RIL, ICICI Bank, Tata Motors, Infosys, Bharti Airtel among Jefferies’ top picks, shares may rally up to 60%

Domestic benchmark indices BSE Sensex and Nifty 50 plunged for the seventh straight session on Thursday, on monthly F&O expiry. Indian equity markets have witnessed steep correction in the last few sessions as Russian troops attacked Ukraine after months of escalating tensions. Investors need to keep calm and patience to tide over the current situation, said experts. According to traders and analysts, investors can utilise the correction to accumulate quality stocks. International brokerage firm Jefferies is bullish on HDFC Bank, VBL, Gland Pharma, Laurus Labs and Dixon. Meanwhile, HUL, Fortis, Apollo and Crompton stocks have been removed from the ‘Top Buy Ideas’ list.

Top stocks picks

Financials

ICICI Bank
Target price: Rs 1,040; Upside 33%

ICICI Bank is expected to deliver high-teens growth in earnings and improving ROEs towards 16-17% levels over next 2-3 years.

HDFC
Target price: Rs 3,480; Upside 42%

HDFC Ltd. is well-poised to benefit from strong demand in housing and pick-up in demand for construction finance, according to the brokerage. The mortgage lender is expected to deliver RoEs of 13% over FY22-24E with uptick in topline, lower credit costs and optimisation of leverage.

HDFC Bank
Target price: Rs 2,160; Upside 43%

Analysts at Jefferies believe that HDFC Bank is set for a comeback after a year of underperformance. Jefferies expects 18% CAGR in profit over FY22-24E and improvement in NII growth towards 16-17% to be key to rerating.

ICICI Prudential Life
Target price: Rs 830; Upside 64%

The insurer is well-placed to benefit from new banca partnerships, a more diversified product mix and improving margin profile – now highest among listed peers, according to the brokerage firm. “Its protection pricing adjustment of 0-10% is lower than its peers and makes its products more competitive in the markets now. This coupled with a benign base and easing supply side constraints should drive strong growth in term life,” Jefferies said.

Auto

Tata Motors
Target price: Rs 635; Upside 33%

Tata is in the early phase of a multi-year turnaround led by a combination of improved strategy and cyclical recovery. The automaker has taken an early leadership in EVs in India passenger vehicle space with ~80% market share. Analysts believe that JLR is entering a positive cycle where pent-up demand, favorable mix of order book and higher production on easing chip constraints which should drive better margins and cashflows.

Maruti
Target price: Rs 10,500; Upside 22%

Semiconductor chip constraints are easing and Maruti Suzuki expects 4Q to be better than 3Q. The company has 2,64,000 unit order book. The brokerage expects margins to recover sequentially as commodity cost pressures are showing signs of peaking out and higher volumes drive operating leverage benefit. Maruti’s strong CNG focus is a tailwind amid increasing CNG availability and high petrol prices.

TVS Motors
Target price: Rs 800; Upside 21%

TVS has gained share in both scooters and premium motorcycles on the back of good products, according to the Jefferies report. Its market share in scooters is up from 15% in FY17 to 21% in 9MFY22, and in premium (125cc+) motorcycles has risen from 11% to 19% over this period. The company is also doing well in overseas markets. The two-wheeler manufacturer is expected to deliver 12% volumes, 33% EBITDA and 47% EPS CAGR over FY22-24.

IT

Infosys
Target price: Rs 2,140; Upside 23%

Growth in IT spends is set to accelerate driven by cloud adoption and digital transformation, and Infosys well positioned for industry leading growth. The brokerage expects margins to be resilient and to be fairly steady over FY22-24E, leading to a 15% EPS CAGR over FY22-24E.

Oil & Gas

Reliance (RIL)
Target price: Rs 2,950; Upside 24%

RIL’s balance sheet is strong with approx. $10bn net debt by end-FY22, positioning itwell for strong growth in consumer businesses when pandemic passes, said Jefferies. The brokerage values Jio at $95bn including $16bn for digital services, Retail at $ 104bn including $ 20bn for e-comm, O2C at $78bn including $7bn for Upstream gas production JV with BP and the Renewables business at $ 18bn. “A lot of potential upside optionality exists from a volume perspective which could result in volumes potentially more than doubling from current levels,” it said.

Gujarat Gas
Target price: Rs 830; Upside 29%

Gujarat Gas expected to clock a volume CAGR of 15% over FY20-24E, driven by pickup in ceramic exports driving Morbi volumes as well as a sharp ramp up in CNG volumes. A lot of potential upside optionality exists from a volume perspective which could result in volumes potentially more than doubling from current levels, Jefferies stated.

Real Estate

Godrej Properties
Target price: Rs 2,000; Upside 28%

Godrej Properties utilized the cyclical downturn to add to its project pipeline, and it emerged as the only pan-India, and the largest resi developer by pre-sales in FY21. Jefferies expects GPL sales to stay strong over the medium term. “Its balance sheet is under-levered and provides scope to add large new projects. Profitability should also improve in the upcoming quarters as some of its more profitable projects from FY18 onwards, start getting completed and recognized in P&L,” it said.

DLF
Target price: Rs 472; Upside 45%

DLF is India’s largest listed developer by market cap and has a large, premium land-bank in the National Capital Region (NCR). “The NCR market has seen significant disruption and consolidation over the years, and DLF is among the very few survivors. Low inventory and competition has already helped DLF achieve 15-20% pricing gains in its key NCR markets and reach near decade highs in sales. Strong launch pipeline bodes well for coming years,” Jefferies said.

Telecom

Bharti Airtel
Target price Rs 910; Upside 30%

While the government’s relief measures have ensured VIL’s survival in the medium term, subscriber market share gains in favour of Bharti Airtel will continue to play out, albeit at a slower pace, the brokerage said. Tariff hikes would result in significant improvement in cashflows. Bharti Airtel is expected to deliver 16% CAGR in revenues and 20% CAGR in EBITDA assuming no further tariff hikes till 4QFY24.