Stocks to buy: V-Guard, eClerx Services, Dhanuka Agritech, among five fundamental stock picks by HDFC Securities

Stocks to buy: Indian stock market indices, Sensex and Nifty 50, extended decline on Monday, falling over half a percent each, dragged by weak global cues as escalating conflict between Iran and Israel in the Middle East rattled equities around the world.

The sell-off in the market was broad-based as the Nifty Smallcap 100 and the Nifty Midcap 100 indices traded a percent lower each.

Spike in US dollar and Treasury yields, outflows of foreign funds and Iran-Israel war escalating tension in the Middle-East region weighed on the Indian stock market today.

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HDFC Securities has recommended five stocks to buy amid market volatility. The Retail Research at HDFC Securities believes these five stocks have the potential to deliver decent returns in a time horizon of 2-3 quarters based on their strong fundamentals.

V-Guard Industries, eClerx Services, NRB Bearings, Pitti Engineering and Dhanuka Agritech are the five stocks to buy or fundamental stock picks by HDFC Securities.

V-Guard Industries | Buy | TP: ₹379

V-Guard Industries with its strong brand equity and a well-diversified product portfolio is well poised to capitalize on the fast growing consumer electrical and durable sales in India, buoyed by rising income levels, rising consumer awareness, technologically innovative product launches and rising demand for premium products, HDFC Securities said.

While V-Guard’s gross margins in recent quarters have benefitted from the softening of raw material prices in recent quarters, additional interventions in the Consumer Durables segment and various other cost reduction initiatives are expected to drive sustainable EBITDA margins in the range of 9% - 9.5% in the long term, it added. 

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According to HDFC Securities, the base case fair value of the stock is ₹379 and the bull case fair value is ₹405. Investors can buy V-Guard Industries shares in ₹335-345 band and add more on dips in ₹300-310 band.

eClerx Services | Buy | TP: ₹2,685

eClerx Services’ performance over the past five quarters reflects rising demand for and stickiness of the company’s services. After reporting flattish revenue for the past three-four years, eClerx has finally shown signs of revival and reported 8.8%, 38.1% and 22.6% revenue growth in FY21, FY22 and FY23, respectively followed by 9.6% in 9MFY24. 

eClerx’s financial profile remains healthy marked by stable earnings, sizeable networth, and strong liquidity with large cash reserves, healthy capital structure and coverage metrics.

Investors can buy eClerx Services shares in the ₹2,426 - 2,476 band and add further on dips in the ₹2,156 - 2,200 band. We believe the base case fair value of the stock is ₹2,685 and the bull case fair value of the stock is ₹2,830 over the next two to three quarters, HDFC Securities said.

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NRB Bearings | Buy | TP: ₹320

NRB Bearings shares are available at a steep discount to MNC bearings companies listed in India and the brokerage firm feels that the discount has scope to narrow over time. It expects the company’s Revenue, EBITDA and PAT to grow at 11%, 13% and 20% CAGR over FY23-FY26E, led by demand revival, increasing exports, operating leverage and reduction in debt. 

We believe investors can buy NRB Bearings stock in the band of ₹289 - 294 and add on dips to ₹259-263 band (15.5x FY26E EPS) for a base case fair value of ₹320 (19.0x FY26E EPS) and bull case fair value of ₹346 (20.5x FY26E EPS) over the next 2-3 quarters, HDFC Securities said.

Pitti Engineering | Buy | TP: ₹932

HDFC Securities feels Pitti Engineering is on a strong wicket given the industries to which it caters to and its established technical expertise and customer relationships. Recent corporate action has the potential to give further thrust to the momentum. 

Aided by a strong long-term outlook due to the expectation of order inflows and revenue growth in the upcoming years on better execution in the coming few quarters, it expects revenue, EBITDA and PAT to grow at a CAGR of 19.6%, 25.7% and 38.9% over FY23–26E. 

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According to the brokerage house, the base case fair value of the Pitti Engineering shares is ₹932 (20.25x FY26E EPS) and the bull case fair value is ₹989.5 (21.50x FY26E EPS) over the next two-three quarters. Investors can buy the stock in the band of ₹843 - 860 (18.51x FY26E EPS) and add more on dips to ₹752 - 766 band (16.5x FY26E EPS.

Dhanuka Agritech | Buy | TP: ₹1,203.5

Dhanuka Agritech has a strong product portfolio and a distribution-led business model; it has robust return ratios (> 20%), backed by a debt-free cash-rich balance sheet. In 9MFY24, Dhanuka reported 3.8% growth in revenue and operating margin improved 270 bps YoY to 17.8% primarily due to better gross margin. 

HDFC Securities is positive on the Dhanuka Agritech stock given a strong balance sheet, high revenue contribution from the specialty portfolio, strong distribution network and commercialization of the new unit.

It feels investors can buy Dhanuka Agritech shares in the band of ₹1,095 - 1,112 and add more on declines to ₹985 for base case fair value of ₹1,203.5 (19.25x FY26E EPS) and bull case fair value of ₹1,282 (20.5x FY26E EPS) over the next 2-3 quarters.

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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 making any investment decisions.