Domestic stock markets remain rangebound and volatile with Sensex and Nifty starting this week with losses. S&P BSE Sensex has dropped more than 100 points on Monday sitting above 55,600 while the NSE Nifty 50 index is holding 16,500 after falling 30 points. Analysts have been advising investors to go stock specific to shield themselves from the volatility that has been gripping Dalal Street over the last couple of weeks now. HDFC Securities has narrowed it down to two stocks that they believe may perform well over the next 2-3 quarters. These are WPIL and J Kumar Infraprojects.
Bull case target price: 1,315 per share
The industrial machinery manufacturer’s stock has been faring well in 2022, rising 20% so far this year. Formerly known as Worthington Pump India, WPIL, has vast experience of more than 65 years in Designing, Developing, Manufacturing, Erecting, Commissioning and Servicing of Pumps & Pumping Systems. Currently, the stock trades at Rs 1,091 per share and analysts are advising investors to buy the stock in the range of Rs1055-1077 and further add on dips in Rs 949-969 band. The bull case target price implies 28% upside while the base case target price is set at 1,208 apiece, suggesting 11% upside.
“We expect WPIL to maintain its gross margins on account of better product mix and selection of profitable projects,” analysts at HDFC Securities said. They added that WPIL has been able to sustain its EBITDA margins above ~15% in the last two years. With no major capex/acquisition plans and healthy cash generation from its Indian and overseas operations, the capital structure is expected to improve. The brokerage firm believes that the stock could also benefit from an improvement in demand due to Government’s focus on water supply and the Jal Jeevan Mission and hence going forward the order book could remain robust.
The working capital intensity of WPIL’s operations due to high average collection and average inventory period, susceptibility of profitability to volatility in raw material prices and competition in the pump industry due to fragmented industry structure are the key risks and concerns to watch out for. “Despite the above issues, we feel risk-bearing investors can look at investing in the stock considering the above triggers and concerns,” analysts said. The trade has been advised for a 2-3 quarter time frame.
J Kumar Infraprojects: Buy
Bull case target price: Rs 323
J Kumar Infraprojects is another outperformer this year, skyrocketing 50% so far in 2022. The construction behemoth is a pure-play EPC company having a niche in the construction of Urban Infra projects, said HDFC Securities. “JKIL is one of the key beneficiaries of increasing government focus on the urban mobility space over the next few years. Its focus on margins and cash flow generation augurs well from a long-term perspective,” HDFC Securities said. They added that given its target of Rs 5,000 crore topline in FY25, the company needs to garner more order flows to improve its book-to-bill ratio thereby improving revenue visibility.
In the recently announced January-March quarter results, J Kumar Infraprojects announced revenue growth of 12.3% on-year basis and net profit growth of 126.3%. “Healthy balance sheet coupled with strong execution and moderate working capital requirements, we expect operating cash flow to remain strong,” HDFC Securities said. The bull case scenario suggests a 20% upside from current levels. While base case target of Rs 283 per share implies 13% upside potential. Analysts recommend buying in the band of Rs 253-258 and adding more on dips to Rs 230-234 band. The trade has been recommended for a 3 quarter time frame.