Samvat 2080: Tata Motors, BSE, DLF, And 7 Other Stocks Are Top Diwali Picks; Here's Why?

With Samvat 2080 just around the corner, brokerage Sharekhan has selected 10 stocks as its Diwali 2023 picks which are expected to capitalise on the current markets bearish one. The brokerage in its report said, that despite global market headwinds and the upcoming state and general elections, all signs point to India's strengthening position, which is set to become the world's third-largest economy by FY28.

In its note, Sharekhan said, "This year, ahead of the curve, we are unveiling our Diwali Picks for Samvat 2080 to capitalise on the current market weakness and craft a winning, high-quality portfolio."

This year's stock selection includes high-quality stocks, primarily centred around the domestic upcycle theme, with some quality picks to leverage green shoots in the export market.

Sharekhan believes corporate earnings are expected to grow at a CAGR of 15% for the next two years, with over 20% earnings growth anticipated in the BSE 200 over the same period. Thereby, it has guided investors to view the current market weaknesses as valuable buying opportunities for constructing a top-tier portfolio aimed at riding the multi-year economic upcycle in India and using the opportunity for wealth creation over the next few years.

These ten stocks are Birlasoft, BSE Ltd, DLF, Garware Hi-Tech Films, Gokaldas Exports, Kirloskar Oil Engines, Kolte-Patil Developers, Sanofi India, Tata Motors, and Wonderla Holidays. Here's what the brokerage has to say about these stocks:

1. Birlasoft Share Price:

The company's deal pipeline remains healthy and the outlook remains optimistic as management seeks to achieve $200 million in signings every quarter. The company continues to see a strong revival in EBITDA margin led by operational efficiencies, automation, lower attrition and healthy utilisation, which is likely to continue going forward.

Sharekhan cited that Birlasoft expects its digital and data business to experience growth momentum due to its strong leadership in ERP and infrastructure. Further, their renewed focus on key sectors such as BFSI and manufacturing verticals is expected to drive the overall performance of the company.

2. BSE Ltd Share Price:

The brokerage believes that BSE Ltd is likely to deliver strong earnings growth of ~40% CAGR over the next 3 years driven by an uptick in volumes for Equity and index derivatives segments and increasing the transaction charges in the derivative segment gradually as the company gains sustainable momentum in overall equity derivatives volume over the medium term.

Also, BSE's derivative market share has improved notably since the launch of weekly index options expiry, however, it charges Rs. 50/million on premium turnover of the options contracts, which is significantly lower than NSE which charges Rs. 350/ million on premium turnover.

Apart from this, NSE's derivative volume is ~28x of BSEs volume currently on a monthly basis, which gives the sense of how big is the opportunity. NSE derives approximately ~Rs 10,000 crore of revenues from index options p.a and BSE is venturing into this opportunity.

3. DLF Share Price:

DLF's strong leadership position in Delhi-NCR, a strong residential project pipeline, huge rental portfolio, large land reserves at low carrying costs, and strong housing market tailwinds provide a high-growth opportunity.

The company gave a sales guidance of Rs. 12,000-13,000 crore and 50% plus gross margin for FY2024. It has a planned launch pipeline of 11.2 msf with a sales potential of Rs. 19,710 crore for FY2024 of which major launches are planned in H2FY2024. Also, its rental portfolio is gradually witnessing rising physical occupancies while focusing on doubling its retail portfolio over the next 4-5 years. The exit rentals for March 2024 and March 2025 are pegged at Rs. 5000 crore and Rs. 5600-5700 crore.

4. Garware Hi-Tech Films Share Price:

This company has continuously increased the share of value-added products within its sales mix. Value-added products, which accounted for 48% of total sales in FY2017, increased to 80% in FY2023. This led to an improvement in its margin to 18.7% in FY2023 from 9% in FY2017. As the company is planning to ramp up the capacity of value-added products and add new products, margins will continue to improve going forward.

According to the brokerage, the company has fully vertically integrated chips-to-film manufacturing facilities. These capacities are fungible and capable of delivering customised products across a range of over 3,000 SKUs. Backward integration also helps the company's R&D department, as it leads to greater customization, faster time-to-market, and improved quality.

5. Gokaldas Exports Share Price:

For the leading apparel manufacturer, Sharekhan said, Capex of ~Rs. 370 crore over FY22-24E is expected to generate revenues of Rs. 1,100-1,300 crore (fixed asset-turnover at ~3.0-3.5x). This along with improvement in EBIDTA margins, PBT is expected to grow at 20% CAGR over FY2023-25E.

