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Business News/ Markets / Stock Markets/  Stocks to buy: These 5 stocks could jump up to 40% in 1-2 years, says Pankaj Pandey of ICICI Direct

Stocks to buy: These 5 stocks could jump up to 40% in 1-2 years, says Pankaj Pandey of ICICI Direct

Stocks to buy: Last week, Nifty 50 closed over 2 per cent lower as investor caution prevailed amid a lack of positive triggers. Pankaj Pandey, the retail research head of ICICI Direct advises buying quality stocks for the long term, suggesting five stocks to consider.

Stocks to buy: Pankaj Pandey of ICICI Direct is positive about the long-term prospects of the Indian market. (Agencies)Premium
Stocks to buy: Pankaj Pandey of ICICI Direct is positive about the long-term prospects of the Indian market. (Agencies)

Last week, the market benchmark Nifty 50 halted its four-week winning streak, closing more than 2 per cent lower amid a significant selloff as investor caution prevailed, particularly regarding the lofty valuations observed in the mid and small-cap segments, amid the lack of positive triggers and subdued global cues.

However, the long-term outlook of the market remains positive as India is expected to witness strong economic growth in the coming financial year as well.

Also Read: Indian stock market remains attractive, say experts, suggest stocks to buy for long term

Recently Fitch Ratings has raised its forecast for India's economic growth to 7 per cent for the next financial year (FY25).

The ratings agency underscored that India witnessed a GDP growth of more than 8 per cent for three consecutive quarters and the growth growth momentum may slightly moderate in the final quarter of the current fiscal year due to which, India's growth could come at about 7.8 per cent for FY24.

Also Read: Fitch raises India GDP growth estimate for FY24 to 7.8%

Pankaj Pandey, the head of retail research at ICICI Direct advises buying quality stocks at this juncture for the long term. He recommended the following five stocks to buy for the next one to two years. Take a look:

Gabriel India | Current market price (CMP): 307.65 | Target price: 440 | Upside potential: 43 per cent

Gabriel India (GIL) is a global top-10 shock absorber manufacturer serving two-wheelers (2-Ws), three-wheelers (3-Ws), passenger vehicles (PVs), commercial vehicles (CVs), railway and aftermarket segments. 

The company has reported significant market share gains in the 2W segment and is up from 25 per cent in FY22 to 32 per cent primarily tracking outperformance at its key clients i.e. TVS, HMSI (Honda Motorcycle and Scooter India) and continues to remain the market leader with over 80 per cent market share in the electric 2W space in the high-speed category with all prominent EV players like Ola Electric, TVS, Ampere, Ather, etc., as its key clients.

In the PV space, its market share remained steady at 24 per cent with the company’s strong intent to increase it to 30 per cent in coming years. 

However, the company’s market share in the overall utility vehicle (UV) space improved to 35 per cent aided by new launches like XUV 700, Thar, etc. 

To expand its presence in the hot-selling SUV space and to catch up on the premiumisation trend, the company has entered into a joint venture (JV) with Inalfa (globally the second largest sunroof manufacturer) for manufacturing of sunroof systems and related components for original equipment manufacturers (OEMs) in India.

“With volume growth and market share gains on the anvil, we build in 10 per cent net sales CAGR over FY23-26E. PAT CAGR in a similar timeframe is placed at 24 per cent, building in 60 bps improvement in EBITDA margins to 9.2 per cent by FY26E," said Pandey. 

It has a healthy balance sheet with a net cash surplus of nearly 300 crore and strong capital efficiency (RoCE at nearly 20 per cent). 

"We have a positive view of the stock tracking EV immune product profile and the incremental role to play in the premiumisation domain. We assign a buy rating on the stock valuing it at 440 i.e. 25 times the price-to-earnings ratio (P/E) on FY26E," said Pandey.

Also Read: US inflation prints dent rate cut hopes; what will move the market now? Here's what 5 experts say

Landmark Cars | CMP: 715.05 | Target price: 920 | Upside potential: 29 per cent

Landmark Cars is a leading auto retailer for premium/luxury cars in India. 

Its key OEM partners in the PV space include Mercedes Benz, Jeep, Honda, Volkswagen, and Renault with recent additions being MG Motors, Mahindra and Mahindra and BYD. 

It has also partnered with Ashok Leyland in the commercial vehicle space. 

It has a network of 117 outlets. It has a presence across the automotive retail value chain, including new vehicle sales, pre-owned vehicle sales, after-sales service, spare parts, etc. 

Landmark holds the top dealer position in India for Mercedes Benz, Honda, Jeep, and Volkswagen.

