Gati Shakti Plan among others have strengthened the overall sector environment. These initiatives are expected to aid significantly in the overall development of the sector moving ahead, thereby creating massive growth opportunities for the company as well," the brokerage noted.
Axis Securities has claimed in its research report that "HGIEL has successfully executed various roads and highways projects over the years and has emerged as the leading EPC contractor in India with robust project execution skills. The company's management has over two decades of rich experience and is well-poised to catapult the company into the higher growth phase. With superior order inflows, we expect the company to maintain a margin profile of 16%-17% over FY21-24E. We estimate HGIEL to report Revenue/EBITDA/APAT CAGR of 23%/23%/31% respectively over FY21-FY24E, supported by its robust and diversified order book, healthy bidding pipeline, encouraging new order inflow, emerging opportunities in the construction space, and execution prowess. Currently, the stock is trading at 10x and 8x of FY23E and FY24E EPS. We recommend BUY with a TP of Rs 855/share."
Aditya Birla Fashion & Retail Ltd. (ABFRL)
For India's largest fashion company, Axis Securities has set a target price of Rs. 320 per share. According to the research report of the brokerage "We expect ABFRL to clock healthy sales growth over FY21-26 driven by penetration in Tier 2/3/4 towns and rural regions, casualization of apparel portfolio, foray into new categories such as home category (Living Spaces) and sarees, strengthening private labels in men's wear, athleisure, and growing digitization. Besides, aggressive store expansion plans in Pantaloons, Madura Fashion and Lifestyle (Peter England Red, Allen Solly Prime, etc) would further aid revenue growth of ~11-15% CAGR over FY21-26E as per management. Despite current challenges around formalwear and change in mix, the management expects to sustain an EBITDA Margin of ~10-11% conservatively. This will be supported by the rise in the share of private label to 75% by FY26E from 61% currently, better operating leverage, and cost efficiencies."
Axis Securities has claimed that "The management expects revenue of Rs 1,500 Cr by FY26 from the innerwear and athleisure wear business while maintaining a strong EBITDA Margin of 15%+. It aims to achieve this by growing the MBO network (currently 20,000 distributors), expanding EBO format through franchisee route to ~500 EBOs, augmenting online channel, and growing sportswear segment through Reebok (exclusive franchise). In the high-growth Ethnic segment (price-inelastic wedding market) the long-term strategy is to scale up revenues by building a large ethnic wear portfolio (Sabyasachi, Tarun & Tahiliani, Jaypore, Shantanu & Nikhil, Marigold, etc.) through aggressive store expansion."
The brokerage has noted in its research report that "The Q3FY22 wedding season witnessed a recovery to pre-Covid levels and the trend is expected to sustain in FY23E. The management expects to achieve Rs 1,000 Cr EBITDA over the next 2 years, driven by a healthy SSSG in Lifestyle and Pantaloons businesses. As operating leverages kicks in and losses in innerwear reduce, we expect ABFRL's EBITDA Margins to improve steadily. Further, we expect a debt reduction over FY22-24E as the business normalizes, strengthening the balance sheet further. We believe ABFRL is a long-term growth story driven by rising consumerism and an increasing aspirational millennial population. A revamped product strategy, renewed brand positioning, established growth model, and digital transformation will aid ABFRL's growth in the medium to long term. Key risks: Lockdown due to Omicron; Intensifying competition."
Healthcare Global Enterprises Ltd (HCG)
Axis Securities has said in its research report that "Oncology, with a 13% CAGR over FY16-19, is the fastest growing industry in the Healthcare market. The size of the Oncology industry is ~Rs 165 Bn and reports 1.5 Mn new cases every year. HCG has been outpacing the industry growth with revenue CAGR of 19% and new patients' registration CAGR of 24.6% over FY16-FY19. The company has set up a strong network of 25 centers across the country which stands 2x the capacity of the immediate competitor. We believe HCG is well-placed to grow new patient registrations backed by its competitive strengths such as high-end works, strong brand recall, easy access to centers, and reasonable prices."
