The shares of Bajaj Finance, Larsen & Toubro Infotech and Sonata Software have received a buy call from the brokerage house ICICI Direct. Bajaj Finance Ltd has touched a 52-week high of Rs 8,050.00 on 18-Oct-21 and a 52-week low of Rs 4,362.00 on 19-April-21, this implies that the stock is currently trading 8.04% below its 52-week high and 69.69% above its 52-week low. Larsen & Toubro Infotech Ltd has a 52-week high of Rs 7,588.80 on 04-Jan-22 and a 52-week low of Rs 3,525.00 on 17-May-21, and the stock is now trading 14.58 percent near its 52-week high and 84.26 percent above its 52-week low. Sonata Software, on the other hand, has traded between a 52-week high of Rs 1,024.90 on October 20, 2021 and a 52-week low of Rs 355.55 on February 1, 2021, with the stock now trading 14.84 percent below its 52-week high and 145.46 percent above its 52-week low.
ICICI Direct has said in a report that "Bajaj Finance's share price has been largely steady in the past few months while it has jumped 64% in the past year. We believe since the fin-tech story is embedded in this business, valuations should stay at premium. We maintain a BUY rating on the stock. The core business has got potential and is well on track to get transformed into an adaptable new-age fin-tech. We roll over our valuations and arrive at a target price (TP) of Rs 9500 by valuing the business at ~8.4xFY24E Accredited in Business Valuation (ABV)."
Q3FY22 results of Bajaj Finance according to the brokerage
- Strong Net investment income (NII) growth at 39% YoY, 12.5% QoQ, above estimate at Rs 5998 crore.
- C/I declined to 34.7% vs. 38.1% QoQ as costs were controlled.
- Gross non-performing asset (GNPA), Net non-performing assets (NNPA) ratio declined to 1.73%, 0.78%, respectively in Q3FY22.
- Profit After Tax (PAT) grew 85.5% YoY and 43.5% QoQ to Rs 2125 crore.
Key triggers for future price performance of Bajaj Finance according to ICICI Direct
- Growth on the cusp of acceleration once uncertainties of pandemic fade off.
- Agility to switch from online to offline model and vice versa provides an edge.
- Strong asset quality performance despite the shift to new norms is positive.
- Return on equity (RoE) is seen returning to ~15% and RoA at >3%.
Larsen & Toubro Infotech (LTI)
According to ICICI Direct, "LTI's share price has grown by ~10.7x over the past five years (from ~Rs 630 in January 2017 to ~Rs 6,714 levels in January 2022). We maintain a BUY rating on the stock. We value LTI at Rs 8050 i.e. 42x FY23E earnings per share (EPS)."
Q3FY22 results of Larsen & Toubro Infotech according to ICICI Direct
- Strong revenue coupled with earnings before interest and taxes (EBIT) margin expansion QoQ.
- Constant currency revenues increased 9.2% QoQ.
- EBIT margin expanded 70 bps QoQ due to strong revenues.
- LTI added 27 logos in Q3, the highest quarterly addition in many quarters.
Key triggers for future price performance of LTI according to ICICI Direct
- LTI's ability to deliver end-to-end solutions is expected to help in registering industry-leading growth.
- Ability to win large deals, presence in niche verticals, effectively mine clients, adding Fortune 500 clients and digital prowess are other key drivers.
- Vendor consolidation opportunity and digital acceleration. We expect LTI to register 20.0% compound annual growth rate (CAGR) revenue growth in FY21-24E.
According to the research report of ICICI Direct "Sonata's share price has grown by ~5x over the past five years (from ~Rs 174 in January 2017 to ~Rs 875 levels in January 2022). We maintain a BUY rating on the stock. We value Sonata at Rs 1,050 i.e. 21x P/E on FY24E EPS."
Q3FY22 results of Sonata according to the brokerage
- Sonata reported strong numbers in IT services while product business margins were weak.
- IT services dollar revenues increased 9.5% QoQ to US$53.5 million.
- Earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin for IT services were down 70 bps QoQ due to increasing in employee costs.
- The company is looking to increase fresher hiring by 40% in FY23.
Key triggers for future price performance of Sonata as per the brokerage
- With improved traction in retail, commodity & manufacturing and healthy demand for its travel client, we expect FY24E to witness robust growth in revenues.
- Upgrades in Microsoft Dynamics and tapping 1000 clients in the medium to large category bode well for revenue growth.
- Robust hiring trend & inorganic growth prompt us to build IT service dollar revenue growth of 21.7% CAGR over FY21-24E.
The stocks have been picked from the brokerage report of ICICI Direct. 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.