ICICI Bank, HDFC, Tata Motors among top stock ideas from Jefferies; expect around 30% returns

Global brokerage and research firm Jefferies has picked ICICI Bank, HDFC, and Tata Motors as some of the stocks that may gain 30% or more.

Stocks that may gain more than 30% each. (Image: REUTERS)

Global brokerage and research firm Jefferies has picked ICICI Bank, HDFC, and Tata Motors as some of the stocks that may gain 30% or more. Domestic markets have slipped nearly 8% from their all-time highs as global inflation and new covid-19 variant takes centre stage while central banks across the globe talk about rolling back stimulus. Earlier last month Jefferies had turned defensive on India saying that Nifty may not outperform significantly beyond current levels. Since then, Dalal Street benchmarks have corrected moderately.  Here are the stocks that Jefferies believe can rally.

ICICI Bank

Target price: Rs 1,000

Jefferies said that ICICI Bank is progressing well on the Beta-to-Alpha trade, as it has been able to manage its asset quality better than feared and its operating profit has compounded at a strong 19% over past 3 years. “We believe that this transition will be the bedrock for further compounding & re-rating in the stock,” they added. ICICI Bank’s credit costs have come to 3% over the financial year 2015-16 to the previous fiscal year which Jefferies predicts will come down to 1.4%. “Valuations at 2.5x 1-yr fwd adj BVPS are at ~37% premium to 5-year average. However, the sharp improvement in Ibank’s return profile warrants this, and we believe there is scope for further re-rating,” the brokerage firm said. For the stock to reach the target price it will have to rally 39%.

Housing Development and Finance Corporation (HDFC)

Target price: Rs 3,480

HDFC is India’s largest mortgage lender and Jefferies believes it is well-poised to benefit from improved demand in housing arising from improved affordability, low-interest rates, limited impact of Covid on jobs, and superior access to funds. “We believe HDFC Ltd deliver sustainable RoEs of ~13% over FY22-24E, and uptick in growth should aid valuation re-rating, which is at 2.7x 1-yr fwd adj BVPS,” analysts said. The target price implies a 31% upside from current levels.

ICICI Prudential Life

Target price: RS 830

In terms of valuations, ICICI Prudential Life is trading at 2.5x FY23E EV which is at 40% discount to HDFC Life. “We believe its discount to sector leader should narrow, as its margin and mix gap vs. sector leader has also shrunk,” Jefferies said. Further analysts said that ICICI Prudential Life is coming out of multi-year weakness which should help register strong CAGR. “The stock currently trades at 2.6x 1yr fwd PEV which is ~5% premium to past 5- year average but does not fully factor in the improved business fundamentals in our view,” Jefferies added. The stock may rally 40% to reach the target price.

Tata Motors

Target price: Rs 625

Tata Motors is regaining its lost market share in both trucks and passenger vehicles, said Jefferies. In the first half of this fiscal year mark share was at a 7-9 year high. “Tata has taken an early leadership in EVs in India passenger vehicle space with ~70% market share. Stake sale in India EV business to TPG values the business at US$7-9bn which provides a big value boost to an underappreciated opportunity and the balance sheet strength to drive portfolio electrification,” the brokerage firm added. The target price implies a 34% upside. 

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