ICICI Bank, Honasa Consumer, Zomato and more: Jefferies lists 26 ‘buy’ ideas for Indian markets

The brokerage has presented 26 top ‘Buy’ Ideas for the Indian Markets. These are ICICI Bank, Axis Bank, SBI, ICICI Lombard, Shriram Finance, KFin Tech, Eicher Motors, TVS Motors, Coal India, L&T, Thermax, NTPC, JSW Energy, Godrej Properties, Macrotech Developers, Bharti Airtel, Honasa Consumer, Zomato, Piramal Pharma, Apollo Hospitals, Ultratech Cement, Ambuja Cement, Kajaria Ceramics, Amber Enterprises, Supreme Industries, and PI Industries.

Let’s take a look at why Jefferies likes these stocks:

Financials

Axis Bank: Axis Bank is one of Jefferies’ top picks, as it believes that past investments have made the franchise stronger and that the bank is on track to deliver 16-18% growth in loans, improve its deposit profile, and sustain ROE of 18%. Integration with Citibank’s India retail platform is progressing well with limited attrition among staff and customers and significant scope for synergies in 60 areas on revenues and cost. The brokerage thinks this can be RoE accretive from FY25. It forecasts Axis to deliver a 17% CAGR in normalized profit over FY24-26 and an ROE of 18% in FY25. BUY with PT of ₹1,380.

ICICI Bank: ICICI Bank is among Jefferies’ top picks across Indian financials, as it believes that the Bank can sustain superior growth, better asset quality, and higher ROEs. Bank is well poised to leverage on growth pickup, led by deeper penetration and higher market share in urban micro-markets in metro and near-metro areas. It forecasts ICICI to deliver a 14% CAGR in profit over FY24-26 and an ROE of 19% in FY25. At CMP, it trades at 2.3x on FY25 adj. PB, which looks justified in the context of higher growth, improved asset quality, and stronger profitability trends.

State Bank of India: Among PSU names, Jefferies like SBI the most, as we think it is well positioned to deliver healthy earnings growth supported by low credit costs. With a strong deposit franchise (Casa Ratio of 41%) that keeps its funding costs low and a high share in retail and corporate lending, it is well-placed to deliver 13% CAGR in loans over FY24-26. However, NII growth will be lower due to margin compression. Profit growth should be strong at 16% CAGR, as credit costs should stay low at 40-50bps of average loans, as the improvement in corporate balance sheets and retail credit quality continues to play out. The brokerage expects SBI to report an ROA of 1.1% and an ROE of 18% in FY25. Valuations are attractive at 1.5x 1yr fwd adj. PB and ROE will aid reasonable compounding. Maintain BUY with a PT of ₹810.

ICICI Lombard: Jefferies recently upgraded ILOM among its top picks. The General Insurance sector is well-placed to see a 14% CAGR in premiums over FY24-26, with private players growing faster at 17%. ILOM, being a market leader, should be a beneficiary of improved sector growth. In the backdrop of improved growth and profitability, it sees ILOM growing premiums at 17% CAGR over FY24-26%, with operating profit growth of 16%. Despite strong YTD performance, ILOM’s stock price performance has been flat over the past 3 years. The brokerage believes these triggers can be positive for ILOM and rate the stock Buy with a PT of ₹1,730.

KFin Tech: Jefferies sees KFin as an interesting way to ride the theme of financialization of savings in India, as it is a leading player in the duopoly of registrar & transfer agent services (RTA) for mutual funds. It will not only benefit from growth for asset managers but is also at an inflexion point to leverage investments in overseas RTA/fund-accounting platforms. It sees this as a high-growth opportunity, and KFin may also explore M&A in Western markets where the firm can leverage its platform better. Moreover, it is encouraged to see its new platform XAlt, which is an integrated platform for AIFs that can handle multiple geographies, which, in its view, will lift their edge vs. peers. These should support a 20% CAGR in profit over FY24-26 along with a high cash surplus. BUY with TP of ₹700.

Shriram Finance: Loan growth at Shriram has held up better than expected and can continue to surprise positively. Jefferies expects SHFL’s AUM to grow by 17% over FY24-26e, led by a positive CV outlook. It expects some pressure on margins near term due to higher CoF, but it sees tailwinds to margins from an increase in the mix of higher-yielding gold, MSME, and personal loans in the next three years. SHFL should deliver 17% EPS CAGR and 15% ROE over FY24-26e. It trades at 1.7x FY25e BV ex goodwill, broadly in line with the 5-year average, though the brokerage believes the growth outlook is better. PT of ₹2,750.