According to the brokerage "HCG's ARPOB reached Rs 38,345 (+21.9% Q2FY22 YoY) due to high end works such as robotic surgery and Cyberknife in Oncology verticals of Head & Neck, Urology, Bone Marrow transplantation, Liver Surgery and complicated tumours. Furthermore, the increase in the volume of international patients may improve ARPOB (Waned Covid-19 impact) in the upcoming quarters. (International patients comprise 2% of the sales now which was 6% before the Covid-19 pandemic). We believe the current ARPOB are sustainable and may report a CAGR of 10% over FY21-FY24E."
The brokerage claims that "HCG is expected to turn around its operating profitability with Operating EBITDA Margins improving by 680bps over FY21-FY24E, majorly driven by a) Operating leverage driven by the increase in Average Occupancy rates (53%-58%) b) Increase in ARPOB led by the increase in international patients and high end works, and c) Operating leverage in new centers that have already achieved breakeven. Given variable and fixed costs comprise 35% and 65% in hospitals respectively, we believe strong operating leverage in new centers may improve margins to 12%-15% over FY21-FY24E. We recommend BUY with a TP of Rs 330/share."
Minda Corp Ltd.
"Minda Corp remains a key beneficiary of migration to BSVI as its wiring harness division (25-30% market share) will likely witness a massive demand in terms of both value and volume. Minda is well-positioned to drive growth on account of its increasing value of kit-per-vehicle, exit from loss-making operations, and the possibility of opportunistic inorganic acquisitions by leveraging its cash-rich position. It recently acquired a 29.6% strategic stake in EVQ Point for strengthening the battery charger range for Green Mobility. Minda also acquired its balance 49% stake in Minda Stonebridge," said the brokerage in its research report.
According to the brokerage "Minda Corp has a large portfolio of EV-related products, including DC-DC converter, battery charger, connected clusters, HV wiring harness, keyless entry systems, and EV telematics. Its kit value in e2Ws stands 4x of its current kit value in ICE 2Ws. The company is making inroads in the EV space and has already won orders from leading OEMs in India for multiple products. Apart from the traditional OEMs, the company has received orders from e2Ws start-ups like Ola Electric, Ampere, Polarity, and Revolt, to name a few. Its partnership with EVQ Point will strengthen the company's EV portfolio and onboard and off-board battery chargers in the range of 6.6KW to 250W. Minda Corp's IOT offering will be bundled along with EVQ's power electronics strength for catering to charging stations and swapping solutions."
Axis Securities claims that "The company's recent JV with Minda Stoneridge Industries Ltd will help it further penetrate its clusters and sensors business. The strategic rationale behind this acquisition includes better utilization of funds/cash and is expected to be ROCE accretive overall. It will provide free access to a highly growing global market of clusters and sensors. The key drivers of growth for the company include new product offerings, deepening customer engagement, and focusing on profitable growth. Mind Corp commands a strong market share in 2W locksets, and wiring harnesses for 2W, 3W, tractors, and CV. Its ability to forge technological tie-ups, continue product innovations in existing categories, enter into related product categories, and maintain cost efficiency will help it retain its market share moving forward."
The brokerage has highlighted in its research report that "Over the medium term, Minda Corp's scale of operations and profitability is expected to benefit from a strong order book position, focus on aftermarket and exports, diversified product and segment profile, and introduction of new products. We continue to like the company's growth story driven by increasing kit value per vehicle, removal of drag from loss-making operations, and probable inorganic acquisition given its cash-rich position. We expect Minda to post excellent profitability growth by FY23E in the backdrop of improved content-per-vehicle and higher indigenous content. We value the company at 17x FY24E P/E to arrive at a Target Price of Rs 200, implying an upside potential of 18% from CMP. We recommend a BUY with a TP of Rs 200/share."
