IndusInd Bank, Emami among top 5 picks by Sanjiv Bhasin of IIFL Securities

“We think there could be one more hike of 25bps going forward, before a pause to make room for the lag effect of hikes around the world and in India,” IIFL Securities said.

The report added that strong government revenues are a silver lining, especially GST.

” GST collections have been very robust, with it being above the 1 lakh crore mark for 17 consecutive months and above 1.4 lakh crore mark for the nine straight months. This has contributed to indirect as well as direct tax revenue growth being robust, and eventual borrowing by GoI may come in below, keeping a tighter lid on rates,” it added.

For 2023, the domestic brokerage firm IIFL Securities has selected stocks.

“Considering rich valuations in general, we favour a defensive stance and domestic growth stories, with our top picks coming from banks, FMCG, auto, and insurance,” IIFL Securities said.

Here is the list:

Equitas Small Finance Bank

The brokerage has a buy recommendation on Equitas Small Finance Bank with a target price of ₹66, an upside potential of 14 per cent from the current price of ₹58 per share.

The brokerage said that The quarter was characterized by: i) strong AUM (+5% QoQ / 20% YoY) and disbursement growth (+19% QoQ / 22% YoY), ii) strong deposit growth (+7% QoQ / +20% YoY), iii) slight QoQ decline in CASA deposits leading to 300bps lower CASA ratio to 48.1%, iv) slight margin compression QoQ (5bps to 9.0%), v) higher than expected opex (8% above expectation) and vi) improvement in asset quality. GNPA ratio decreased 19bps QoQ to 3.9%. Restructured book declined to Rs9.9bn or 4.5% of loans (5.8% of loans in 1QFY23). PCR improved 210bps QoQ to 50.6%. Credit cost or the quarter stood at 1.7% (would have been ~30bps ex one-off).

“Overall outlook remains strong with management reiterating its 1.5% credit cost guidance for FY23 owing to asset quality normalisation and despite it reducing its loan growth guidance to 25% for FY23. Lower growth and higher opex would however mean that achievement of 2% RoA would be pushed to FY24. Given the expected return profile, valuation at 1.1x FY24ii BVPS appears favourable,” IIFL Securities said.

IndusInd Bank

The brokerage has a buy recommendation on IndusInd Bank with a target price of ₹1428, an upside potential of 20 per cent from the current price of ₹1170-1210 per share.

Indusind Bank’s profit of Rs18.1bn in 2QFY23 was 8% above the brokerage estimate, driven by lower than expected provisions (as IIB utilised Rs3.5bn of contingent provisions).

IIFL Securities said that the quarter was characterised by: i) strong loan/deposit growth (+5/4%% QoQ), ii) largely stable NIM QoQ (+3bps to 4.24%), iii) healthy fee income growth (+5/24% QoQ/YoY) and iv) improvement in asset quality. GNPA ratio declined 24bps QoQ to 2.11%. Slippages were down 30% QoQ to Rs15.7bn. Restructured loans decreased to 1.5% in 2QFY23 (2.1% in 1QFY23).

“We increase our loan growth estimates to 21.7% Cagr (19.3% earlier). Fee income estimates have been increased by 5% to account for better fee traction, which is offset by higher opex, leading to largely unchanged PPOP. We lower credit cost estimate for FY23 to ~180bps, FY24 at 165bps (stable) and increase it slightly for FY25 to 155bps,” IIFL Securities said.

PB Fintech

The brokerage has buy call on PB Fintech with a target of ₹552, an upside of 22 per cent from the current market price of ₹453 apiece.

The brokerage noted that insurance premium grew 76% YoY/5% QoQ to Rs25.45bn, despite 2Q being modest for the industry given a tough base. Credit disbursals increased 94% YoY to Rs29.2bn. Paisabazaar is currently at a run rate of Rs12bn disbursals and 0.5mn credit card issuances. Over 31mn customers have accessed credit score on the platform, representing ~13% of India’s active credit score consumers. Overall revenue grew by 105% YoY to Rs5.7bn, while renewal revenue is annualising at Rs2.9bn and will be a key driver of profitability.

“PBFI has underperformed due to concerns around IPO lock-in expiry, even though growth and path to profitability have remained on track. We reiterate buy with a 12-month target price of 552. It is trading at 4X FY24ii EV/S, offering 48% revenue CAGR over FY22-24ii, vs Indian internet firms at 6.2x EV/S (38% CAGR),” said the brokerage.

Emami

The brokerage has buy call on Emami with a target of ₹516, an upside of 20 per cent from the current market price of ₹420-440 apiece.

As the base of OTC and Healthcare sales normalises, sales growth should improve gradually in coming quarters. With input prices easing and expectations of a good winter, Emami has increased brand investments – A&P increasing 34% YoY and clocking 17.4% as a percentage of sales (vs 2Q average of 16.2% pre-Covid). Even as the company continues spending behind brands, management sounded confident of clocking 27% Ebitda margin for FY23, the report said.

“With a higher salience of rural and mass-end discretionary products, Emami has been impacted disproportionately in the current inflationary times. Moderation in the overall price index should, therefore, bode well for demand recovery for Emami. We broadly maintain our sales estimates and moderate Ebitda margin to 27%/27.5%/27.5%, resulting in an Ebitda downgrade of 2.6%/5.0%/7.4% in FY23/24/25. Our EPS estimates for FY23/24 are upgraded by 9%/11% (lower tax rate for these years),” it said.

Godrej Agrovet

The brokerage has buy call on Godrej Agrovet with a target of ₹570, an upside of 20 per cent from the current market price of ₹475 apiece.

“We retain our positive stance on the stock, even with the underperformance in 2Q, and remain optimistic for margins to mean revert in a couple of quarters across key businesses. Medium-term growth looks encouraging as key businesses recover from cyclical pressures, and Astec continues to grow strongly. At 21/17x FY24/25 P/E, valuations are attractive vs its peer-set in India; downside risk from these levels is minimal. We think the demonstration of healthy earnings growth could potentially spark a re-rating,” it said.

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.