The markets are trading sideways, and the big question is often, what are the right stocks to pick? Jefferies says “bottom-up stock picking is crucial.” They have picked up 11 stocks from their India model portfolio that they believe “offer value.” The list not only comprises of what’s in the portfolio, but there are some surprising new entrants too
Jefferies made some interesting new additions to their India model portfolio. The new comers include the recently listed auto component firm, Belrise, tech play, Sagility, and also Adani Energy (AESL). These are all part of the 11-stock ‘value’ list put together by Jefferies.
Jefferies 11 ‘Value buys’
Jefferies has identified a set of value opportunities from its coverage universe (ex-financials). “These include a mix of absolute value picks and relative value bets. In either case, we restricted stocks with EV/EBITDA multiples below 18x,” Jefferies added.
However, this is not a purely valuation screen, as per them. Highlighting the approach, Jefferies added that they have incorporated stocks that they “like fundamentally and also considered historical valuation range.”
Here is a look at the 11 stocks that Jefferies has identified as value picks-
Adani Energy Solutions: The company has a Rs 61,600 crore transmission projects on hand, up 3.6x YoY. According to Jefferies, “Adani Energy Solutions is growing over 3x faster than Power Grid with 34% EBITDA growth estimated between FY25-FY27 on a CAGR basis.” They added that the stock is at a 79% discount to its January 2023 peak ands their “price target of Rs 1,150 is based on 15x EV/EBITDA FY27E, a premium to implied 10x target EV/EBITDA.” They see the stock offering “value given the growth outlook.”
Adani Ports: Another stock from the Adani Group, Jefferies estimates “16% CAGR growth” for Adani Ports. The sock is trading at “38% discount to JSW Infra.” they added added.
AWL Agribusiness: The next stock on their radar, AWL is India’s largest branded edible oil franchise with a “fast-growing staple foods portfolio,” Jefferies added. Its flagship brand, ‘Fortune’, is one of India’s largest FMCG brand with Rs 25,000 crore+ sales.
The other key factor to watch is that “AWL is set to see a change in ownership, with Wilmar set to take over from Adani group.” Jefferies added. They have a price target of Rs 350 per share.
Birla Corp: The fourth stock, Birla Corp is a 20MTPA cement player present across the Central, West, North and East regions in India. They have over 50% capacity based out of Central India. Jefferies pointed out that the “stock is currently trading at 8.5x EV/EBITDA on FY26 numbers, at a 60% discount to market leader UltraTech Vs 10-year average discount of 45-50% and 5-year average discount of 50%.”
Jefferies believes that the “stock has rerating potential amid broad based recovery in cement industry pricing/profitability.”
Belrise: Jefferies initiated coverage with a Buy. They expect “Belrise to deliver a healthy 12% revenue CAGR over FY25-28E, led by rising two-wheeler demand, industry premiumization, increasing content-per-vehicle, and expansion in four-wheelers and exports.”
According to Jefferies, “Belrise’s 20x FY26E PE is attractive.” Most Indian auto part companies are trading at an average 1.8x PEG (ratio of consensus FY26PE to FY26-28 EPS CAGR), while Belrise is at 0.8x, as per Jefferies estimates.
Bharti Airtel: Jefferies believes Bharti is the “best way to play consumption in India as it operates in a category with larger market size and much lower competition. Further, there is significant runway for mid teens revenue growth.”
Finolex Cables: An electrical cables play, they view Finolex Cables as a “good play on housing, capex, and estimate sales/PAT CAGR of 14%/19% between FY25-FY28.” Moreover, they find the valuation attractive as the stock trades “at a steep valuation discount of 45-50% Vs peers.”
Indigo: Jefferies sees IndiGo as “a value proxy consumer stock that is currently trading cheaper than most consumer stocks.” IndiGo’s “12x FY26 EV/EBITDA valuation looks attractive for mid-teens earnings growth trajectory, undisputable dominant presence in domestic aviation, and new growth levers such as accelerated international expansion,” added Jefferies
Mahindra & Mahindra: Another one from the auto space, Jefferies sees M&M also as a value play. They believe that “Mahindra is benefitting from good industry demand tailwinds across its key segments of tractors & SUVs and has also been improving its franchise with market share gains across tractors, SUVs and LCVs.”
The reasons why they see M&M as a better investment case compared to Maruti and Hyundai are that
‘1.It enjoys stronger industry demand tailwinds
2.It is gaining market share across tractors and SUVs while Maruti and Hyundai are slipping in Pvs
3.Should deliver higher 18% EPS CAGR over FY25-FY28 Vs 13%/10% for latter
4.Trades at 25x core FY26 PE estimates.”
NTPC: The next pick for Jefferies is from the power sector. They see value in NTPC and have a price target of Rs 490 per share. They added that “capacity addition may accelerate with management guiding for 11.8 GW addition in FY26 and 9.9 GW in FY27 Vs only 4 GW addition in FY25.”
Moreover, they see the price target at “2.3x consolidated PB FY27, in-line with the average of the last upcycle.” Capacity ramp-up and medium-term double-digit EPS CAGR are key re-rating drivers, as per Jefferies.
Sagility India: Given Sagility’s payer-heavy revenue mix, Jefferies has identified it as a value pick and expects its “addressable market should expand at 7-8%.” Sagility has grown its revenues at low-mid-teens over the past few years. They believe, “Sagility is well placed to outpace the market on the back of revenue synergies from Broadpath, deeper client mining, mid-market expansion, and M&A.”
Jefferies makes changes in India Model Portfolio
Three stocks from the 11-stock value list have been added to Jefferies India model portfolio. These include Sagility, Belrise Industries, and Adani Energy Solutions.
Sagility: According to Jefferies, “Sagility is a fast-growing IT midcap company, and we add that by trimming weight on Infosys, keeping IT still at an Underweight position.”
Belrise: The change within the auto sector is made by “replacing Eicher with Belrise, an auto-component midcap that was recently initiated, and the stock provides a strong growth outlook,” Jefferies added.
Adani Energy: This is the third addition to the model portfolio. Jefferies explained that they added “Adani Energy Solutions as a fast growing utility. Nuvama is removed following the recent regulatory action on derivatives trading.”
India valuations high: Jefferies
Jefferies pointed out that valuations of Indian markets at current levels is “high”. According to them, the “MSCI India valuations have risen to 23.3x,” nearly 1.5x higher that the overall 10-year average valuation for India.
According to the Jefferies calculations, “this is at 82% premium relative to EMs, (Vs 10-year average of 63%).” Among the 147 non-financial stocks under their coverage for over 5 years, Jefferies highlighted that “nearly 39% are trading 1sd above their 10-year avg PE, while 8% are trading at 2sd above.” (‘sd’ stands for standard deviation.)