VIP Industries Ltd
"The management indicated to register growth higher than pre-Covid levels in H2FY22 on account of an increase in domestic leisure travel, marriage season, corporate gifting, and gradual re-opening of schools and colleges, albeit with the overhang of Omicron. Early trends in Q3FY22 are suggesting a slow and gradual pick-up in business-related travel. This is expected to bounce back to normalcy from mid FY23 onwards as the pace of vaccination increases across the globe," the brokerage's research report says.
As per the brokerage "VIP Industries has been focusing on new launches that are being well received in the market. While, the company plans to launch more products in the wake of expected recovery majorly in the value segment to thereby, positively impacting the top-line in the short to medium-term. With a stronghold in mid-premium and premium brands which contribute ~47% of revenues, the revival of international travel and re-opening of schools and colleges will further boost the profitability and its market positioning."
The brokerage has claimed that "The company has plans of increasing its manufacturing capacity in Bangladesh by investing Rs 15-20 Cr as well as expanding its capacity in India to reduce dependence on China and improve the supply chain to have enough avenues for sourcing. VIP has taken two price hikes of 5% in May and 4.5% in November. It is planning to take one more price hike in March 2022 to pass on high freight costs and high inflationary pressure on the RMs (current overall inflation is ~13%). VIP also plans to increase retail stores from the current 350 to 460 by FY22-end through franchises thus growing through an asset-light model."
According to the research report of the brokerage "As there is a further recovery in the economy, albeit with some minor bumps, VIP with its market leadership position, is expected to regain lost market share aided by a reduction in downtrading and a shift from unbranded to branded luggage. Given the expected robust recovery back to pre-covid levels over FY21-24E, we revised our estimates and raise our target price to Rs. 630/share (Rs 600/share earlier) based on FY24E EPS. Maintain BUY."
APL Apollo Tubes Ltd (APAT)
"In Q2FY22, APAT recorded sales volume of 427,387 tonnes, up 15% QoQ, on account of pick up in construction activity post-COVID 2.0. The company has been focusing on increasing sales of its value-added products, revenue contribution for which was 62% in Q2FY22, as against 57% in FY21. APAT management guided to achieve a 20-25% volume CAGR over FY21-25E as it targets achieving volumes of 2.5 MT in FY23E, 3.2 MT in FY24E and 4 MT in FY25E," said the brokerage.
According to the research report of the brokerage "In H1FY22, the EBITDA/tonne came in at Rs 5,957/tonne, highest ever half-yearly EBITDA/tonne, on the back of increasing contribution of value-added products (VAP) which came in at 62% in Q2FY22 vs 53% in Q1FY21 and a low base. APAT has, however, consistently reported improved operational profitability on account of 1) focus on decommoditizing product portfolio, 2) increasing capacity utilization thereby getting the benefit of operating leverage, 3) focus on innovation and R&D, and 4) upgrading its technology. Management expects to grow revenues by 10-20% CAGR in light structures, 30% CAGR in rustproof structures and 15-20% CAGR in the Apollo Tricoat (home improvement products) revenues. The strong growth outlook in VAP could likely support sustained improvement in EBITDA Margins in our view."
Axis Securities has claimed that "Following a strategic shift to cash and carry model APAT has reported the lowest debtor days which led to a net improvement in net working capital to 10 days in Q2FY22, one of the lowest in the industry. Further, lower inventory days owing to consolidation of its plants and DFT technology, and strict cost control measures also have aided towards a lean working capital structure. As a result, both ROCE and ROE grew from 24.3%/24.8% in FY21 to 32.5%/31.6% in H1FY22 respectively. The current volume expansion plan with a consistent focus on expanding its market share and increase contribution from the VAP is expected to augur well for earnings over the medium to long term. Thus, keeping in mind a robust growth trajectory coupled with an even stronger balance sheet, we revise upwards our FY22/23/24 estimates and maintain a BUY with a revised target price of Rs 1,215/share (Rs 1,070/share earlier)."
The above stocks have been picked from the brokerage report of Axis Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.