HDFC Securities has come out with top 10 stock picks for 2022. They are Aditya Birla Cap, GAIL (India), Hindustan Zinc, IPCA Labs, M&M, Max Financial, Max Healthcare, State Bank of India, Tech Mahindra, and Zee Entertainment.
1) Aditya Birla Capital (M Cap Rs 30,227 cr)
Aditya Birla Capital logo | Twitter
Aditya Birla Capital Ltd. (ABCL) is the holding company of all the financial services businesses of the Aditya Birla group and aims to be an end-to-end financial services provider. It continues its credible makeover journey to drive consolidated return ratios closer to franchise potential over the next three years, according to HDFC Securities.
ABCL focuses on leveraging technology and analytics to grow revenue, improve customer experience, optimise cost and build robust, scalable systems. The company is implementing a common branch infrastructure, which will allow a number of its businesses to enter new locations with a lean and low-cost model and cross-sell products, which could lead to a saving of about Rs 40cr.
Concerns: Stiff competition from peers and new entrants and worsening of asset quality in the lending book due to the third wave of Covid pandemic and/ or slowdown in the economy are key concerns for the stock.
2) GAIL (India) (M Cap Rs 59,213 cr)
GAIL India logo | gailonline.com
GAIL is India’s leading gas transmission and distribution company in India. It is planning to expand in petrochemicals, speciality chemicals and renewables to supplement growth in its core business of natural gas marketing and transportation. It plans to bid for new pipelines put on offer by the regulator.
Concerns: Volatility in oil and gas prices, higher tariff reduction in existing pipelines and regulatory changes could impact its growth story in the near future. A general economic slowdown can have an impact on the growth plan of the Company.
3) Hindustan Zinc (M Cap Rs 1,55,470 cr)
Hindustan Zinc logo |
Hindustan Zinc is India’s largest primary zinc producer, with 77 percent market share including alloys and 80 percent market share without alloys. The Supreme Court allowed disinvestment of the Centre’s residuary 29.5 percent share in the open market in November. Post-divestment, it is expected to command better valuation.
Concerns: Demand for zinc is very closely linked to the galvanized steel industry, which consumes approximately 70 percent of the zinc produced in India. The steel industry depends on the growth of end user industries such as automotive, consumer durables, batteries, home appliances, construction, and infrastructure. Any downturn in any of these industries will impact the demand for galvanized steel, said HDFC Securities. The company also faces regulatory and environmental risks as all mines are clustered in Rajasthan.
4) Ipca Labs. (M Cap Rs 25,823 cr)
Ipca Laboratories logo | ipca.com
Ipca continues to maintain a leadership position in segments such as rheumatoid arthritis and orthopaedic and cardiac and anti-diabetic therapies in the domestic market, said HDFC Securities. HDFC Securities is positive on Ipca Labs on the back of: i) strong volume growth in domestic formulation across therapeutic areas, ii) cost competitive and consistent quality driving better business prospects in API segment, iii) robust debt free B/S and strong return ratios and iv) better traction in the international markets such as Europe and Asia.
Concerns: Change in the regulatory landscape; and negative outcome of key facility inspections by the US FDA may affect earnings prospects. Ratlam, Silvasa and Indore facilities continue to be under US FDA import alert. Addition of drugs in the National List of Essential Medicines (NLEM) could hurt the domestic business.
5) M & M (M Cap Rs 1,04,814 cr)
Mahindra and Mahindra logo | car-logos.org
M&M is the world’s largest tractor manufacturer and the third largest passenger vehicle manufacturer in India. It is planning to launch 13 new products across LCVs, SUVs, and 3Ws to drive growth in the medium term – of this, 20 percent will be EVs. The company plans to launch 16 electric vehicles by 2027, out of which 8 will be electric SUVs and 8 light commercial vehicles.
HDFC Securities said, the management has guided for flat to low single digit growth in FY22 due to a demanding base effect. The tractor market share though is up 190bps YoY to 40.1 percent. M&M is targeting a 10x increase in the agri implements segment to drive growth in the medium term (INR 120bn market size by 2027).
