Motilal Oswal maintains a 'Buy' rating on this packaged foods company with a target price of Rs 1,110, indicating an upside of 16.9%. Analysts Sumant Kumar and Meet Jain have a positive outlook, especially with 32% of the company's consolidated revenue originating from the tea business in India.
Kumar and Jain attribute part of the growth in Indian tea exports to increased demand from Russia and the UAE, due to reduced production/exports from Sri Lanka. Despite facing market share loss due to the resurgence of small players in the segment, the company achieved a 3% volume growth from January to September 2023. This growth was driven by consistent domestic demand. To offset this loss, analysts anticipate a 5% volume growth in H2FY24 through the expansion of the distribution network and brand promotion.
The analysts also highlight the company's strategic focus on new ready-to-eat products. A growing distribution network and an increasingly digital supply chain have enabled a two-pronged growth strategy that they believe will drive future growth. They project revenue and PAT CAGR of 10% and 22% respectively over FY23-26.
2. ITC:
KR Choksey maintains a 'Buy' rating on this cigarettes and tobacco products company with a target price of Rs 533, indicating an upside of 18%. Analyst Unnati Jadhav holds a positive outlook on the stock. While the cigarette business remains the top contributor to revenue and profitability, the non-cigarette segment has seen robust growth, gradually claiming a larger share of the overall revenue. The non-cigarette business’s share in segment EBITDA has risen from 18.1% in FY18 to 27.3% in FY23, with ROCE doubling from 11.0% in FY18 to 22.0% in FY23.
Jadhav expects the company to benefit from a stable tax environment, which will help combat illicit trade and strengthen market share. She believes the hotel business is poised for strong growth and profitability, thanks to favourable market conditions, efficiency improvements, and expansion plans.
Jadhav expects growth in nicotine, spices, and agri products, driven by ITC’s focus on its agribusiness. She foresees the company's paper & packaging business, which is the only segment currently under pressure due to its cyclic nature, hitting a bottom before showing improvement in the coming quarters.
3. United Spirits:
ICICI Direct maintains a 'Buy' rating on this breweries and distilleries company with a target price of Rs 1,250, indicating an upside of 13.1%. Analyst Harshal Mehta holds a positive outlook, pointing to the company's focus on the premium segment, which accounts for 80% of its volumes.
Mehta expects the company to benefit from India's dominance in the spirits market, where 92% of alcohol consumption is spirits and the remaining share is split between beer and wine, areas where United Spirits has a significant presence. He predicts that the opening of more premium retail shops, especially in metro cities, will boost sales.
Mehta adds that the firm’s portfolio will reshape strategy in FY23, accelerating revenue growth in the premium segment to compete with global brands like Johnny Walker and Black and White. The analyst also expects India's drinking population to increase from 33% in 2021 to 39% in 2025.
Harshal Mehta expects the spirits segment overall to grow in higher single digits, driven by these favourable demographics, an expanding middle class, rising disposable incomes, and an increased acceptance of alcoholic beverages in social circles.
4. Star Cement:
HDFC Securities maintains its ‘buy’ rating on this cement products manufacturer with a target price of Rs 190, implying an upside of 5.7%. The firm’s volumes surged by 10% YoY in H1FY24 and are expected to grow at a 19% CAGR between FY23 and FY26, due to rapid expansion plans in the North Eastern region.
The firm’s cement manufacturing plants in Guwahati and Meghalaya will be operational by 2023 and 2024, respectively. This expansion is expected to boost its production capacity to 7.7 million metric tonnes in FY24. Star Cement is also expected to commission a 25MW solar plant for captive use and a concrete block plant in Guwahati in FY25. Due to its established position in the North Eastern region, analysts Rajesh Ravi and Keshav Lahoti foresee the firm becoming the largest seller in the area with robust margin growth.
The analysts expect the firm to benefit from stabilizing oil prices and increasing share of green energy. Green energy is expected to constitute over 55% of the firm’s total energy consumption by FY26. They predict a cost reduction of Rs 75 per Metric tonne in H2FY24 and Rs 100 per metric tonne in FY25.
5. Equitas Small Finance Bank:
Axis Direct maintains its ‘buy’ rating on this bank with a target price of Rs 125, implying an upside of 16.8%. Analysts Dnyanada Vaidya, Prathamesh Sawant, and Bhavya Shah, after an interaction with the bank’s management, report that it has retained its guidance of 25%-30% credit growth in FY24.
The bank is aiming for a 40% YoY growth in deposits for FY24, driven by the attractive pricing of senior citizen deposits, which account for 35%-40% of total deposits. Notably, the bank has increased its deposit rates over its peers, gaining first-mover advantage and a lower churn rate in this segment.
The analysts note that the bank plans to diversify into two new segments – personal loans and credit cards – in FY25 to offer services to both existing and new customers through cross-selling. They believe that the RBI’s increased risk weights will have minimal impact on the banks’ capital ratios, as secured lending constitutes over 80% of total lending. The secured lending is dominated by small business loans and commercial vehicle loans.
The bank is also planning a transition from a small finance bank to a universal bank, subject to RBI approval. This will require higher investment in platform upgradation, which might increase the cost of operations. Despite elevated operating costs and margin pressures, the management remains confident of delivering 2% RoA in FY24.
Note: These recommendations are from various analysts and are not recommendations by Trendlyne.
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