Diwali Picks: ITC, Bank of Baroda among 15 stock ideas from ICICI Direct​

The company is the country’s largest structural tube manufacturer. It can well expand its market share considering capacity expansion, penetration via innovative product lines and a volume focus transition to the primary structural steel market. The brokerage expects a 28% volume CAGR over FY22-FY25E. Also, the merger of Apollo Tricoat would be margin, earnings and RoE accretive for APL and would improve the quality of earnings with an increase in the share of value-added products and provide synergies across cost, products, and branding.

The NBFC firm, which reported healthy June numbers, expects its AUM to double by FY 2025. Furthermore, the company enjoys the best asset quality in the industry.
“We believe the company is poised to deliver superior profitability with a PAT CAGR of 40% over FY22-24E and sector-leading ROA/ROE of 4.8%/ 23% in FY24E. Its omnichannel strategy and diverse product offerings would lead to strong AUM growth and superior asset quality with robust risk framework, and in turn, lower credit cost is likely to bode well for earnings compounding ahead,” noted the brokerage.

The bank is expected to deliver better results as well as higher returns on assets on the back of improvement in margins and lower credit costs. Net NPA is at a multi-year low at the country’s leading public-run lender. “A combination of the above factors, along with improving loan growth and margin trajectory, should bode well for good compounding in earnings going ahead,” adds the brokerage.

The mid-cap IT services firm, earlier famous by the name NIIT, offers cloud, managed services, data & analytics, automation, application development & maintenance and business process management. The company’s expertise across some specific sectors positions it to be part of the customers’ transformation journey. The company’s focus on large deal wins will enable it to realize its strong revenue growth guidance in FY2023E on the back of strong order intake, recovery in travel industry, continued growth momentum in BFS vertical, new logo addition, investments in leadership team and strong execution.

Brokerage sees a number of factors at play that will enable the QSR player to log a 43.1% CAGR over FY2022-24. Further, the brokerage adds that exits from loss-making stores, improving unit-level profitability, cross-branding, and a rise in transactions through value proposition will help the company consistently improve EBIDTA margins that are likely to increase to 24% by FY24 from 17% in FY20. Also, the company’s balance sheet situation as it pared Rs 305 crore debt. Going ahead, the company is seen to generate strong cash flows and also improve on RoCE.

“The convincing launch of Hunter 350, focus on core brands through refreshed launches, better customisation, robust export opportunities and expected recovery in premiumisation trend in two-wheeler industry would widen the company's addressable market and boost performance going forward,” noted the brokerage. PAT is expected at Rs 636 crore, implicating a growth of 9.7% QoQ and 85.4% YoY, adds the brokerage.

The diesel engines segment company will benefit from the rapid adoption in the EV space. The company has enough cash on its book to support its activities in innovation, capacity expansion and brand building. Greaves is expected to deliver a 22.3% revenue CAGR during FY2021-FY2024E and see a sharp rise in margins, leading to an earnings CAGR of 113.8%, noted the brokerage.

The company has a high order book and order pipeline, making it a good bet on India’s defensive play. “HAL has strong government support, proven execution capabilities, capacity expansion, improving working capital cycle and a healthy cash balance of Rs 14,000 crore,” added the brokerage.

ICICI Bank is likely to deliver sustainable earnings growth over the medium term driven by strong loan growth, margin expansion, credit cost moderation and healthy operating profitability aided by its strong liability franchise, higher capital ratios, better asset quality metrics and healthy provision buffers, the brokerage noted.

The FMCG major’s novel ITC-Next strategy shall see the company log a CAGR of 17% over FY22-24. “Increase in the contribution of high margin products, premiumisation and supply/operating efficiencies would help business OPM consistently improve from 9 per cent currently,” added the brokerage.
Also, going forward, the company’s cigarette business is seen to log a low double-digit uptick in sales volume. Further, the stock offers a high dividend through its strong cash flow, with an FY22 dividend yield of a good 3.5%.

Within its segments, such as power generation, industrial, water management, and electric pumps, the company is witnessing good demand. In addition, scaling up of farm mechanisation, expansion of product range (above 1500 KVA), implementation of CPCB IV+ norms, ramp up in exports, and growth in after-sales services would fuel revenue growth and augment margin expansion. The diesel engine company is well-poised to benefit from sector tailwinds such as PLI schemes, infrastructure spending by the government, and power deficit, noted the brokerage house.

On the infra major, Sharekhan is bullish given the government’s increasing push in infra spend, incentives being rewarded for domestic manufacturing and increase in private capex. The company has come up with a detailed five-year strategic plan, Lakshya 2026, for pursuing profitable growth in its traditional businesses of EPC projects and manufacturing while expanding its IT&TS portfolio, noted the brokerage. “We are bullish on L&T given a robust order book of Rs. 3.6 lakh crore (2.2x TTM revenue) and a promising long-term outlook,” added the brokerage.
Mahindra CIE Automotive

The auto components company is seen to benefit from diversifying revenues in India and cost optimisation of Indian and European businesses. The company’s focus on targeting new acquisitions to fill gaps in strategic technologies and expansion in global markets and its demonstrated ability to achieve profitable growth through mergers and acquisitions is a key differentiating factor, noted the brokerage.

`The company’s US business is on the path to improvement, largely backed by marked growth in the specialty portfolio (30% US biz revenues) due to growth in existing geographies as well as tapping new geographies and product portfolio expansion/launches,” the brokerage said. Overall, Sun Pharma’s revenues/EBIDTA/PAT is expected to grow at a CAGR of 12%/13%/14% over FY2022-24E.

In the consumer discretionary segment, the company is the top player and has set out an ambitious plan of clocking double-digit growth over the next five years with a CAGR of 20%. The company’s management is targeting to grow the jewellery business by 2.5x by FY27, watches to reach Rs 10,000 crore business by FY26, scale-up in eyecare business while some new ventures such as ethnic wear, bags and international business to cross Rs. 1,000 crore of revenues by FY27. “This will help the company to maintain a healthy return profile with RoE and RoCE expected to improve to 29% and 37% by FY2024 from pre-Covid levels of 23.8% and 30.6%, respectively,” the brokerage added.