Market Veterans' Top Stock Picks For 2023
BQ Prime reached out to market veterans for their top stock picks for 2023. Here's what they said.
India is not insulated from the global macroeconomic headwinds, which are likely to spill over into 2023. However, despite facing volatility stemming from inflation, geopolitical tension, and rate hikes, both the Indian stock benchmarks, the Sensex and the Nifty, added more than 4% each in 2022.
BQ Prime reached out to market veterans for their top stock picks for 2023. Here's what they said:
Ambareesh Baliga
Independent consultant
Top Picks for 2023: Amara Raja Batteries, Mahindra Holidays, AGS Transact Technologies, MTAR Technologies, and Quess Corp.
Amara Raja Batteries
Baliga recommends buying Amara Raja Batteries Ltd., a market leader in the lead-acid battery segment, alongside Exide Industries Ltd.
The company is investing nearly $1 billion to build a globally competitive facility for Li-ion batteries in Telangana.
The recently acquired plastic components business from Mangal Industries will be EPS accretive.
The company is debt-free and generates a free cash flow of about Rs 400 crore every year.
Baliga believes demand for lead-acid batteries from automobiles will not be affected for the next 10–15 years. Following that, there will be continued strong demand for storage solutions from the telecom, railway, commercial transportation, and power sectors.
Baliga expects the li-ion segment to see excellent growth as electric vehicle volume shoots up.
Baliga estimates EPS for FY24 at Rs 44, with a PE of 18x
Baliga has set a price target of Rs 792 apiece, implying an upside of 38.70% from the 2022 closing price.
Mahindra Holidays and Resorts India
Baliga sees Mahindra Holidays and Resorts India Ltd. as a multi-bagger, but its 12-month price target of Rs 400 apiece implies an upside of 48.4% from the 2022 closing price.
Mahindra Holidays enjoys a unique business model where they take an upfront subscription from members to build or buy resorts, charge annual maintenance to maintain the property, and also earn when members utilise these properties for their holidays through food and beverage serving and other activities at the resort.
The capex per key is less than 50% of the initial subscription; thus, the free cash on books is high at Rs 1,000 crore plus.
Mahindra Holidays have over 4,700 rooms with an 80% occupancy rate and a total membership of 2.74 lakh.
Baliga expects the big trigger to come in the next two-to-three years when the initial properties become free of holiday liabilities since most of the memberships are for 25 years except the first few.
Thus, new members can be enrolled on properties that are absolutely free, improving cash flows further.
AGS Transact Technologies
Baliga has a "buy" call on the omnichannel payment solutions provider.
The company is the second-largest player in ATM outsourcing and cash management.
It has 2.4 lakh point-of-sale machines, a 4% market share, and a healthy backlog of orders.
The revenue from digital payments is expected to grow at an annualised rate of 16% for the next three years.
The management is confident of maintaining a 25%-plus Ebitda margin, leading to a 15% annualised growth in net profits for the same period.
The stock has corrected sharply from its IPO price.
However, with recovery in the sector and performance improving, EPS is estimated at Rs 9.80 for FY24, and the target price is set at Rs 98, implying an upside of 54% from the 2022 closing price.
MTAR Technologies
Baliga is also positive on MTAR Technologies Ltd., a precision engineering solutions company which manufactures components and critical assemblies for sectors like nuclear, space, defence, and clean energy.
Clean energy products is about 50% of the revenue, whereas nuclear, space and defence make up the balance.
They have developed a number of import substitute products in line with “Make in India” programme
The order book position is robust at Rs 1,300 crore which is about three times the last year revenue.
MTAR's second-quarter earnings was decent with 40% revenue growth and 32% higher Ebitda.
The management has guided for a 55% to 60% growth for FY23 with 30% Ebitda margin. However, the second half of the financial year has been traditionally better for MTAR.
Baliga expects EPS of Rs 44 for FY24. He has a "buy" call on the stock with a target price of Rs 1,980 per share, a potential upside of 22.41% to 2022 closing price.
Quess Corp.
Baliga has a "buy" on Quess Corp., with a target price of Rs 660 apiece, implying an upside of 60.42% from 2022 closing price.
The company is a business service provider with footprint in nine countries and 64 locations with 3,000 plus clients and nearly 4,70,000 employees.
The company has broadly five verticals: staffing services, facilities management, industrial operations and management, technology solutions, and online business training and recruitment.
Workforce management is witnessing strong growth especially general staffing driven by retail, BFSI, and telecom sectors. General staffing crossed the three-lakh-headcount mark last quarter.
The company’s dividend policy is favourable too 33% pay out of free cash flows over three years.
The management commentary for FY23 is strong due to the demand pick-up. Labour reforms, too, will be beneficial for an organised player like Quess.
Baliga expects that in the next two years, the company could witness a topline CAGR of 25% and with an expected EPS of Rs 44 for FY24.
Hemang Jain
Senior Vice President, Motilal Oswal Financial Services
Top Picks for 2023: Axis Bank, SBI, and Titan
Axis Bank
Hemang Jain believes Axis Bank delivered a stellar performance in the second quarter of fiscal 2023, driven by sharp margin expansion and a significant decline in provisions along with improving trends in cost metrics.
The private lender reported a PAT of Rs 5,330 crore, up 70% YoY, beating the market consensus for 26% growth.
This growth was driven by a 6% beat in the net interest margin and lower provisions that declined 51% year-on-year.
The private lender's business growth recovered in the current quarter after a QoQ decline witnessed in the first quarter of fiscal 2023.
Asset quality continues to improve, aided by moderation in slippages, healthy recoveries, and upgrades.
