Muhurat Picks 2023 - L&T, SBI, Coromandel, TV Today Among Top Seven Diwali Picks From ICICI Direct

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ICICI Direct Report

We continue to see reasonable opportunities across the market spectrum with key filter being quality. We continue to advise investors to utilise equities as a key asset class for long term wealth generation by investing in quality companies with strong earnings growth and visibility, stable cash flows, RoE and RoCE. We have handpicked seven stock to Buy this Diwali.

Larsen & Toubro Ltd. (Current market price: Rs 2918 / Target price Rs. 3560/ upside potential: 22%)

L&T is India’s largest engineering and construction company, with interest in EPC projects, hi-tech manufacturing and services. The company primarily operates in infrastructure, heavy engineering, defence engineering, power, hydrocarbon, services business segments.

As of H1 FY24, Infrastructure segment contributes ~47% to consolidated revenue followed by services at 32%.

The company with diversified presence across business verticals and geographies commands a mammoth order-backlog of Rs 450000 crore, up 22% YoY as of Q2 FY24. This provides strong revenue visibility over next two- three years.

Coupled with this a strong project pipeline of Rs 8.8 trillion will ensure 15% order inflow growth in FY24. Strong scale up in services business like IT and Finance also provides cushion to cash flows and cyclical risk of engineering business.

We remain upbeat on the prospects of the company and believe L&T is the best proxy play on India capex story and preferred large cap capital goods pick. L&T is expected to deliver 18.6% and 26.5% revenue and PAT CAGR over FY23-FY25E, respectively.

We believe selective profitable growth. monetisation of non-core assets, strict balance sheet discipline will help L&T to achieve 18% return on equity by 2026 and create shareholder value.

We value the company on SoTP basis and arrive at a fair value of Rs 3560.

Key risks:

• Slowdown in ordering activity and

• Delay in margin recovery.

State Bank of India (Current market price: Rs 572 / Target price: Rs 725 / upside potential: 27%)

SBI is a public sector bank and also the largest bank in India with a balance sheet size of over ~Rs 55 lakh crore. Strong distribution network, diversified product mix and large customer base remains core strength of the bank which enables to deliver best operating metrics in the PSU banking space.

Large customer base and diversified product mix is seen to aid credit growth expected to be in-line with industry at 14-15% in FY24E. Advance growth is seen to remain broad based with focus on MSME and retail (home loans and Xpress credit) segment which will enable business growth as well as support yields.

Yields expected to inch up gradually, however, faster accretion in term deposit and repricing of deposit rates is expected to impart some pressure on margins in FY24E.

Asset quality remained resilient with gross/net non-performing asset at 2.76%/ 0.71% while restructured book stood at ~70 bps of advances.

Healthy PCR stands at 76.4% for advances and ~30% coverage on restructured book provides comfort on continued benign credit cost expected at ~30-50 bps ahead.

SBI has demonstrated its strength in previous quarters both on core operating performance and asset quality. Management confidence on growth (14-15%), steady margins and return ratios remaining at ~1% in FY24-25E warrants a re-rating, and should see strong positive momentum.

Plough-back of profits leading to improving RoE of ~16-17% to add to valuation.

Key risks:

• Higher than expected increase in cost of deposits amid competition;

• Slower disbursement traction in corporate segment.

Coromandel International Ltd. (Current market price: Rs: 1058 / Target price Rs 1330 / upside potential 26%)

Coromandel International Ltd. part of Murugappa group, is a major provider of agricultural solutions and leading private sector player in Indian phosphatic industry with consumption-based market share of 17.2% in NPK & DAP segment.

In single super phosphate, it holds top position with a consumption-based market share of 13.8%.

Coromandel plans to invest Rs 1000 crore over the next two years in the above businesses and leverage the macro tailwinds in the chemicals sector to build a business of scale. CDMO business is likely to start generating revenue in 18-24 months once it wins an order.

In FY23, Coromandel International has developed a new tech product Nano DAP, for which it is setting up a plant in Andhra Pradesh and is expected to introduce in H2 FY24. The product has a potential to replace 50% of the traditional DAP in the next five to seven years.

Coromandel has been strengthening its upstream integration capabilities. Via its strategic tie up with leading integrated players like Tifert (Tunisia) and Foskor (South Africa) for meeting its Phosphoric acid requirements.

Further, the company is setting up a new 1,650 million tonne per day design capacity sulphuric acid plant at its fertiliser complex in Visakhapatnam at a cost of Rs 400 Crore.

The company foray into drone business represents significant opportunity as it plays a dominant role in precision agriculture. Moreover, the global agriculture drone market is estimated to be $0.6 billion in CY22 and projected to reach $2.5B by CY27, growing at a CAGR of 32%.

We believe Coromandel is well positioned to capture the agricultural drone market.

We value the company at at Rs 1330 based on ~16 times FY25E price/earning multiple.

Key risks:

• unfavourable weather and government policies,

• crude prices.

TV Today Network Ltd. (Current market price: Rs 193 / Target price Rs 260 / upside potential 35%)

TV Today is a leading news company engaged in broadcasting operations. Part of the India Today Group, the company operates mainly in three segments — digital, television and radio broadcasting. It has consistently maintained its leadership in the Hindi new segment across the last two decades.

The ad environment has remained challenging with restricted spends by key segments. We also note that ad inventory remained lower to improve viewership experience and stickiness. This led to ~4% decline in TV and other media (Digital segment) revenues and flattish H1 FY24.

Furthermore, elevated costs in digital segment also impacted profitability sharply.

As we embark on festival season, key election in Hindi speaking states like MP, Rajasthan in Q3 FY24 followed by General election led spendings in Q4 FY24/Q1 FY25, we expect sharp recovery in ad revenue growth from H2FY24, onwards.

We highlight that last general election quarter had seen high growth of ~31% in election quarter. We have baked in ~9% revenue CAGR over FY23-25 to Rs 1040 crore, with ~15% growth likely after flattish H1 FY24.

On the margins front, the company is planning to consolidate the separate entities such as Tak channels, Lallantop and others (currently being separately run) which will bring down the overall costs .

Considering the same we expect margins to inch up to 18% in FY25 versus 15.5% in FY23.

TV Today remain a key proxy for election led ad spending and with further catalysts such as ad recovery kicking in as festivities begin and margins improvement level.

We have valued the company at 12 times FY25 price/earning to assign a target of Rs 260/share.

Key risks-

• Loss in market share

• elevated digital costs.

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