Choice Broking has come out with its top seven stock recommendations for 2022. They are Bharti Airtel, HDFC Life Insurance Company, Hindustan Unilever, ICICI Bank, Infosys, Larsen & Toubro, Schaeffler India.
New Year Stock Picks 2022 | Choice Broking
1) Bharti Airtel Ltd. (M Cap Rs 397,485 cr)
Airtel | https://www.airtel.in/
On the back of higher ARPU and continuous growth in the 4G subscriber base, Bharti Airtel reported a robust set of financial performance during Q2 FY22. India mobile service revenue increased by 6.2 percent Q-o-Q, while mobility business from Africa region increased by 5.1 percent. Consequently, consolidated revenue increased by 5.5 percent sequentially to Rs. 28,326 crore. Consolidated EBITDA increased by 6.3 percent Q-o-Q with 37bps expansion in the EBITDA margin to 49.5 percent. Reported PAT stood at Rs. 1,134 crore in Q2 FY22 as compared to Rs. 283.5 crore in Q1 FY22. PAT margin expanded by 295bps sequentially to 4 percent.
Valuation: Airtel’s domestic mobile business is expected to demonstrate its operational excellence in the sector. Moreover, its Airtel Business vertical, which offers a gamut of digital solutions to the enterprises, could be the next growth engine for the company. Investment in Airtel will be a long term play and thus we are assigning a “BUY” rating on the stock with a target price of Rs. 956 per share.
2) HDFC Life Insurance Company Ltd (M Cap Rs 129,349 cr)
HDFC Life | https://www.hdfclife.com/
HDFC Life Insurance Co Ltd. (HDFCLIFE) reported encouraging numbers in Q2 FY22, with new business premium coming in at Rs. 6,596 crore up 12.3 percent Y-o-Y, driven largely by good traction in new first year policies. Total premium collection was at Rs. 11,631 crore up 14.2 percent Y-o-Y. Renewal premiums saw improvement during the quarter as persistency ratios across all time periods saw improvements, suggesting the increased public awareness for life insurance seen during the pandemic is likely to remain sustainable.
Valuation: We expect HDFCLIFE to improve its performance metrics on the back of tailwinds in the sector and the Exide Life deal. Additionally, we expect it to maintain its leadership position among private players as rising costs would make it difficult for disruptive practices. We value HDFCLIFE at P/EV multiple of 4.4x (based on FY23 EV) to arrive at a target price of Rs. 833, thereby assign a “BUY” rating.
3) Hindustan Unilever Ltd (M Cap Rs 540,758 cr)
Hindustan Unilever | https://www.hul.co.in/
On the back of 4 percent Y-o-Y volume growth and 7 percent pricing growth, Hindustan Unilever Ltd (HUL) reported an 11.4 percent Y-o-Y growth in the consolidated top-line in Q2 FY22 to Rs. 13,046 crore. Gross margin contracted by 144 bps Y-o-Y to 51.5 percent. However, mainly on account of calibrated price hikes in home care and beauty and personal care (soaps category), sequentially the gross margin expanded by 112bps. Consolidated EBITDA increased by 10.3 percent Y-o-Y with 31bps Y-o-Y -Y contraction in the margin. Reported PAT increased by 10.5 percent with 18 bps contraction in the margin, which stood at 16.7 percent.
Valuation: Business environment continues to be challenging with unprecedented levels of input cost inflation and subdued consumer sentiments mainly in the rural areas. With ease in pandemic restrictions, recovery in consumption continued at good pace in the urban markets. Overall, we are cautiously optimistic about the overall demand recovery in the near term. Despite strong fundamentals, over the last three months HUL’s share price has corrected around 16.2 percent. Thus we assign a “BUY” rating on the stock with a target price of Rs. 2,821 per share.
