Reliance Securities has come out with a list of seven stocks, which it believes offer earnings growth and specific qualitative and quantitative triggers, which can help them outperform and create alpha returns over the next few months, as the market hits record high ahead of the Union Budget 2024. They are Larsen & Toubro Ltd, SRF, AU Small Finance Bank Ltd, Tata Technologies Ltd, Devyani International Ltd, The Ramco Cements and ZEE Entertainment Enterprises Ltd. The domestic brokerage believes one can buy these stocks for 15-22 per cent upside going ahead.
Larsen & Toubro Ltd | Buy | Target Price: Rs 4,200
Reliance Securities said L&T has been focusing on reducing its working capital through improved collections and better customer advances. Despite lower margins seen in FY24, the company was able to improve its return on equity (RoE) by 270 bps YoY to 14.9 per cent as it reduced working capital by 410 bps to 12 per cent of sales. For FY25, the L&T management has guided order inflow growth of 10 per cent, revenue growth of 15 per cent, net working capital (NWC) to sales of 15 per cent, and a margin of 8.25 per cent, the brokerage said.New Delhi Wealth Management
It said L&T's key business segments such as water treatment, urban infrastructure, power T&D, building & factories, industrial capex will see healthy investment activity over the coming few years as the building blocks towards a manufacturing-oriented economy. Reliance Securities advised investors to buy L&T within Rs 3,550-3,648 range for a target price of Rs 4,200, suggesting 15 per cent potential upside.
SRF Ltd | BUY | Target Price: Rs 2,750
With the improvement in chemicals and packaging film businesses, 20 per cent growth in earnings and expansion in capacities, the management confident of growth over the next 2 years offers value at current levels, said Reliance Securities.Simla Stock
SRF, it noted announced a capex of Rs 15,000 crore for FY24-28. Out of this, a total of Rs 12,000 crore would be invested in the chemical business and the rest will be deployed in the packaging films business. SRF has also approved a capex for belting fabric capacity expansion from 1,100 to 1,800 metric tonne per month within the next three years.
Reliance Securities advised investors to buy SRF within Rs 2,320-2,390 range for a target price of Rs 2,750, suggesting 15 per cent potential upside.
AU Small Finance Bank Ltd | BUY | Target Price: Rs 785
Reliance Securities said AU SFB's focus remains on increasing disbursement share of high ROA assets like vehicle loans, micro business loans, and microfinance. AU SFB is targeting branch profitability with a healthy current account book and is aiming for 7.5 per cent of deposits to maximize the potential of the core digital platform.
"AU Bank has successfully completed the merger with Fincare Small Finance Bank and leverages strengths for significant market expansion and deeper customer penetration with immediate focus on ensuring smooth integration within the next 9 to 12 months. Besides, AU Bank is expecting a positive trajectory for fee income and other income in line with the balance sheet as sustainability of fee income is strong with a focus on wealth products and leveraging advances-deposits business with expectations of 1.7 per cent ROA next year despite increased cost of funds," it said.
Reliance Securities said AU SFB's valuations are at the lower end of the five-year range in terms of P/BV and PE ratio offering scope for growth. It advised investors to buy AU SFB within Rs 628-644 range for a target price of Rs 785, suggesting 22 per cent potential upside.
Tata Technologies | Buy | Target price: Rs 1,230
Reliance Securities called Tata Technologies a pure-play manufacturing focused ER&D company, primarily focused on the automotive industry with a heightened focus on smart manufacturing and a reduction in product development time and cost. As a subsidiary of Tata Motors Ltd, Tata Tech benefits from long-term relationships with both TML and JLR which strengthens to tap the large opportunity in automotive ER&D markets, adjacent verticals to tap the wide business network.
"Considering the healthy business prospects, strong parentage, superior financials with improvement in margins and ratios provides a valuation comfort, Reliance Securities said.
It advised investors to buy Tata Technologies within Rs 1,010-1,033 range for a target price of Rs 1,230, suggesting 19 per cent potential upside.
Devyani International | Buy | Target: Rs 195
Devyani International took strategic initiatives such as optimising menu pricing in a subdued environment, which lifted revenue growth. Reliance Securities expects improvement in Q1FY25, as it is seasonally a better than Q4. As domestic tourism is at new peaks and regional tourism is doing well, capitalizing on India’s emerging status as a major destination for travel, tourism, and value shopping, the company is focusing on food courts as an essential component of its growth strategy across various consumption channels and touchpoints of travel and shopping partnering with PVR-INOX enriching its brand portfolio.
"Muted underperformance compared to the sector and growth in earnings could kick the up move for the stock in the coming months," Reliance Securities said.
It advised investors to buy Devyani International within Rs 157-163 range for a target price of Rs 195, suggesting 19.6 per cent potential upside.
Ramco Cements | Buy | Target: Rs 950
Ramco Cements continued to reflect the strong market position of the company in the southern region, healthy operating efficiency and financial risk profile despite higher than capex in its brownfield expansion at its Kurnool plant. Reliance Securities said the share of the faster growing east market has been consistent at 18-24 per cent over the past five years owing to commissioning of new facilities in the southern
region.
However, the share in the eastern region is expected to increase going forward driven by healthy demand prospects in the region along with expected commissioning of further 0.9 MTPA capacity in Odisha. The company could retain its strong brand image in the south market with brands such as Ramco Supercrete and Ramco Supergrade and maintain steady cash accrual, while gradually establishing itself in the new markets over the medium term, the brokerage said.Bangalore Wealth Management
It advised investors to buy Ramco Cements within Rs 775-794 range for a target price of Rs 950, suggesting 19.6 per cent potential upside.
Zee Entertainment Enterprises | Buy | Target: Rs 190
Reliance Securities said the ZEE management has taken strategic decisions to generate higher value for shareholders, including withdrawing the merger implementation application from NCLT, raising funds to venture new growth strategies and remains committed to delivering financial ambitions outlined for FY25 with notable improvements seen in ad revenue based on FMCG spending trends as rural recovery is improving leading to revenue growth, margin, and market position.
"ZEE5 pricing strategy is expected to improve as the Pay TV ecosystem would pave the way for sustainable growth in subscription revenues and its peak cost structure would trend down as it streamline the processes with renewed pricing growth on rising content consumption and improving infrastructure, resulting in accessibility and affordabilityChennai Stock. Current draw down in valuations offers comfort from current levels within the sector.Jaipur Investment
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