Stocks to buy: Advanced Enzyme, Swaraj Engines among fundamental stock picks by HDFC Securities

The Indian stock market indices, Sensex and Nifty 50, staged a decent bounce back on Thursday, continuing their bull run after a steep correction in the previous session.

Broader markets, Nifty Midcap 100 and Nifty Smallcap 100 outperformed the frontline indices with a rally of over 1% each.

The benchmark Nifty 50 is up more than 17% in 2023 so far, while analysts at HDFC Securities believe the valuations of Indian stock market indices are rich which leave a little room for any large upside next year.

The brokerage firm expects Nifty 50 to see another 8-10% upside from the current levels. It believes the earnings growth will be led by BFSI, industrials, autos, cement and pharma sectors.

Read here: Nifty 50 valuations are rich, offer 8-10% upside in 2024, says HDFC Securities; lists out stocks to accumulate next year

Margin benefits for commodity consuming sectors due to deflation in commodity prices are largely done, so any growth hereon must be volume led, it said.

The Retail Research at HDFC Securities has included Advanced Enzyme Technologies and Swaraj Engines in their fundamental picks and expects the stocks to give decent returns in two-to-three quarters.

Advanced Enzyme Technologies | Buy | TP: 407.5

HDFC Securities forecasts revenue, EBITDA and PAT CAGR of 13.5%, 21% and 22% over FY23-25E for Advanced Enzyme Technologies which would be led by strong growth across all segments. 

The brokerage expects margin to remain in the 31-34% range over FY23-25E. The enzyme industry is dominated by big MNCs like Novozymes, DSM Nutritional Products, BASF etc. However, at the same time smaller players like Advanced Enzyme are gaining ground in the segment helped by innovation and newer technologies, as per the brokerage.

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“The stock has traded at 26-28x 12-months forward average P/E in the last 5 years. We feel investors can buy the stock in the band of ₹369-373 and add more on dips to ₹330.5 (23.5x FY25E EPS) for base case target of ₹407.5 (29x FY25E EPS) and bull case target of ₹436 (31x FY25E EPS) over the next 2-3 quarters,” it said.

Swaraj Engines | Buy | TP: ₹2,493

The decline in tractor sales seems to have come to an end. The impact of El Nino on monsoons, resulting in below average rainfall in key agricultural regions, along with cyclicality and a high base have so far led to this fall. 

Also Read: Overvaluation a key risk in market, says Kenneth Andrade of Old Bridge Capital; lists 6 key trends of 2023

HDFC Securities expects revenue, EBITDA and PAT of the company to grow at a CAGR of 8%, 8% and 9% over FY23-FY25E on the back of higher volumes driven by increasing farm mechanization in India. 

“We think the stock can be rerated more by valuations than earnings for the near term. We believe investors can buy the stock in the band of ₹2,260-2,300 and add on dips in ₹2,020-2,060 band (15.75x FY25E EPS) for a base case fair value of ₹2,493 (19.25x FY25E EPS) and bull case fair value of ₹2,688 (20.75x FY25E EPS) over the next 2-3 quarters,” the brokerage firm said.

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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.