BofA Securities positive on financials, industrials. A few stocks it is betting on

BofA Securities target of Rs 300 is based on a CY22E EV/EBITDA multiple of 13x. Its target EV/EBITDA multiple is 1SD above the company's average multiple over the last five years given improved prospects of cost efficiency and better ability to defend market share on the back of upcoming new capacity. The brokerage's target EV/EBITDA multiple is at a discount to both UltraTech and Shree, which, according to BofA Securities, is justified given ACEM's lower unitary profit. The brokerage has stated the slowdown in cement demand in the first half of CY21 on account of slower construction activity as downside risk.

BofA Securities target of Rs 880 is derived from an SOTP model, assigning value to the standalone bank and subsidiaries separately. To value the standalone bank, the brokerage used a two-stage Gordon growth model, assuming a Stage 1 high-growth period (RoE 15%, growth 15%) and then a Stage 2 normalisation period (RoE 16.5%, growth 8.5%). It used a cost of equity of 12.3%.

BofA Securities target is Rs 145, valuing the company at 18.5x two-year forward earnings, which is 8% above +1SD levels to its long-term average multiple. The downside risk to the price objective is potential government divestments or unrelated acquisitions. Upside risks are BEL's JV with a global defense major to improve its technical know-how and significantly higher-than-expected order inflows.

Its target of Rs 808 for Cummins India is based on a 25x two-year forward EPS (including earnings from its JVs). According to the brokerage, the government's expediting infra capex has the scope to provide upside to the company's muted domestic volume expectations.

BofA Securities has given a target of Rs 3,130. It values HDFC's core mortgage business at Rs 1,530/share (49% of target) using a two-stage Gordon growth model.

Downside risksWeaker-than-expected macro growth environment and/ or tighter liquidity conditions.Rise in NPAs beyond expected levels.Inability to obtain funding at competitive rates.

Upside risksStronger-than-expected macro environment.Reduction in risk aversion and reduction in funding costs.Value unlocking by sale of stakes in subsidiaries.

BofA Securities has given an SOTP target of Rs 1,900, assigning value to the standalone bank and subsidiaries separately (3.8x P/B for standalone bank, 4x P/B for HDB and 20x P/E for HDFC securities). Its overall cost of equity assumptions are in the range of 11.4-13.2 per cent, mainly driven by differences in beta assumptions.

Its target of Rs 845 is based on the appraisal value method (FY22E). According to the brokerage, a further favourable shift in market share, market-leading growth, rising persistency and improving margin profile should support valuations. BofA Securities has cited systemic slowdown across multiple segments impacting credit protect business and intense competition as risks.