Jefferies' Top Stock Bets For June

As Nifty and Sensex inched closer to record highs and foreign investors bought Indian stocks for the third straight month in May to turn net buyers for 2023, pumping Rs 36,392 crore into domestic equities so far, Jefferies picked its favourites.

For June, the top pick includes 25 stocks with "buy" ratings and six with "underperform" ratings.

Among the financials, the brokerage picked ICICI Bank Ltd., Axis Bank Ltd., IndusInd Bank Ltd., HDFC Life Insurance Ltd., Bajaj Finance Ltd., Cholamandalam Investment & Finance Company Ltd., and SBI Cards & Payment Services.

In the automotive sector, it was TVS Motors Co. and Tata Motors Ltd., while the pharma and healthcare sectors included Sun Pharmaceutical Industries Ltd., Medanta (Global Health Ltd.), and Max Healthcare Institute Ltd.

Other top bets are Godrej Consumer Products Ltd., Godrej Properties Ltd., Kajaria Ceramics Ltd., Larsen & Toubro Ltd., Lodha (Macrotech Developers), Navine Flourine International Ltd., Polycab India Ltd., Reliance Industries Ltd., Supreme Industries Ltd., Thermax Ltd., Ultratech Cements Ltd., and Zomato.

Here's the full list of Jefferies' top picks for June

• Top financial pick, as the bank can sustain superior growth, improved asset quality, and higher ROEs.

• It looks well poised to leverage the growth pickup in Indian bank credit, led by deeper penetration and higher market share in urban micromarkets in metro and near metro areas.

• Strong digital capabilities have enabled the bank to ramp up unsecured lending for retail loans as well as SME lending. This, in turn, has improved NIMs without raising asset quality risks, the June 6 note said.

• The franchise is getting stronger and is on track to deliver higher growth and ROEs sustainably.

• Integration with Citibank’s India retail platform is progressing well, with limited attrition among staff and customers.

• Over the past year, the bank has improved its core deposit franchise by focusing on stickier deposits, and the share of retail within savings deposits has improved.

• The bank has the potential to ramp up lending (merchant lending, MFI, non-CV auto loans), defend margins, and deliver lower credit costs.

• The CEO tenure extension is a reasonable time period to showcase progress on internal controls, funding, and underwriting, as the bank has already made a move on these aspects.

• IIB's asset quality pressures are behind it, as the bank has recognised or provided for most of the stressed book.

• It is well positioned to deliver a healthy growth rate of 25% CAGR in AUM as it leverages expansion into new markets and the addition of new products.

• Strong digital platforms will improve engagement with existing customers, offer scope for operating efficiencies that can compensate for some compression in NIMs in FY24.

• The potential opening-up of credit card business will open a large profit-pool opportunity and could account for 5–10% of profits over 2-3 years.

• Expects the company to see increased wallet share and growth in premiums (ex tax-related inflows of Rs 10 billion in FY23) to be 15-20% YoY; reported growth to be softer near 7-8%, while margins should see a tad bit of improvement.

• IRDAI's permission for life insurance companies to expand into health insurance (indemnity-based) holds the potential to lift premium growth.

• Estimate HDFC Life Insurance to deliver a 16% CAGR in VNB over FY23–26.

• The AUM should grow at a 25% CAGR over FY23–25, led by healthy growth in the core auto business and strong growth momentum in less cyclical new businesses.

• It has delivered stronger asset quality through cycles versus its peers, and the portfolio behaviour of new business is holding up well so far. The brokerage expects asset quality and credit costs to be broadly stable over FY23–25E.

• The margins are near a bottom and should stabilise as the rate cycle is peaking.

• Card spends and receivables are expected to grow at a 23% CAGR over FY23–26, given the healthy growth in industry card spends.

• SBI Cards & Payment profit should grow at a 23% CAGR over FY23–26E, and ROE should expand from a trough of 23% in FY24 to 25% over FY23–26E.

• Net interest margins could inch up higher over FY24–26e, led by an improving EMI/revolver mix and higher yields on EMI loans.

• The Indian truck and PV (passenger vehicle) demand outlook remains good, and we forecast an 11–12% CAGR in FY23–25E.

• The company has made a strong comeback in Indian passenger vehicles, with market share rising from 5% in FY20 to 14% in FY23, led by a strong SUV focus, better products, and improved brand positioning.

• The company is going through a strong product cycle with the recently upgraded Range Rover and Range Rover Sport.

• It has a strong order book of 200K units, with 76% of orders for the new RR, RR Sport, and Defender models.

• The research firm expects both Jaguar Land Rover's and India's businesses to perform well in FY24, driving strong earnings growth and deleveraging.

• By FY25E, Jefferies expects ebitda to be 2.1x of FY23, EPS to rise to an all-time high, and the auto balance sheet to turn into net cash.

• The company has been improving its franchise across multiple segments with attractive product propositions.