It is a play on the rising penetration of luxury cars domestically amidst a growing number of HNI/UHNI’s, higher disposable income and growing consumer preference for premium products. Luxury car penetration in the Indian PV market stands at nearly 1 per cent, one of the lowest globally, versus nearly 10 per cent across major economies of China/US. 

Interestingly, only about 4 per cent of Indian millionaires purchase luxury cars, versus the global average of 60 per cent. 

Also, as per reports, the number of high-income Indian households i.e. households with more than 33 lakhs as annual income will more than triple by 2030 versus levels in 2018, a tailwind for Luxury space.

Landmark also has a significant presence in the After-sales service segment which is the most lucrative business proposition for the auto retailer. 

Gross margins in this business are healthy at nearly 40 per cent with EBITDA margins at nearly 18 per cent and RoCE at nearly over 30 per cent. 

Landmark drives nearly 25 per cent of its topline from this segment, the contribution of which to the total EBITDA is pegged at nearly 70 per cent. 

“We have a positive view on Landmark Cars amidst premiumisation tailwind in domestic PV space, long-standing marquee OEM relationships at the company, its diversification efforts including pre-owned car business and healthy financial profile (ROCEs: nearly over 20 per cent and CFO yield: nearly 7 per cent on forward basis)," Pandey said.

"We assign a buy rating on the stock, thereby valuing it at 920 i.e. 22 times PE on FY26E," said Pandey.

Astra Microwave Products | CMP: 567.65 | Target price: 740 | Upside potential: 30 per cent

The company’s operational performance has improved significantly in recent quarters, primarily led by the execution of higher-margin domestic contracts. 

Order backlog stood at 1,813 crore as of Dec-2023-end (2.2 times trailing twelve-month revenues) as orders inflow remained strong at 825 crore during the nine months of FY24. 

Management expects nearly 8,000 crore order opportunities for the company till 2028, primarily in defence and space electronics.

The overall operational performance is expected to improve further, primarily due to the changing contract mix (nearly 80 per cent of the order backlog is domestic with higher value addition). 

Moreover, the government's focus on indigenisation and increasing usage of electronics in defence and space presents a strong order pipeline for the company.

"We estimate a revenue CAGR of 17 per cent over FY23-26E while EBITDA and PAT are expected to grow at nearly 25 per cent and nearly 36 per cent CAGR respectively. Valuations at 30 times P/E on FY26E look attractive and offer decent upside potential," said Pandey.

Greenply Industries | CMP: 229.10 | Target price: 320 | Upside potential: 40 per cent

Greenply Industries is one the leading players in the plywood business in India with a capacity of 48 mn sq. mt. per annum. 

It has also forayed into the MDF boards business with manufacturing at Vadodara, Gujarat of 800 CBM/day (expanding to 1000 CBM/day in FY25) with revenue potential of nearly 650-700 crore per annum). 

Overall MDF imports which are currently very high, are likely to moderate in FY25 with the BIS certification rule kicking in from February 2024 onwards, making it tedious to increase costs for imported products (also owing to higher freight costs).

"We expect overall topline CAGR of 16 per cent over FY23-26, with a 10 per cent CAGR in plywood revenues. The MDF margin currently at 13.5 per cent is likely to expand by nearly 20 per cent in a normalised operational state and with higher value-added products. Given the higher margins of MDF in the mix, overall margins are likely to expand to 12 per cent in FY26 versus 9.1 per cent, currently with earnings CAGR of nearly 24.6 per cent over FY23-26," said Pandey.

The bulk of the residential real estate in the last two to three years will start hitting completion in FY25 onwards, driving the building materials segment growth including wood panel (Ply, Laminates and MDF). Greenply will be one of the key beneficiaries of the same.

Sudarshan Chemical Industries | CMP: 574.35 | Target price: 705 | Upside potential: 23 per cent

Sudarshan Chemical is a leading player in the Indian colour pigment industry with nearly 35 per cent market share and is also the third largest player globally.

"We expect a better margin trajectory (from 11 per cent in FY24E to 16 per cent in FY26E) to be driven by improving operating leverage," said Pandey.

It has exhibited a sustained focus on margin accretive speciality pigments (two-thirds of the portfolio and improving) for which the company has incurred significant capex in the last three to four years. Recovery is expected in the ROCE (from 8 per cent in FY24E to 16 per cent in FY26E) on the back of improved profitability and asset turnover.

"We value Sudarshan at 22 times FY26E earnings per share (EPS) of 32 with a target price of 705," said Pandey.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.


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Published: 17 Mar 2024, 05:01 PM IST
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