Autos

TVS Motor: TVS, with its attractive product propositions, gained market share over FY18 to 9MFY24: 1) from 16% to 23% in scooters, 2) from 7% to 11% in motorcycles, 3) from 17% to 26% in 2W exports, and 4) from 22% to 44% in 3W exports. After a long period of subdued margins, TVS is narrowing the gap with peers. Its EBITDA margin has improved from an average of just 6.4% in FY10-17 to 10.1% in FY23 and 11.2% in 3QFY24; the brokerage expects 11.9-12.5% in FY25-26E as volumes recover and improving franchise further strengthens pricing power. It sees a strong 35% EPS CAGR over FY24-26E; our FY24-25 EPS is 3-15% above Street. Valuations at 38x FY25E PE appear rich (CY15-23 average: 28x) but are justified given the strong earnings growth outlook and improving franchise.

Eicher Motors: RE faced a fresh wave of competition in 2023 from new motorcycles launched by Hero-Harley and Bajaj-Triumph collaborations in early July. While these bikes had a decent start with 20-26K initial bookings, the incremental order inflow appears modest. EIM, despite strong operating performance, has lagged the Nifty Auto Index by 40% since January 2023, as increased competitive risk weighed on valuations. Jefferies believes the risk to RE’s market share has now been alleviated, while it enjoys strong tailwinds of 2W recovery, industry premiumization, and the potential to grow exports. The brokerage expects EIM’s EBITDA and EPS to rise at 18% and 17% CAGRs over FY24-26E; its FY25-26E EPS estimates are 9-11% above Street. It sees potential for RE multiples to expand as confidence in long-term market share rises.

Metals

Coal India: COAL’s volume growth trajectory has improved and is likely to be sustained amid India’s strong economic growth outlook and rising power consumption. Jefferies factors COAL’s dispatch volumes rising 8% YoY in FY24E and then at 6% CAGR over FY24-26E. Improved volume growth, along with a lower-than-expected cost trajectory, has significantly improved COAL’s earnings outlook. The big impact of wage hikes and e-auction price fall is already factored in its estimates. It expects an all-time-high Rs51 EPS in FY24E and remains flattish over FY24-26E on the high base. The brokerage estimates assume cash EBITDA/t falling from ₹585 in FY24E to ₹552-554 in FY25-26E. The stock also offers a 5% dividend yield, and Jefferies expects net cash/share for the company to rise over FY23-26E despite the high dividend.

Capital Goods and Logistics

L&T: L&T’s E&C revenue and EBITDA rose at 12% and 10% CAGR in FY10-19, despite the weak capex environment. For FY23-26E, Jefferies anticipates the core E&C EBITDA to rise at 24% CAGR vs 16% in FY15-19 when it traded at 12x EV/EBITDA. L&T’s current order book is ₹4.5 trn, 3.6x FY23 E&C sales, and comfortable revenue visibility for FY24E-26E. After strong 1HFY24, it factors 15% YoY order inflow growth in FY24E vs 10-12% guidance, which implies a 2H ask rate of 19% YoY order flow decline. The brokerage believes that the peak of noncore investments is behind the company and that L&T has the potential to surprise on execution and order flow expectations. Prudent capital allocation and ROE improving to 16%+ in FY25E from 12% in FY23 (14% in FY20) are other triggers. PT is ₹3,400.

Thermax: Thermax’s brand is well-placed for its larger agenda of being a leader for India in terms of clean water, clear air, and clean energy by offering new product solutions to its existing customers. Jefferies believes that over the next 12-24 months, capex growth should be sustained, backed by infrastructure spend, PLI-linked incentive capex, industrial capex, and housing recovery. Directionally, as revenues mirror the macro trends, the margin outlook should sustain/improve and see the stock re-rate. Lower commodity prices, improving the supply chain, and operating leverage should drive margin improvement. 30% EPS CAGR in FY23-26E and 19% ROE vs 8% should drive upside from current levels. PT is ₹4,000.

NTPC: Jefferies estimates Power Capex CAGR will rise 9x at 20% in FY23-26E vs just 2.2% in FY10-20. As India enters a phase of capex-driven GDP growth, power intensity should rise. NTPC is a major beneficiary of the capex uptick. FY23-26E should see the company’s consolidated non-fossil portfolio rise 4.9x to 15 GW. Monetisation plans with stake sale/IPO over two to three years up as more assets come on the ground is an additional trigger ahead. It has a PT of ₹415 values the company at 2.3x consolidated PB FY26E, in line with the average of the past upcycle.

