Diwali 2024 Picks - Lupin, Gravita India, Inox Wind Among Nine Stock Ideas For Samvat 2081 By Axis Securities

Axis Securities Report

Samvat 2081 is set to be a pivotal year for the global economy. We begin this new Samvat amid a global rate cut cycle, with the U.S. FED reducing interest rates by 50 bps during its Sep’24 FOMC meeting and signalling two more rate cuts for the remainder of 2024, along with the possibility of four additional cuts in 2025.

In response to this development, the RBI, in its recent MPC meeting, shifted its policy stance from “withdrawal of accommodation” to “neutral,” signalling that a rate cut could be expected within the next six-nine months.

For Samvat 2081, we anticipate one to two rate cuts from the RBI, contingent upon inflation trends and the broader growth dynamics. The RBI has retained its FY25 GDP growth forecast at 7.2%, driven by improved agricultural activities and a positive outlook for rural consumption.

Additionally, rainfall during the monsoon season (Jun-Sep’24) was 4% above the long period average, and reservoir levels across the country are higher than last year. These favorable conditions are expected to benefit the rural economy, enhancing the prospects of a strong second crop (Rabi) this year.

Key Monitorables in SAMVAT 2081: With two major domestic events—the Union Election and Union Budget—and the global "US FED rate cut cycle" now behind us, the market’s focus will shift to closely tracking several key events:

1. Developments in the lead-up to the US election,

2. Economic recovery in China,

3. Activity during the festival season,

4. US bond yield movements,

5. Oil price trends, and

6. Fund flows.

These factors are expected to introduce volatility to the Indian equity market, which could react in either direction depending on how these events unfold. In the near term, some capital allocation may shift towards China, given the latest developments there.

Gravita India - (potential upside 38%)

Considering the strong industry tailwinds and the company’s growth plans, we estimate revenue/Ebitda/earnings per share growth of 26%/32%/32% CAGR over FY24-FY27E.

We expect Ebitda (adjusted) margins to improve to 12.1% by FY27, compared to 10.5% in FY24, while generating ROE of over 30%.

The stock currently trades at 27x FY27E EPS, and we value it at 37x FY27E EPS given the strong growth potential and robust returns.

We recommend a BUY on the stock with a target price of Rs 3,000/share, implying an upside of 38% from current market price.

Inox Wind - (potential upside 31%)

We recommend a Buy rating on the stock with a target price of Rs 270/share. We assign a target P/E multiple of 35 times to our FY26 EPS estimate after adjusting for the minority stake in Inox Green Energy Services Ltd. and Resco Global (~7%). The target price implies an upside potential of 31% from the CMP.

AU Small Finance Bank - (potential upside 25%)

With AU Small Finance Bank calibrating growth and prioritizing profitability, we expect the bank to deliver a RoA of 1.6% in FY25E. Focused efforts toward improving the share of better-yielding products, calibrating investments, and enhancing the fee income profile should collectively drive RoA improvement to 1.8% by FY27E.

Additionally, the bank has applied for a Universal Banking license.

Lupin - (potential upside 22%)

Lupin is well-positioned to capitalize on emerging opportunities. In the U.S. market, recent product launches such as Darunavir and gSpiriva have successfully captured market shares of 30% and 32%, respectively, reflecting strong demand and competitive positioning.

Upcoming approvals for Tolvaptan (projected market share of $287 million) and Xyway (estimated at $958 million with 180 days of exclusivity) are anticipated to further enhance Lupin's revenue streams in the second half of the year.

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