Also, acquisition of Atraco will result in revenues potentially increasing to Rs. 4,000 crore by FY2025. Around 95% of its products are exported to US markets. Acquisition is expected to be earnings accretive by Rs. 5-6 per share by FY2025.

Further, the company is seeing a strong upward trend in export demand starting Q3FY2024. Atraco has strong order booking till April, 2024. Atraco is likely to do revenues in-line with CY2024 with capacity utilisation marginally less than 90%.

6. Kolte-Patil Developers Share Price:

The company has built a robust project portfolio of 35 msf having GDV potential of over Rs. 25,500 crore (Pune - 82%, Mumbai - 15%, Bengaluru - 1%).

Brokerage's note said, "it is eyeing a sales booking CAGR of 25% over FY2023-FY2025E at Rs. 2,800 crore/Rs. 3,500 crore in FY2024/FY2025." Also, the company targets new business developments of Rs. 8,000 crore in FY2024 (Rs. 3450 crore added in FY2024 till date) with an investment of Rs. 500-600 crore, which would be majorly funded through internal accruals.

Additionally, it is focusing on non-Pune regions (especially Mumbai) to increase sales contribution to 30% by FY2025 from 20% in FY2023, which would provide scale along with diversification.

7. Sanofi India Share Price:

Sanofi had announced demerger of its consumer health segment into a separate entity, with 1:1 ratio. Each Sanofi shareholder to get equal share in Sanofi consumer Health. This move will further unlock the shareholders' value. Sanofi's consumer health business posted a revenues of Rs. 7.3 billion, (~28% of total CY22 sales).

Sharekhan believes the worst is over for Sanofi and going forward Sanofi's focus on Diabetes portfolio will accelerate growth and maintain margins ~25%. The stock is currently trading at 28x CY24E and due to higher returns ratios , would like to allot a PE multiple of 32x on CY24E EPS of Rs 267 to arrive at PT of Rs 8500.

8. Tata Motors Share Price:

In Sharekhan's view, JLR has been observing strong demand, as reflected in its strong order book position. At the end of Q2FY24, JLR's order book stands at 1.68 lakh units and almost 77% of the order book is constituted by high-margin models like - Range Rover, Range Rover Sport and Defender. A strong order book gives adequate visibility for near term. JLR has also been consistently registering healthy EBITDA margin and has started generating positive free cash flow.

Notably, TML has shifted its strategy from discount driven market share expansion to profitable volume growth. This we believe would help it in registering improvement in its EBITDA margin in CV division.

With new products and shift in the demand towards SUV segment, TML has strongly gained market share in domestic PV space. Further, acquisition of Ford's plant would help it to increase its production in short span of time, given TML is running its plant at its peak capacities.

Continued improvement in JLR, PV and CV businesses and reduction in net automotive debt and value unlocking in its subsidiaries bodes well for consistent performance, lastly concluded.

9. Kirloskar Oil Engines Share Price:

KOEL is seeing strong demand for retrofit dual fuel kits and emission-control devices in CPCB - II gensets (post deadline extension for the implementation of CPCB IV+ norms to July 2024). Moreover, demand for CPCB-IV plus gensets is expected to pace up in H2FY2024.

The company is a leading player in the back-up power market and has a healthy balance sheet and a lean working capital cycle. Sharekhan builds in a Revenue/PAT CAGR of 9%/18% (FY2023-FY2025E).

10. Wonderla Holidays Share Price:

Sharekhan highlighted that the company is transforming itself into an asset-light model by entering into lease-land agreement with various state governments for setting up of park. This will help WHL to generate high cash flows, which will be utilised to add more attractions in new and existing parks. It is in talks with states such as Punjab, Gujarat and Goa to set-up new parks.

Also, new parks will incrementally add footfalls from FY2026. In FY23, the company's footfalls stood at 33 lakh in FY23 (vs. 24-25lakh footfalls in FY15-19) driven by change in focus to attract more walk-in visitors through marketing activities and arranging of special events twice a month.

Lastly, Sharekhan said, attractive valuations of 17.8x/15.3x its FY24E/FY25E EV/EBIDTA, a sturdy balance sheet despite a huge capex and double-digit earnings visibility makes WHL a comfortable play in discretionary space.

Diwali festival will kick start on November 10 and will continue till November 14, 2023. There will also be a one-hour auspicious Muhurat Trading held on November 12 on the day of Laxmi Pujan.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.