Stocks to buy: IDFC, GNA Axles, Zen Technologies among top fundamental picks by HDFC Securities

For the month of September, Nifty 50 gained 2% while the Sensex rose 1.5%. The BSE Smallcap index also rose about a percent, while the BSE Midcap index jumped 3.7% in September.

HDFC Securities Retail Research has come out with a list of its fundamental picks for a time horizon of two to three quarters.

The brokerage advises investors to buy these stocks based on their strong fundamentals and growth prospects.

IDFC Ltd

HDFC Securities expects advances of the bank to increase at 23% CAGR over FY23-FY25E, while improvement in profitability would drive RoA to 1.4% by FY25E and moderation in credit costs could result in further re-rating. 

Further IDFC Ltd. is available at a 14% discount to the value derived from the swap ratio providing margin of safety, although the merger may take a few quarters to fructify, HDFC Securities said. 

In its base case, the brokerage has a target price of ₹145 and in the bull case, it has a target price of ₹158 per share for IDFC Ltd.

It advises investors to buy IDFC Ltd in ₹130-133 band and add on dips in ₹116-118 band, for a time horizon of 2-3 quarters.

Also Read: ‘Valuations of smallcaps ahead of fundamentals; tough to predict RBI rate cut’

Narayana Hrudayalaya

Higher maturity mix in hospitals, steady performance of flagship hospitals in India and improving profitability of new hospitals solidifies Narayana Hrudayalaya’s position in India. Prioritizing debottlenecking and brownfield expansion at its existing centres and expansion in Cayman support growth going forward, HDFC Securities said.

However, operationalising of new hospitals which would account for large part of the growth could pose risk on the margin front. 

It expects revenue/EBITDA/PAT to grow at CAGR of 12.3%/12.2%/6.5% over FY23-25E. 

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The brokerage suggests investors can buy the stock in the band of ₹1,080-1,105 and add more on dips to ₹967-987 band for 2-3 quarters time horizon.

In the base case, it has a target price of ₹1,195 and the bull case target price of ₹1,265 per share.

LG Balakrishnan & Bros

LG Balakrishnan & Bros mainly caters to the two-wheeler industry and operates in two segments – Transmission products and Metal forming products.

Considering better demand prospects in the domestic and exports market, entry into industrial chains, completion of RSAL takeover and increasing aftermarket sales, HDFC Securities continues to remain bullish on the prospects of the company in the medium term.

The management has guided for 10% volume growth and a conservative margin of 15-17% in FY24. 

“We expect LG Balakrishnan & Bros’ revenue/EBITDA/PAT to grow at 9/12/14% CAGR over FY23-FY25, led by increasing share of business with existing customers and higher aftermarket sales,” HDFC Securities said.

It believes investors can buy the stock on dips in the band of ₹1,040-1,060 and add more on dips to ₹920-940 band (9.5x FY25E EPS) for a base case fair value of ₹1,150 (11.75x FY25E EPS) and bull case fair value of ₹1,225 (12.5x FY25E EPS) over the next 2-3 quarters.

Also Read: Buy or Sell: Sun Pharma, SBI Card among 4 stock trading ideas to look at by Emkay Global

GNA Axles

Though the demand conditions in the export markets were challenging so far, there are early signs of turnaround. HDFC Securities believes GNA Axles could benefit due to this recovery and new SUV capacity. Reasonable valuation after the latest correction is another positive.

It expects Revenue/EBITDA/PAT of the company to grow at CAGR of 8/11/14% over FY23-FY25E on the back of higher volumes driven by higher CV sales in the domestic market and growing CV/SUV sales in the American market.

We believe investors can buy the stock in the band of ₹458-470 and add on dips in ₹410-420 band for a base case fair value of ₹508 and bull case fair value of ₹546 over the next 2 quarters, the brokerage house said.

Also Read: Nifty October series outlook: 4 stocks where investors can park their money; do you own?

Zen Technologies

HDFC Securities feels investors can buy Zen Technologies shares in the ₹710-730 band and add more on dips to ₹639-653 band for the base target of ₹795 and bull case target of ₹854 over the next two to three quarters.

“Based on the Q1FY24 numbers and the fresh order inflow post the issue of our report we have revised upwards the estimates for FY24E and FY25E and upped the target price. Though the valuation of the company is not as attractive as at the time of our previous report, given the large order inflow since then and the revenue visibility for the next few years, we feel that some more rerating is possible,” it said.

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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Updated: 02 Oct 2023, 01:33 PM IST