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Business News/ Markets / Top Buy Calls: HDFC Securities sees up to 45% upside in these 5 stocks

Top Buy Calls: HDFC Securities sees up to 45% upside in these 5 stocks

Indian markets recovered in September after a weak August, however, brokerage house HDFC Securities advises caution in the short to medium term on the back of high valuations and rising crude prices. It has listed 5 of its top 'buy' calls with up to 45% potential upside. Let's take a look:

Navin Fluorine: The brokerage has a ‘buy’ call on the stock with a target price of  <span class='webrupee'>₹</span>5,368, which indicates a 45 percent upside. HDFC expects NFIL’s PAT to grow at a 30% CAGR over FY23-26E, led by a 33% CAGR in EBITDA. It has retained a BUY rating on Navin Fluorine on the back of (1) earning visibility given long-term contracts in specialty chemicals and HPP segments; (2) a tilt in sales mix towards high margin high-value business; and (3) capacity expansion-led growth.

1/5Navin Fluorine: The brokerage has a ‘buy’ call on the stock with a target price of 5,368, which indicates a 45 percent upside. HDFC expects NFIL’s PAT to grow at a 30% CAGR over FY23-26E, led by a 33% CAGR in EBITDA. It has retained a BUY rating on Navin Fluorine on the back of (1) earning visibility given long-term contracts in specialty chemicals and HPP segments; (2) a tilt in sales mix towards high margin high-value business; and (3) capacity expansion-led growth.

Sobha: The brokerage has a ‘buy’ call on the stock with a target price of  <span class='webrupee'>₹</span>1,024, implying an over 35 percent upside. Strong growth potential, healthy financials, strong free cash flow generation, valuation comfort, robust launch pipeline and debt reduction are key near-term triggers for re-rating, said the brokerage. It also noted that whilst negative news flow on enforcement agencies' actions during FY23 has led to a de-rating, the firm has judiciously strengthened its balance sheet by reducing  <span class='webrupee'>₹</span>1500 crore net debt.  (AFP)

2/5Sobha: The brokerage has a ‘buy’ call on the stock with a target price of 1,024, implying an over 35 percent upside. Strong growth potential, healthy financials, strong free cash flow generation, valuation comfort, robust launch pipeline and debt reduction are key near-term triggers for re-rating, said the brokerage. It also noted that whilst negative news flow on enforcement agencies' actions during FY23 has led to a de-rating, the firm has judiciously strengthened its balance sheet by reducing 1500 crore net debt.  (AFP)

Crompton Consumer: The brokerage has a ‘buy’ call on the stock with a target price of  <span class='webrupee'>₹</span>400, implying a potential upside of over 33 percent. Crompton 2.0 focuses on accelerating revenue with increased branding, distribution and R&D expenses. These costs are upfront in nature, thereby impacting the operating margin. HDFC believes revenue acceleration will be visible gradually but in the interim, cost increase may impact margin in the near term. In its opinion, if management executes this strategy well, then investors’ confidence in the valuation multiple will improve.

3/5Crompton Consumer: The brokerage has a ‘buy’ call on the stock with a target price of 400, implying a potential upside of over 33 percent. Crompton 2.0 focuses on accelerating revenue with increased branding, distribution and R&D expenses. These costs are upfront in nature, thereby impacting the operating margin. HDFC believes revenue acceleration will be visible gradually but in the interim, cost increase may impact margin in the near term. In its opinion, if management executes this strategy well, then investors’ confidence in the valuation multiple will improve.

Kotak Mahindra Bank: The brokerage has a ‘buy’ call on the stock with a target price of  <span class='webrupee'>₹</span>2,205, indicating an over 24 percent upside. The lender delivered strong earnings in Q1, driven by healthy loan growth and trading gains, partly offset by marginally higher credit costs. Loan growth was broad-based across segments, with continued traction in unsecured retail in line with KMB’s efforts to improve its share of high-yield products. Deposit mobilisation also picked up pace primarily from the active money pool, addressing an immediate concern around the elevated loan-to-deposit ratio. While KMB’s move to chase better yields through a higher mix of unsecured has merit, HDFC sees challenges around elevated funding costs.  (REUTERS)

4/5Kotak Mahindra Bank: The brokerage has a ‘buy’ call on the stock with a target price of 2,205, indicating an over 24 percent upside. The lender delivered strong earnings in Q1, driven by healthy loan growth and trading gains, partly offset by marginally higher credit costs. Loan growth was broad-based across segments, with continued traction in unsecured retail in line with KMB’s efforts to improve its share of high-yield products. Deposit mobilisation also picked up pace primarily from the active money pool, addressing an immediate concern around the elevated loan-to-deposit ratio. While KMB’s move to chase better yields through a higher mix of unsecured has merit, HDFC sees challenges around elevated funding costs.  (REUTERS)

Berger Paints: The brokerage has a ‘buy’ call on the stock with a target price of  <span class='webrupee'>₹</span>700, implying a 25 percent upside. Berger Paints continues to fend off its market share amid increasing competitive intensity. The worst of the gross margin pain seems behind the industry. The management is confident of sustainably clocking 38-40 percent gross margin or 16-18 percent of Ebitda margin in FY24. ‘Therefore, we maintain our FY25/26 earnings-per-share (EPS),’ said the brokerage.

5/5Berger Paints: The brokerage has a ‘buy’ call on the stock with a target price of 700, implying a 25 percent upside. Berger Paints continues to fend off its market share amid increasing competitive intensity. The worst of the gross margin pain seems behind the industry. The management is confident of sustainably clocking 38-40 percent gross margin or 16-18 percent of Ebitda margin in FY24. ‘Therefore, we maintain our FY25/26 earnings-per-share (EPS),’ said the brokerage.

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