JSE Energy: Jefferies expects three triggers to play out for the company over the next 12-24 months: 1) visibility improving on RE moving to 81% of capacity by FY30E from 52% in FY23; 2) commissioning of 700 MW merchant capacity in peak power deficit times; 3) progress on one of India’s first green hydrogen plants and energy storage battery unit. JSWE was possibly the only major private-sector power company that did not bid aggressively in the tariff-based competitive bidding period for 2008-2012. The company has kept its B/S intact with D:E well below 1.5x and reasonable return ratios. It forecasts a 33% EPS CAGR in FY24E-26E. PT is ₹600.

Chemicals

PI Industries: A portfolio of patented early-stage molecules is gaining market share over FY24-25E even as peers are seeing sharp revenue declines owing to more genericized portfolios. Revenues in the key product (pyroxasulfone) could prove more resilient than market fears, as the patent cliff in CY25 could impact 15% of the volumes. 85% of the usage is in the form of combinations that are patented till 2030 and beyond, said Jefferies. Pharma contribution to Ebitda should increase in FY25-26E on margin normalization aiding headline profitability, it added. 

Real Estate

Godrej Properties: Pre-sales performance has been strong recently, with back-to-back record quarters. The company is set to record pre-sales of ₹180 bn in FY24, well above its ₹140 bn initial target, noted Jefferies. Profitability has started improving, as timely land acquisitions, rising share of own stake in projects, timely land purchases, and a heightened focus on profitability drive the change. The brokerage believes that consistently strong pre-sales performance and improvement in profitability and cash flows will drive a re-rating in the stock. With the property sector having re-rated much above +1sd levels, it believes GPL offers relative value.

Macrotech Developers: As per the brokerage, Lodha’s pre-sales have doubled over FY21-23 and management targets 20% medium-term pre-sales growth/for FY24 as well. Growth has been achieved through a combination of new project acquisitions in the partnership model, as well as improved market conditions. Net debt has declined consistently, with strong FCF generation. Management’s gearing target of is <0.5x by Mar’24, which Jefferies views as achievable. It said that the company has a US$1bn private equity platform to deliver growth on the digital infrastructure side and targets ₹5 bn recurring income by FY26. The brokerage targets build in 15x EV/Ebitda to FY26E pre-sales, representing 15% upside potential. It sees near-term triggers in the completion of several large infrastructure projects near its land bank, which could drive a re-rating of its land values.

Consumer

Honasa Consumer: Unlike several other DTC brands, the franchise is profitable, with an EBITDA margin of 7% in 9mFY24, which is on an improving trend. Over FY23-26E, Jefferies expects Honasa to deliver a sector-leading 28% revenue CAGR. Growth should moderate in the flagship Mamaearth brand (12% CAGR), given its absolute scale, although new brands should continue to ramp up at a rapid pace. Growth should be accompanied by further improvement in profitability, led by scale benefits over key cost items, notably ad-spends. It expects Honasa to reach double-digit EBITDA margins by FY26E vs 7% in 9mFY24. This should enable a strong ramp-up in absolute EBITDA and pre-exceptional EPS, both rising sharply over FY23 levels. We rate Honasa BUY with a PT of ₹590.

Zomato: Zomato turned PAT positive in 1QFY24, way earlier than guidance. Improving profitability across both food delivery and quick commerce should continue to drive sharp earnings growth. They have $1.4 bn in cash, which is generating yield. Cash flow was positive in the recent quarters, including other income. To see limited cash drawdown going forward. Cash levels should stay well above $1 bn. Jefferies values Zomato food delivery at 50x Mar’26 Ebitda and Blinkit at 9x Mar’26 Sales, which is at a steep premium to global and regional peers, but India consumer staples and discretionary also trade at 2-3x of their global peers. Strong growth and improving profitability justify the premium valuations. PT at ₹205.

Pharma and Healthcare

Piramal Pharma: Piramal Pharma (PPL) had a difficult FY22 and FY23 on the back of a weak order flow for its CDMO business (60% of revenue). Jefferies believes CDMO is back on a recovery phase with recent order wins in generics, new contracts announced by PPL partners for patented products, and increasing demand in discovery services (China +1). These order flows should start reflecting from 2HFY24 and begin a phase of consistent double-digit growth in CDMO. Overall revenue CAGR of 12% over FY24-26E should lead to more than doubling of Ebitda by FY25 vs FY23, as PPL derives operating leverage benefit. The guidance comes on the back of improved order visibility and 40% higher order book in 1HFY24 vs 1HFY23. Jefferies believes that PPL is at an inflection point with earnings bottoming in FY23 and that is an attractive turnaround story. Piramal Pharma’s earnings are not only on the rise, but there is a significant scope for a re-rating.