• Its market share from FY18 to FY23 is up from 16% to 24% in scooters, from 13% to 15% in 125cc+ motorcycles, from 17% to 25% in two-wheeler exports, and from 22% to 42% in three-wheeler exports.

• TVS has plans to expand its EV portfolio across 2Ws and 3Ws in FY24, along with network expansion in India and entry into international markets.

• The current order book is Rs 4 trillion, up 12% year-on-year, and gives comfort on double-digit revenue growth in FY23–25E.

• The company should benefit from execution and margin recovery as the impact of supply disruptions and sharp commodity price rises eases.

• Prudent capital allocation and ROE improving to 16%+ in FY25E from 11% in FY22 (14% in FY20) are other triggers.

• Thermal captive power projects account for just 10–15% of Thermax’s revenues, compared to 50%+ in earlier years. 70%+ of orders are driven by green offerings.

• The margins, which are currently weak, should normalise by FY24E, between some cooling off in commodity prices and cost pass-throughs in contracts they win ahead.

• The company has acquired projects through the partnership model worth Rs 198 billion in FY23, which lay the path for steady growth.

• Lodha is also monetising its large 4,000 acre+ land bank through a combination of digital infrastructure (warehousing and industrial land) and residential township development.

• Pre-sales of Rs 120 billion (+33%) in FY23 beat guidance, and management targets 20% medium-term pre-sales growth for FY24 as well.

• Pre-sales performance was strong in FY23 (+56% to Rs122 billion).

• The company has done well on new project additions, with Rs 323 billion worth of projects added in FY23.

• It has also moved ahead of the street by buying land in FY22–23.

• Profitability is partly improving, but much more is expected in the upcoming quarters as some of its more profitable projects from FY18 onward start getting completed and recognised in profit and loss.

• The company has taken several structural initiatives, such as a renewed focus on access packs, inventory correction in Indonesia, a ramp-up in market development efforts, distribution expansion, and building a strong performance culture.

• Under a new management team, led by Sudhir Sitapati, it is amidst a turnaround journey with stronger growth.

• Near-term industry weakness is a concern, but Zomato management is guiding for high single-digit quarter-on-quarter growth in 1QFY24.

• They have $1.4 billion in cash, which is generating yield. Cash flow was positive in recent quarters, including other income.

• Blinkit is a large opportunity and is quickly gaining traction.

• Loss is coming down as operating leverage is working well (fixed costs are higher versus food delivery due to dark store expenses).

• Leverage is the lowest in the last two decades, and management's guidance of maintaining net debt to Ebitda below 1x is comforting.

• Possible upside to O2C earnings in FY24 as Chinese consumption demand is recovering and improving petrochemical margins.

• The delay in tariff hikes in telecom is accelerating an oligopoly that Jio will benefit from on the back of the 5G rollout.

• Management sees strong growth in specialty chemicals despite a likely slowdown in global agrochemical demand in 2HCY23, due to ramp up of early stage molecules.

• Forecast a 33% PAT CAGR over FY23–25—the strongest in our chemical coverage.

• A small revenue base creates upside potential from new contract wins.

• The acquisition of Concert Pharma will position it with a best-in-class product in a multibillion-dollar Alopecia Areata market.

• The company has $2 billion of cash in hand and could add more products to its specialty division, which will further augment growth for the company in the medium to long term.

• It will increase bed capacity by 85% in the next 4-5 years, where more than 60% of the beds are brownfield beds, which will have a shorter breakeven time and higher Ebitda margins.

• Max Healthcare will get 400 new beds in FY24, while 100 new brownfield beds came up in 4QFY23.

• Rationalisation of payors at high occupancy hospitals and increasing international patients will also aid ARPOB's growth for the company.

• The new hospitals in Lucknow and Patna are expected to ramp up strongly and drive an overall Ebitda CAGR of 17% over FY23–25E.

• Flagship unit in Gurgaon to start new service areas and hire more doctors in high-demand divisions to boost occupancy; price hikes to boost ARPOB in coming quarters.

• The company has successfully managed to scale up operations through organic and inorganic routes and is now executing steady deleveraging.

• To remain an outperformer, it would be the biggest beneficiary from continued government and private capex, given its pan-India presence and market leadership in each region.

• Under Project 'Leap' the company targets to achieve a Rs 200 billion topline by FY26, implying a 13% CAGR over FY22–26.

• Polycab's deeper distribution aids market share gains despite macro disruption.

• It has registered +16% sales growth year-on-year with healthy volume growth in FY23.

• It has diversified into multiple segments — plastic piping, protective packaging, industrial furniture, and consumer furniture—which alleviates business risk.

• The company is the market leader across most of these segments.

• Over the past few years, the company has focused on increasing the share of value-added products (high margin) in its portfolio.

• Domestic industry has grown by 6–7% year-on-year in FY23, and exports have posted strong growth of 35%.

• Higher Morbi exports bode well for domestic pricing and profitability.

• In a bid to expand geographically, it is set to foray into Nepal by setting up a 5.1 msm facility via 50% joint venture mode.