Home/ Markets / Stock Markets/  Indian Hotels, DLF, TVS among Jefferies' top 12 Indian stock picks with 'strong margin uptrend'

Global brokerage Jefferies in a note said that its coverage universe margins will likely bottom in FY23 and it expects FY24 EBITDA margins to be up 206 bps year-on-year (YoY) with broadbased substantial margin improvement excluding IT, metals & chem. 

The brokerage has highlighted 12 top stock picks with strong margin trend over FY23-24 which are Maruti Suzuki, TVS, Eicher Motors, Thermax, Adani Ports, Bharti Airtel, Biocon, Cipla, DLF, Lodha, Godrej Consumer GCPL and Indian hotels. The only sector with FY24 margins still lower than FY20 (pre-pandemic) would be IT, staples & cement, as per Jefferies.

“Low commodity prices immediately after the covid break-out drove ebitda margins for India coverage (ex oil and energy) universe to an all-time high of 22.6%. Ebitda margin declined by 100bps to 21.6% in FY22 and expected to trend down further to 20.8% this year. We expect the next year (FY24) will see margins moving up to 21.8% - higher than pre-pandemic levels. Potential recession in the developed world depressing commodity prices can drive the upside," the note stated.

TVS operated at significantly lower margins versus peers through most of the last decade, but has narrowed the gap in the last two years led by improving franchise, better pricing power and higher share of exports. “We expect its EBITDA margin to improve further from 9.4% in FY22 to 12.2% in FY24 driven by a sharp recovery in Indian 2W demand along with easing commodity prices."

DLF margin improvement will come through even as Camellias contribution to revenue recognition declines as independent floors entering recognition have strong margins, the brokerage said. Meanwhile, Jefferies pegs Indian Hotels' margins at 31-32% for FY24-FY25 vs. depressed 13% in FY22, the sharpest margin improvement across all stocks under its coverage.

For Cipla, it said that the pharma company will be launching several high value products in 2HFY23 and will be ramping up its peptide injectable reaching its peak by end of FY23. These products will lead to margin accreditation during FY22-24 for the company.

“Lodha benefits somewhat from the impact of operating leverage and lowering of interest capitalisation on land costs, as leverage declines," it added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Updated: 12 Sep 2022, 12:02 PM IST
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