Restructured books moderated further, while a higher provisioning buffer provided comfort.
Motilal Oswal has revised the lender's PAT for FY23E and FY24E by 17% and 11%, respectively, in light of outstanding performance, Jain said.
The brokerage estimates Axis Bank to deliver FY24E RoA and RoE of 1.8% and 18.1%, respectively.
Motilal Oswal has a "buy" call with a target price of Rs 1,050, implying an upside of 12.31% from the 2022 closing price.
State Bank of India
Motilal Oswal has a "buy" call on the State Bank of India from the PSU banking space.
The brokerage has set a target price of Rs 700, implying an upside of 14% from the 2022 closing price of Rs 614.25, as the bank delivered a robust quarter led by margin expansion and lower provisions.
The state-run bank reported a 74% year-on-year growth in net earnings to Rs 13,260 crore, beating the market consensus of 29% growth.
Even the treasury's performance of SBI improved, supporting other income.
Treasury income coupled with strong control of opex enabled a 17% YoY growth in core pre-provision operating profit.
Loan growth of SBI was strong, and the bank expects the momentum to continue.
SBI has a high proportion of floating loans, which benefit from loan re-pricing, which will continue to support NII and overall earnings even if deposit costs rise.
The bank's asset quality performance was strong, with continuous improvements in slippages and headline asset quality ratios, and the restructured book was under control at 0.9%.
Motilal Oswal estimates earnings to post a 32% CAGR over FY22–24 and projects SBI to deliver an FY24 RoA and RoE of 1.0% and 17.3%, respectively.
SBI remains one of their preferred picks in the PSU banking sector.
Titan
Motilal Oswal has a "buy" call on Titan Co. with a target price of Rs 2,910, implying an upside of 12.13% from the 2022 closing price, as they expect the company's robust business momentum to continue.
Consolidated revenue grew 22% YoY. Ebitda grew 28.8% YoY.
The three-year jewellery sales CAGR of 22–23% in recent quarters is extremely remarkable.
The management of Titan indicated a healthy 17–19% growth in festive season demand across its key businesses in October.
Titan has a strong runway for growth, given its market share of sub-10% in jewellery and the continued struggles faced by its unorganised and organised peers.
Titan's medium-to-long-term earnings growth visibility is nonpareil.
Despite the volatility in gold prices and Covid-led disruptions, Titan's earnings CAGR has been stellar at 24% for the past five years till end of fiscal 2022.
Motilal Oswal expects this trend to continue, with a 31% earnings CAGR over FY22-24
Neeraj Dewan
Director, Quantum Securities
Top Picks for 2023: Fortis Healthcare, Indusind Bank and NCC
Fortis Healthcare
Dewan has a "buy" on Fortis Healthcare Ltd., with a target price of Rs 350 apiece, implying an upside of 23% to 2022 closing price.
The hospital segment is showing good growth and occupancy levels have reached 70%.
Margin improvement is due to growth in hospital segment, cost rationalisation measures and increase in international patients.
Fortis expects occupancy to increase to 75% and further improve margins.
Total 2,000 beds will be added, of which 1,300-bed expansion plan has already been announced, and another 700 beds could be added on existing capacities.
The brokerage expects an Ebitda of Rs 1,350 crore in FY24 at 20 times EV/Ebitda.
IndusInd Bank
Dewan has a "buy" on Indusind Bank Ltd. among banking stocks.
The brokerage said turbulent times from corporate stress followed by Covid impact on microfinance and commercial vehicle portfolio is behind.
The collection efficiency in vehicle finance book is back to pre-Covid levels and that of MFI book has improved to 99.1% in September 2022.
Loan growth improved to 17.8% in Q2FY23; the bank expects 20% in FY23 amid recovery in CV and MFI disbursements, and momentum in corporate and other consumer segments.
With a liquidity coverage ratio of 125%, the bank is better placed as compared to prior years to manage its cost of funds.
With a healthy CAR of 18%, the bank has no immediate requirement of raising equity capital.
The asset quality improved with gross NPA of 2.11% and net NPA at 0.61% in Q2FY23.
Proportion of restructured assets declined to 1.5% in Q2 FY23. Besides a healthy NPA PCR of 71.5%, it carried excess standard provisions of Rs 2,650 crore.
The bank targets credit costs of 120-150 basis points in FY23E and then reduce it further.
The RoA will gradually improve to 2% in FY24 from 1.8% in Q2FY23.
Indusind Bank is trading at an attractive valuation of 1.57 times its estimated FY24 adjusted book value of Rs 776. At an estimate of 2 times, the target rises to Rs 1,550, implying an upside of 27% from 2022 closing price.
NCC
Dewam has a "buy" call on NCC Ltd. as the company is well placed to capitalise on the government's infrastructure pipeline.
The fundamentals are strong (balance sheets, orderbooks), execution activity is picking up, and order award momentum remains strong, the brokerage said.
The company's order book, which is well diversified, stood Rs 40,000 crore or 3.6 times its FY22 revenue.
Margins are expected to pick up from the third quarter onwards, on the back of pass-through clauses and new projects being won at higher input costs.
ACC's ability to deliver projects on-time and expanded opportunities with eligibility to bid for most projects provide a competitive edge the company.
The balance sheet of company is expected to strengthen gradual by reduction in debt. There has been a reduction of Rs 600-crore debt of Rs 1,900 crore.
With commodity prices stabilising, the brokerage sees strong earnings growth for the NCC and values it at 10 times its estimated earnings for FY24.
The brokerage as set a price target of Rs 115, implying an upside of 37% from 2022 closing price.