The Baseline    
18 Jul 2022
Five analyst stock picks this week
  1. Avenue Supermarts: IDBI Capital maintains its ‘Buy’ call on this retailer’s stock with a target price of Rs 4,571. This indicates an upside of 15.8%. “Avenue Supermarts’ (Dmart) Q1FY23 results were above expectations,” say analysts Varun Singh and Chetan Mahadik. In Q1FY23, the company’s revenue grew 93.7% YoY to Rs 10,038.1 crore and profit grew 574.2% YoY to Rs 642,9 crore. During the quarter the company added 10 stores, taking its total store count to 294 stores. 

According to the analysts, the new stores that were added since FY20 couldn’t operate at full capacity due to the pandemic but have done extremely well during 1QFY23. The analysts are also encouraged by the old Dmart stores’ positive volume growth in the discretionary segment. “We expect better revenue mix from the modern large size stores,” the analysts conclude and revise their earnings per share estimate for FY23 upwards by 3-4% to Rs 41.7.

  1. Tarsons Products: Edelweiss maintains its ‘Buy’ rating on this plastic labware maker with a target price of Rs 949. This indicates an upside of 14.5%. The company’s FY22 revenue grew 31.4% YoY to Rs 301 crore and profit by 46.4% to Rs 101 crore. 

According to analysts Praveen Sahay and Ajit Sahu, even though the company operates in a highly competitive environment, it still has an edge due to its strong distribution network, largest in-house manufacturing facility, and well-diversified product portfolio. “Tarsons is witnessing strong demand from pharmaceutical companies, while demand from academia/research institutes/ diagnostic companies appears challenging,” they add.

The company has increased the capex plan to Rs 500 from Rs 410 crore out of which Rs 240 crore has already been incurred. The analysts expect the domestic plastic labware market to grow at a healthy rate of 16%. The company’s revenue growth is expected tobe boosted by new products in the export market in the coming years.

  1. Chalet Hotels: Monarch Networth Capital recommends a ‘Buy’ call on this hotel chain operator with a target price of Rs 450, indicating an upside of 43.1%. “Chalet remains our preferred bet to play the cyclical upturn in Hotels,” say analysts Vinit Gala and Vedika Singh. They anticipate the company’s revenue to be 14.5% higher than FY20 (pre-covid levels) in FY23 and 44% higher in FY24 while EBITDA margins become 33.8% and 40.5%, respectively.  They hope the operationalization of new hotels and commercial properties will aid further growth in revenue.

“With record high occupancies and average daily rates in April 2022 (80% and Rs 7,100 respectively), Chalet is on course to end FY23 above pre-covid levels,” Gala and Singh add. They also believe that the company's asset-heavy approach in land-locked cities gives them immense negotiating power in management contracts.

  1. IIFL Wealth Management: BOB Capital Markets initiates coverage of this wealth management company with a ‘Buy’ rating and a target price of Rs 2,277, indicating an upside of 42.1%. According to the analyst Mohit Mangal, “IIFL Wealth’s model of offering wealth solutions to high- and ultra-high-net-worth individuals (HNI/UHNI) is based on driving a larger share of recurring revenue streams”. The company is expanding its recurring revenue streams by migrating its commission structures to a trailing commission structure, which will expand recurring revenue streams, Mangal says.

By the end of FY22, recurring revenue streams contributed 55% to assets under management and 65% to the revenue. Mangal expects this contribution to increase to 61% of AUM and 81% of the revenue in FY25, and the company’s AUM to grow at a CAGR of 20% over FY22-25, amounting to Rs 4.5 lakh crore. He also anticipates net flows of Rs 45,200 crore into the AUM by FY25. , Robust AUM growth and operating leverage, if they happen, will enable the company’s net profit to grow at a CAGR of 18% over FY22-25

  1. HCL Technologies: Motilal Oswal maintains a ‘Buy’ rating on this IT services company with a target price of Rs 1,100, indicating an upside of 22.2%. The company’s Q1FY23 net profit fell 8.6% QoQ to Rs 3,283 crore and revenue grew 3.8% QoQ to Rs 23,464 crore. Even though it missed the brokerage’s profit estimates by 2.6%, analysts Mukul Garg and Raj Prakash Bhanushali remain positive about the company’s medium- and long-term prospects. The analysts expect the company’s capabilities in the growing digital, cloud, and infrastructure management services space to help it emerge stronger. The analysts add that high exposure to cloud services offers the company resilience during the overall downtrend in the industry.

Garg and Bhanushali expect a strong deal total contract value and order pipeline to help improve the company’s revenue growth in Q2FY23. Given that cloud and digital transformation is the central theme of growth for the company, the analysts expect “the company’s services business to do well in a favourable demand environment for cloud migration and research & development outsourcing”. They anticipate that the company’s profit will grow at a CAGR of 8.2% over FY22-24.

Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

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