Construction Stock And Auto Sector To Buy With Potential Upside Up To 26%

 

Buy NCC with upside potential up to 24%

NCC is one of India's biggest construction businesses, with a presence in a variety of infrastructure verticals including buildings, roads, water, mining, and electrical. ICICI Direct has recommended a buy call on this stock, with a target price of Rs 100 implying a 24% return over the current market price in a year.

Q2FY22 Results:

• NCC's Q2FY22 results were in line with expectations, with good growth on a low base year over year and high order inflows.
• Standalone revenue increased 42.7 percent year over year to Rs 2,199 crore, owing to a solid order book position and a turnaround in execution following the second round of disruptions.
• EBITDA margin was 10.8%, down 286 basis points year on year (vs. I-direct estimate of 10.5 percent ).
• As a result, operational profit increased by 12.8 percent year on year to Rs 236.6 crore.
• PAT increased by 78.5 percent year on year to Rs 104.3 crore.

Target and Valuation

"NCC's share price has grown merely 2% over the past five years. We maintain our BUY rating on the company Target Price and Valuation: We value NCC at Rs 100/share," the brokerage has said.

Key triggers for future price performance

Strong order book ensures growth; 23 percent revenue CAGR projected during FY21-23E with margins consistent at 11-11.5 percent; continuing momentum in awarding operations to translate into substantial order inflows.

Mahindra and Mahindra

ICICI Direct has recommended a buy call on this stock, with a target price of Rs 1125 implying a 26% return over the current market price in a year.

Q2FY22 Results

• The company's Q2FY22 results were mixed.
• Standalone net sales increased 13.1 percent on a quarter-over-quarter basis to Rs 13,305 crore.
• EBITDA margins of 12.5 percent were down 140 basis points from the previous quarter.
• The resulting standalone PAT for the quarter was Rs 1,432 crore.

"Stock price has grown at ~8% CAGR from Rs 616 levels in November 2016, outperforming the wider Nifty Auto index. We retain BUY rating on pivot towards capital efficiency, EV proactiveness Target Price and Valuation: We revise SOTP-based Target Price to Rs 1,125; 30% hold co. discount to investment; earlier TP Rs 1,000)," the brokerage has said.

Key triggers for future price performance

• On the heels of new product releases across automotive divisions, we expect total volume and sales CAGRs of 15.5 percent and 24.2 percent, respectively, in FY21-23E.
• Despite operating leverage gains, mix normalisation in favour of autos due to high base effect in tractors will weigh on blended margins.
• By FY23E, we forecast EBITDA margins of 12% and return ratios in the double digits.

Disclaimer

The above stocks are 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.