Apollo Hospitals: Apollo targets occupancy of 70% in the hospitals division from current FY24E 66% and the brokerage factors in 69% occupancy leading to mid-teens growth in FY25. Increasing occupancy to boost margin in hospital division due to operating leverage, expects high-teens growth in FY25. Declining investments and discounting on digital platform to result in breakeven of Apollo 24/7; management guides for breakeven of digital business in 6-8 quarters. Jefferies expects Apollo to clock a 24% EBITDA CAGR during FY24-26E, the highest in its hospital coverage universe. Per its estimates, Apollo trades at a 20% discount to Max for their hospital divisions. PT at ₹7,500.

Cement

UltraTech Cement: UltraTech Cement, India’s No. 1 cement producer, is likely to be a key beneficiary of the India Infra capex theme. UltraTech has outperformed the industry on capacity/volume growth for the past 5/10 years, and Jefferies expects this trend to continue. UltraTech is continually working on efficiency improvement, and it has set a target of over 60% of energy usage from green sources. It values the stock at 17x FY26 consolidated EV/EBITDA to arrive at a PT of ₹11,560. The brokerage has a BUY on UltraTech, given its improving ROE/ROCE outlook, growing market share, and strong Balance Sheet.

Ambuja Cement: Ambuja, the second-largest cement producer in India, is on a renewed strength post ownership change last year. On capacity expansion/efficiency improvement/ESG, the company has laid out ambitious targets, which are likely to result in strong operating/profitability outperformance over its larger peers. Jefferies has modeled an Industry-leading 23% EBITDA CAGR (with upside risk) for the consolidated entity for FY23-FY26E. It values the stock at 17x FY26E consolidated EBITDA to arrive at a PT of ₹660. Recommends BUY.

Telecom

Bharti Airtel: Structurally, there is immense headroom for tariffs to go up, as the Arpu/per capita GDP ratio in India at 1.1% is much lower than 1.5% for countries with comparable per capita income, said Jefferies. Bharti Airtel is seeing strong traction on 4G/Postpaid subscribers. Over the last four quarters, it has added 7 million average quarterly 4G subscribers. Continued network investments by Bharti are unlikely to be matched by cash-strapped VIL, which should drive market share gains for Bharti. Market share gains should accelerate further as 5G becomes more mainstream. It added that Over the last four quarters, Bharti has generated a healthy FCF of ₹43-72 bn, despite elevated Capex. FCF generation should improve with moderating capex. Over FY24-26, it expects Bharti Airtel to deliver 16%/17% CAGR in India revenues/EBITDA, assuming a 20% tariff hike in July 2024. Moderating capex along with rising EBITDA will help Bharti to deleverage its balance sheet by $6 bn over FY25-26 which should support stock returns. Buy with a PT of ₹1,300.

Midcaps

Kajaria Ceramics: Jefferies views KJC as a robust play on housing revival in India. The company is the domestic market leader in Tiles and is likely to benefit from market share gains from the unbranded segment. Also, Morbi exports could sustain pricing power in the domestic industry. It estimates FY23-26E sales/PAT CAGR at +13% /+26%, driven by 1) Housing revival; 2) Market leadership; 3) Optimizing mix (60% value-added sales); 4) Market share gains (export focus by Morbi players); 5) Margin focus (retained 15%+ over FY16-22); 6) traction in margin-accretive Bathware & Vitrified tiles; and 7) B/S strength (net cash). Retain Buy on KJC with PT ₹1,630.

Amber Enterprises: Jefferies rates Amber Buy with PT of ₹4,385. Key drivers for the company are lower RAC penetration (India AC penetration at 7-8% vs global avg 30%), Amber’s leadership position in AC outsourcing (70%+ market share), incremental diversification into components, diversified customer base, and PLI upside. Faster growth in margin-accretive components and higher RAC volume (customer adds) could drive sales/ PAT CAGR of +16%/40% over FY23-26E.

Supreme Industries: Jefferies views SI as a holistic play on revival in housing/capex/infra/agri demand, led by a diversified product mix and entrenched reach. SI posted robust +24% volume growth in 9MFY24, aided by rising affordability due to a fall in PVC prices, which augurs well for demand. The pipes segment posted notable volume growth of +30%YoY in 9MFY24, likely driven by market share gains. Value-added sales (VAS) are 35%+ of the sales mix now, with OPM at 17%+; this stays a strong margin driver. Over FY23-26, it expects SI’s volume growth at +17% CAGR vs. flattish over FY19-22. SI is a high-conviction SMID pick for the brokerage. Buy with PT of ₹5,650.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 26 Feb 2024, 10:29 AM IST