4) ICICI Bank Ltd (M Cap Rs 510,199 cr)
ICICI Bank | icicibank.com
ICICI Bank Ltd. (ICICIB) reported strong performance in Q2 FY22 with PAT growth of 30 percent Y-o-Y driven by healthy loan growth of 17 percent Y-o-Y, margin expansion and lower NPA provisioning. NII grew by 24.8 percent Y-o-Y as NIM improved by 11 bps Q-o-Q to 4 percent owing to lower reversals, high growth in high-margin unsecured portfolio. NIM is expected to expand further led by increasing share of high margin unsecured portfolio and deployment of surplus liquidity. While low CoF remains a key competitive advantage for the bank, ICICIB reported 12 bps Q-o-Q decline in cost of deposits to 3.53% during the quarter. CASA ratio at 46.1 percent in Q2 FY22 stood among best in industry peers.
Valuation: We assign “BUY” rating to stock with target price of Rs. 900 valuing standalone banking business at Rs. 710 (at P/ABV of 2.5x FY24E) and subsidiaries valuation of Rs 190.
5) Infosys Ltd (M Cap Rs 784,845 cr)
Infosys | https://www.infosys.com/
Infosys Ltd. (Infosys) reported a 6.1 percent sequential growth (+20.5 percent Y-o-Y) in consolidated total revenue for Q2 FY22, which stood at Rs. 29,602 crore. In constant currency terms, top-line increased by 6.3 percent Q-o-Q (+19.4 percent Y-o-Y), which was ahead of market expectations. Growth was broad-based across the geographies and segments. Business from the largest geography i.e. North America grew by 23.1 percent, while business from the largest segment increased by 20.5 percent Y-o-Y in constant currency. Digital revenues increased by 42.4 percent Y-o-Y and formed around 56.1 percent of the total revenue. Large deal momentum continued during the quarter with total contract value of $2.2 billion as compared to $2.6 billion in Q2 FY21.
Valuation: At a CMP of Rs. 1,866, Infosys is trading at a TTM P/E multiple of 37.6x. Based on FY23E earnings, it is trading at a P/E multiple of Rs. 30.5x. Considering the robust outlook and company’s growth leadership in the sector, we arrive at a target price of Rs. 2,150 per share, which is 15.2 percent higher than the recommended price. Thus we assign a “BUY” rating on the company.
6) Larsen & Toubro Ltd. (M Cap Rs 262,137 cr)
Larsen & Toubro | https://www.larsentoubro.com/
Larsen & Toubro Ltd. (L&T) witnessed an order inflow of Rs. 42,140 crore, of which 52 percent of the orders were from international markets, during Q2 FY22. As of September 2021, the company had a consolidated order book of Rs. 3.3 lakh crore, with international orders having a share of 23 percent. Infrastructure segment contributed 74 percent to the total order book, followed by heavy engineering with 15 percent contribution.
Going forward, L&T intends to continues its focus on profitable execution of its large projects order book, leverage the strong growth momentum in technology portfolio, cost optimization measures through automation & intensive use of digital technologies, release of funds through improved working capital management and a phased divestment of non-core assets.
Valuation: L&T will benefit from the government’s continued focus on infrastructure creation. Over FY21-24E, we are anticipating a 10 percent CAGR growth in the top-line to Rs. 1.97 lakh crore. However, EBITDA and PAT margins are likely to contract by 519 bps and 61 bps, respectively. Thus, we assign a “BUY” rating to the stock with a target price of Rs. 2,170 per share.
7) Schaeffler India Ltd (M Cap Rs 26,935 cr)
Schaeffler India Ltd. (Schaeffler) has a market share of 36 percent in the overall domestic bearing market and a market share of around 60 percent in the roller bearing market. During Q3 CY2021, the company reported a 20.7 percent sequential growth in the total operating income to Rs. 1,487.6 crore EBITDA margin increased by 99 bps Q-o-Q, thereby leading to a 27.7 percent rise in EBITDA to Rs. 264.5 crore. Reported PAT increased by 33.3 percent Q-o-Q to Rs. 170.8 crore with margin expansion of 109 bps to 11.5 percent.
Valuation: We believe the company would benefit from the revival in the automotive sector and from higher exports to its parent company and to other markets. Also the government policies for boosting indigenization will acts as tailwind for the sector. Thus we assign a “BUY” rating on the stock with a target price of Rs. 10,380.