Concerns: Chip shortages, commodity price inflation and the possibility of a third wave of COVID are key risks going forward.
6) Max Financial (M Cap Rs 34,374 cr)
Max Financial Services logo | maxfinancialservices.com
A diversified product portfolio and strong distribution reach has made the company fourth largest private life insurance player in India, said HDFC Securities. Given the strong brand, leadership and tailwinds on the back of financialisaton of savings, we remain optimistic on the future growth of the company, it said. A strategic partnership with Axis Bank provides long-term distribution capability, ending uncertainty and market anxiety over the future of Max Life (MAXL) and Axis Bank’s distribution arrangement.
Concerns: Rising competition, especially via digital disruptors, poses pricing and volume risk for traditional players. High promoter pledging is one of the reasons why the stock has been given a lower valuation multiple compared to other listed peers. As of September '21, 57 percent of the promoter’s holding has been pledged to lenders.
7) Max Healthcare (M Cap Rs 38,725 cr)
Max Healthcare logo | Wikipedia
Max Healthcare Institute Limited (MHIL) is one of India’s leading hospital chains with 17 facilities and 3,400 beds and was formed after the merger of Max Healthcare and Radiant, HDFC Securities said. Strong revenue growth is driven by increasing health insurance penetration, better patient mix, increasing ARPOB, growth in medical tourism and focus on specialties. Optimisation of payor mix offers scope for margin expansion. The company has reduced its net debt significantly. Strong free cash flows and low debt provides adequate headroom to expand through brownfield, greenfield and M&A.
Concerns: Delay in capacity addition, delay in improvement in payor mix and an unfavourable change in agreement with partnered healthcare facilities (trusts) would impact its operations and profitability, said HDFC Securities. A substantial portion of the company’s healthcare operations are concentrated in North India; a regional slowdown or political unrest/disruption in NCR could impact its business.
8) State Bank of India (M Cap Rs 4,35,342 cr)
SBI logo | sbi.co.in
SBI is the largest Public Sector Bank with over 22,000 branches and stands to gain from improvement in India’s economic growth, said HDFC Securities. SBI is almost immune to any liability-side risks at this juncture, given its expansive, granular deposit base and government’s majority holding. It is better placed to curtail asset quality worries than many other large banks because of its quality of loan books. Moreover, ample provision coverage will curtail incremental loan loss provisions.
Concerns: Given its size and exposure, increasing geographic penetration by newer private sector banks, Macro-economic risk can lead to a faster than expected decline in market share.
9) Tech Mahindra (M Cap Rs 1,58,969 cr)
Tech Mahindra logo | techmahindra.com
Tech Mahindra is $ 5.2 bn the company with 121,000 professionals across 90 countries and engaged in the business of providing IT solutions to various clients. The company is focused on leveraging next generation technologies including Blockchain, Cybersecurity, Artificial Intelligence, 5G and more, to disrupt and enable digital transformation and to build cutting-edge technology solutions and services, HDFC Securities said. Tech Mahindra could see improved spending on network operations, 5G, Cloud, AI and customer experience on the communication side in the longer term.
Concerns: The Indian rupee appreciation against the USD, pricing pressure, higher attrition rate and retention of the skilled headcounts, strict immigration norms ,and rise in visa costs are key concerns.
10) Zee Entertainment (HIGH RISK Pick, M Cap Rs 34,391 cr)
Zee Entertainment ogo | zee.com
Zee Entertainment Enterprises Limited (ZEEL) and Sony Pictures Networks India (SPNI) have entered into an exclusive, non-binding term sheet for the merger of the two companies. The parent company of SPNI will invest growth capital of $1.6 billion. The merged entity will become the market leader with 25 percentof market share led by wide offerings, robust financials, and strong digital businesses and sports rights.
Concerns: Media and Entertainment industry is highly regulated and competition, implementation of New Tariff Amendment Order (NTO 2.0) and increasing smartphone penetration and affordable data tariffs are key concerns. Besides, American investment firm Invesco’s ongoing allegations on favouritism over Zee Entertainment and Sony deal has highlighted relatively poor corporate governance standards, said HDFC Securities.
