Sirca Paints India among HDFC Securities top 3 fundamental picks
3 min read . Updated: 09 Mar 2023, 10:48 AM IST
PremiumHDFC securities has picked Ion Exchange (India), Sirca Paints India and Syrma SGS Technology as its top fundamental picks for next 3-4 quarters. Read on to know the rationale and target price:
After a knee-jerk reaction to US Fed's hawkish comments, the Indian market stabilised on March 8. The Sensex rose by 123.62 points and closed at 60,348.09. Whereas, Nifty gained 42.90 points to close at 17,754.40. On March 9, the indices opened flat on mixed global cues. Investors around the globe are now digesting the higher than expected interest rates for longer duration scenario, while they wait and watch the next set of economic data.
The key market indices have been trading in a range but there are opportunities in some of the stocks as broader market has not corrected as much as the benchmarks. HDFC Securities, has suggested its top fundamental picks for next 3-4 quarters - Ion Exchange (India) Ltd, Sirca Paints India and Syrma SGS Technology.
Ion Exchange (India)
Recommendation: Buy in ₹3,400-3,480 band & add on dips in ₹3,000-3,050 band | Target Price: ₹3,770 | CMP: ₹3483.75
“We expect IEIL’s Revenue/EBITDA/PAT to grow at 17/14/15% CAGR over FY22-FY25E, led by increased execution of orders. We believe investors can buy the stock in ₹3400-3480 band and add on dips in ₹3000-3050 band (18x Dec’24E EPS) for a base case fair value of ₹3770 (22.5x Dec’24E EPS) and bull case fair value of ₹4020 (24x Dec’24E EPS) over the next 2-3 quarters," says HDFC securities.
The company has a specialisation in water and environment management with 50 years of experience. It can progress further in the field of water and wastewater treatment amid rising demand of water. The company is expected to get environment clearance for its resin facility expansion in Q4. Chemicals industry has been working well for the country.
Risks
-Company operations are working capital intensive with receivables of 111 days in FY22.
-Company investment is prone to cyclical uptrend as the engineering and capital goods industries are linked to economic cycles.
-Company is exposed to changes in exchange rate as 31% of its revenue comes from exports.
-Delay in the implementation of government projects. The company is also susceptible to material costs, low shareholding of promoters, seasonality in revenue, etc.
Sirca Paints India
Recommendation: Buy in Rs. 608-625 band and add more on dips in Rs. 545-554 band | Target Price: Rs. 671 | CMP: ₹634.25
“We expect the company to report Sales/ EBITDA / PAT CAGR of 30%/40%/40% respectively over FY22-25E on the back of strong growth across categories," said the stock brokerage firm.
Founded in 2006, Sirca Paints India Ltd, is a major high-end wood coatings company. It runs ‘Sirca’ brand focused on manufacturing, sales and exports of wood coatings and other decorative paints. Its products are supplied in India, Nepal, Bangladesh and Sri Lanka. The company growth is led by rapid distribution expansion, hiring of experienced industry professionals, etc.
Risks
-Fluctuation in currency can impact the company's material costs as it directly procures finished goods from Sirca, Italy for one of its products.
-Volatility Raw material prices that are imported from Italy can impact manufacturing.
-There is a risk of premature termination of agreement between Sirca and Sirca S.P.A in 2018. The agreement is valid for 15 years till 2033.
Syrma SGS Technology
Recommendation: Buy in the band of ₹267-272 & add more on dips to ₹238-242 band | Target Price: ₹294 | CMP: 284.15
“We think the base case fair value of the stock is ₹294 (29.5x Dec’24E EPS) and the bull case fair value is ₹319 (32x Dec’24E EPS) over the next two-three quarters. Investors can buy the stock in the band of ₹267-272 (27x Dec’24E EPS) and add more on dips to ₹238-242 band (24x Dec’24E EPS)," said HDFC securities.
Syrma SGS Technology holds a specialisation in precision manufacturing of printed circuit board assembly (PCBAs). It has around 13 strategically located manufacturing units in India. It has a global presence in more than 20 countries including USA, Germany, UK. It is also planning to expand its brownfield and greenfield expansion that would double the existing production capacity to 30 assembly lines.
Risks
-Extensive competition from large players in the domestic consumer electronics market.
-The company hasn't entered into many long-term contracts.
-The company can face the heat of raw material prices cost price.
-The company needs to work on its R&D to reduce its exposure to obsolescence risk.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.