Bharat Electronics, ITD Cementation India among fundamental picks by HDFC Securities; do you own any?

After falling 2.5 per cent in August, market benchmarks the Sensex and the Nifty are up nearly 2 per cent in September so far. While the sentiment seems to have slightly improved, the market has to deal with many headwinds in the short term.

The risk of inflation is not gone, interest rates are high and central banks have been saying they can still raise rates. Moreover, major global economies, including the US, China and Europe, are showing signs of pain. All this makes the short-term outlook of the market hazy.

What to do, then? Don’t chase every stock. Be stock-specific and bet on only quality stocks with strong fundamentals.

Brokerage firm HDFC Securities recommends the following three stocks to buy at this juncture for the next two to three quarters. These stocks look attractive at this juncture because of their sound fundamentals. Take a look:

ITD Cementation India | Base case target price: 258.5 | Bull case target price: 282

HDFC Securities recommends buying this stock in the band of 230 – 238 and adding more on dips in the band of 203 – 207.

The brokerage firm highlighted that ITD Cementation is one of the key beneficiaries of increasing government focus towards infrastructure development and upgradation of railways and metro projects.

Its focus on margins and cash flow generation augurs well from a long-term perspective. ITD Cementation Limited has strong financials and a healthy balance sheet as compared to its peer companies which gives also the company a competitive advantage in bidding for new big projects.

“We expect revenue, EBITDA and PAT to grow at a CAGR of 26 per cent, 43 per cent and 65 per cent, respectively, over FY23–25E. With the strong quality of orders flowing into the order book providing a strong future outlook for revenues, we revise our earnings multiple enhancing it to 13.75 times for base case valuation and 15 times bull case multiple to the company’s FY25 earnings,” said the brokerage firm.

EPL | Base case target price: 226 | Bull case target price: 242

HDFC Securities recommends buying this stock in the band of 203-210 and adding more on dips in the range of 182-189.

The brokerage firm underscored EPL is a market leader that is set to continue gaining market share in an industry which is undergoing a structural shift owing to innovative product introduction.

EPL’s strong innovation pipeline and many sustainable solutions are expected to be quickly adopted by larger personal care brands given their commitment to sustainability goals. A constant lookout for establishing a presence in white spaces and driving a higher share of customer wallets brightens the company’s prospects, HDFC Securities said.

Softening of raw material should further aid the margin recovery. Going ahead, HDFC Securities expects revenue and PAT CAGR of 12 per cent and 23 per cent, respectively, over FY23-25E and EBITDA margin improvement of 286 bps over same time frame.

“Return on capital employed (RoCE) and return on equity (RoE) are expected to increase further from 12.7 per cent and 11.9 per cent, respectively in FY23 to 18.5 per cent and 15.4 per cent by FY25,” HDFC Securities said.

Bharat Electronics (BEL) | Base case target price: 151 | Bull case target price: 163

HDFC Securities recommends buying this stock in the range of 136-140 and adding more on dips in 121-125 band.

The brokerage firm pointed out that BEL is emerging as a key beneficiary of increased defence capital expenditure. The company has an advantage over its competitors due to its dominant market position, proven track record and association with the armed forces, established infrastructure and manufacturing facilities, along solid R&D capabilities.

BEL’s fresh orders pipeline remains healthy, supported by the government’s growing capital budget allocations and continued focus on rolling out enabling reforms to increase India’s defence product manufacturing capability and gradually reduce imports. The company is the dominant domestic supplier of defence electronics equipment to the Indian defence forces and it has strategic importance to the Government of India, HDFC Securities said.

Government ownership leads to a sizeable inflow of orders on a nomination basis and large defence offset requirements of foreign suppliers provide opportunities for business growth over the medium term.

“BEL’s established track record, large manufacturing capacities, strong R&D base, robust order book with healthy order prospects and strong financial profile led by zero debt, attractive return ratio and better profitability make us positive about the stock,” said the brokerage firm.

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Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.


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Updated: 07 Sep 2023, 11:29 AM IST

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