The Baseline    
05 Dec 2022
Five analyst picks with high upsides in target price
By Abhiraj Panchal

This week we take a look at analyst picks with high upsides (over 15%).

  1. Mahindra & Mahindra: BOB Capital Markets assumes coverage of this auto manufacturer with a ‘Buy’ rating and a target price of Rs 1,496. This implies an upside of 18.7%. In Q2FY23, the company’s net profit surged 43.8% YoY to Rs 2,772.7 crore and revenue rose 39.1% YoY.

Analyst Milind Raginwar is optimistic about the firm’s prospects on the back of an improving business environment. He said, “Margin headwinds are likely to recede with better raw material availability, moderating costs, price hikes and optimal utilisation.” The analyst also sees the company’s strong order book amid moderating raw material costs as a key positive. 

Raginwar points out that the demand for Mahindra’s new sports utility vehicles is higher than the planned supply capacity. He believes this will lead to an expansion in production capacity in the coming quarters. The analyst expects the company’s net profit to grow at a CAGR of 24% over FY22-25. 

  1. Ashok Leyland: ICICI Securities maintains its ‘Buy’ rating on this commercial vehicle (CV) manufacturer with a target price of Rs 180. This indicates an upside of 22.2%. In Q2FY23, the company turned profitable on a YoY basis with a net profit of Rs 163.9 crore and its revenue rose 72.6% YoY. 

Analysts Basudeb Banerjee and Pratit Vajani believe the robust retail demand for trucks is driven by infrastructure, mining and e-commerce segments. They added that the demand for new trucks was also due to the need to replace old fleets with more efficient ones. The company’s management is confident about the CV upcycle lasting till FY25.

Banerjee and Vajani are positive about the company’s dominant position in the CV market. They said, “Ashok Leyland has recovered its M&HCV (medium & heavy commercial vehicle) market share from sub-25% a year ago to around 32% now and is confident of retaining it.” The analysts estimate the firm’s revenue to grow at a CAGR of 39.4% over FY22-24. 

  1. ICICI Prudential Life Insurance (ICICIPRU): Motilal Oswal maintains a ‘Buy’ call on this life insurance provider with a target price of Rs 600, indicating an upside of 26.2%. Analysts Nitin Aggarwal and Yash Agarwal arranged an interactive session with the top management of ICICIPRU to discuss various regulations being introduced by the regulator, the industry, and its growth and margin outlook. Based on the discussion, the analysts understand that the insurance provider is focusing on revenue growth rather than targeting product mix.

The analysts said, “The management indicated that growth in absolute value in new business (VNB)  is the most important metric.” They believe that a pick up in annual premium equivalent (APE) and an improving product mix will keep the margin steady and drive VNB growth.

The analysts added that an increase in agent recruitment, new partnerships and a strategy to approach customers with a wider product range through all channels will boost premium growth. They expect ICICIPRU to deliver 23% CAGR in VNB over FY22-24, led by premium growth and improvement in margin.

  1. Maruti Suzuki India: Sharekhan reiterates a ‘Buy’ call on this auto manufacturer with a target price of Rs 10,965. This indicates an upside of 24.7%. Analysts from the brokerage said, “We stay positive on Maruti Suzuki India as volumes are expected to regain pace on the back of new launches and improving demand in both rural and urban markets.” They added that easing in electronic components shortage, softening commodity prices and positive operating leverage are likely to keep earnings growth momentum intact.

Maruti’s management expects to regain market share on the back of new launches and a stronger distribution network. The analysts believe that the automobile manufacturer is well positioned to accomplish its electric vehicle plans as well. They expect exports to be a long-term key growth driver for the company.

They remain optimistic on the back of a better product mix, structural growth outlook, healthy balance sheet, and comfortable valuations. 

  1. CESC: Emkay maintains a ‘Buy’ call on this electric utility company but reduces the target price to Rs 101, indicating an upside of 33.1%. The company reported a standalone profit after tax of Rs 243 crore (up 3.4% YoY), in line with the brokerage's estimates. The consolidated profit after tax fell 5.9% to Rs 320 crore, which analysts Abhineet Ananda and Chinmay Kabra believe fell due to lower profit at Haldia Energy. 

The analysts said, “Performance of distribution segments of Rajasthan and Malegaon was not encouraging. Rajasthan distribution franchises, despite having completed four to five years, have not been able to see break-even.” 

Yet Ananda and Kabra remain positive about the company as the performance of Dhariwal Infrastructure and Noida circle has improved. Haldia profits are normalising as well. According to them, the key triggers include an increase in standalone tariffs and the performance of distribution franchises 

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

(You can find all analyst picks here)

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