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Last week, market benchmark Nifty 50 halted its four-week winning streak, closing down more than 2 per cent amid a significant sell-off as investor caution prevailed, particularly regarding the high valuations observed in the mid- and small-cap segments, amid the lack of positive triggers and moderate global signals.
However, the long-term outlook for the market remains positive as India is also expected to witness strong economic growth in the next financial year.
Also Read: Indian Stock Market Still Attractive, Say Experts, Suggest Buying Stocks for Long Term
Recently, Fitch Ratings raised its forecast for India’s economic growth to 7 per cent for the next financial year (FY25).
The rating agency underlined that India witnessed GDP growth of over 8 per cent for three consecutive quarters and the growth momentum may moderate slightly in the last quarter of the current fiscal year, due to which, GDP growth India could reach around 7.8 percent. for FY24.
Also Read: Fitch raises India’s FY24 GDP growth estimate to 7.8%
Pankaj Pandey, head of retail research at ICICI Direct, advises buying quality stocks now for the long term. He recommended buying the following five stocks over the next one to two years. Have a look:
Gabriel India | Current Market Price (CMP): $307.65 | Target price: $440 | Improvement potential: 43 percent
Gabriel India (GIL) is one of the world’s top 10 shock absorber manufacturers serving the two-wheeler (2W), three-wheeler (3W), passenger vehicle (PV), commercial vehicle segments. (CV), railways and after-sales.
The company has reported significant gains in its market share in the 2W segment and has increased from 25 per cent in FY22 to 32 per cent, mainly following the superior performance of its key customers i.e. TVS, HMSI (Honda Motorcycle and Scooter India) and continues to be the market leader. with over 80 per cent market share in the 2W electric space in the high-speed category with all the prominent EV players like Ola Electric, TVS, Ampere, Ather, etc., as its key customers.
In the photovoltaic sector, its market share remained stable at 24 percent and the company strongly intends to increase it to 30 percent in the coming years.
However, the company’s market share in the overall utility vehicle (UV) space improved to 35 per cent thanks to new launches like XUV 700, Thar, etc.
To expand its presence in the best-selling SUV segment and catch up with the premiumization trend, the company has created a joint venture (JV) with Inalfa (the second largest manufacturer of solar roofs globally) for the manufacture of solar roof systems and related components for original equipment manufacturers (OEMs) in India.
“With volume growth and market share gains on the anvil, we generated a 10 percent net sales CAGR during FY23-26E. PAT CAGR over a similar time period stands at 24 per cent, delivering a 60 basis point improvement in EBITDA margins to 9.2 per cent for FY26E,” Pandey said.
It has a healthy balance sheet with a net cash surplus of almost $300 crore and strong capital efficiency (RoCE of almost 20 per cent).
“We take a positive view of the stock’s EV-immune product profile and the incremental role it plays in the premiumization space. We assign a Buy rating to the stock valuing it at $440 i.e. 25 times the price-earnings (P/E) ratio in FY26E,” Pandey said.
Also read: US inflation dents rate cut hopes; What will move the market now? This is what 5 experts say
Iconic cars | CMP: $715.05 | Target price: $920 | Growth potential: 29 percent
Landmark Cars is a leading automobile retailer of premium/luxury cars in India.
Its key OEM partners in the PV space include Mercedes Benz, Jeep, Honda, Volkswagen and Renault, with the recent additions of MG Motors, Mahindra and Mahindra and BYD.
It has also partnered with Ashok Leyland in the commercial vehicles space.
It has a network of 117 points of sale. It has a presence throughout the automotive retail value chain, including the sale of new vehicles, sale of pre-owned vehicles, after-sales service, spare parts, etc.
Landmark holds the top position as distributor in India for Mercedes Benz, Honda, Jeep and Volkswagen.
It plays into the growing penetration of luxury cars domestically amid rising numbers of HNI/UHNI, higher disposable incomes and growing consumer preference for premium products. Penetration of luxury vehicles in the Indian PV market is almost 1 per cent, one of the lowest globally, compared to almost 10 per cent in the major economies of China and the United States.
Interestingly, only about 4 percent of Indian millionaires buy luxury cars, compared to the global average of 60 percent.
Furthermore, the number of high-income Indian households, that is, households with more than $33 lakhs as annual revenue will more than triple by 2030 compared to 2018 levels, a tailwind for the luxury space.
Landmark also has a significant presence in the after-sales services segment, which is the most lucrative business proposition for the automobile retailer.
Gross margins in this business are healthy, almost 40 per cent, with EBITDA margins of almost 18 per cent and RoCE of almost more than 30 per cent.
Landmark generates almost 25 percent of its revenue from this segment, whose contribution to total EBITDA is pegged at almost 70 percent.
“We have a positive view on Landmark Cars amid the tailwind of premiumization in the domestic PV space, long-standing relationships with the company’s prominent OEMs, its diversification efforts including used car business and a healthy financial profile (ROCE: almost over 20 per cent and CFO performance: almost 7 per cent going forward),” Pandey said.
“We assign a Buy rating to the stock, thus valuing it at $920 i.e. 22 times PE in FY26E,” Pandey said.
Astra Microwave Products | CMP: $567.65 | Target price: $740 | Improvement potential: 30 percent
The company’s operating performance has improved significantly in recent quarters, primarily driven by the execution of higher margin domestic contracts.
The order book stands at $1,813 crore at the end of December 2023 (2.2 times trailing twelve month revenue) as order intake remained strong in $825 crore during the nine months of FY24.
Management expects almost $Rs 8,000 crore order opportunities for the company through 2028, primarily in space and defense electronics.
The overall operational performance is expected to improve further, mainly due to the changing contract mix (almost 80 percent of the order book is domestic and has higher value added).
Additionally, the government’s focus on indigenization and the growing use of electronics in defense and space presents a strong order book for the company.
“We estimate a revenue CAGR of 17 per cent during FY23-26E, while EBITDA and PAT are expected to grow at almost 25 per cent and almost 36 per cent CAGR respectively. Valuations at 30 times P /E in FY26E look attractive and offer decent upside potential,” Pandey said.
Greenply Industries | CMP: $229.10 | Target price: $320 | Improvement potential: 40 percent
Greenply Industries is one of the leading players in the plywood business in India with a capacity of 48 million square meters. annually.
It has also forayed into MDF board business with manufacturing in Vadodara, Gujarat at 800 CBM/day (expanding to 1000 CBM/day in FY25) with revenue potential of almost $650-700 million rupees per year).
Overall MDF imports, which are currently very high, are likely to moderate in FY25 with the BIS certification standard coming into effect from February 2024, making it tedious to increase costs of imported products (also due to higher freight costs).
“We expect an overall CAGR of 16 per cent during FY23-26, with a 10 per cent CAGR in plywood revenue. The MDF margin currently at 13.5 per cent is likely to expand by almost 20 percent on a normalized operating status and with higher value-added products. Given higher MDF margins in the mix, overall margins are likely to expand to 12 percent in FY26 from 9.1 percent percent, currently with a CAGR of nearly 24.6 percent during FY23-26,” Pandey said.
Most of the residential real estate from the last two to three years will start completion from FY25 onwards, driving the growth of building materials segment including wood panels (plywood, laminates and MDF ). Greenply will be one of the main beneficiaries of it.
Sudarshan Chemical Industries | CMP: $574.35 | Target price: $705 | Growth potential: 23 percent
Sudarshan Chemical is a leading player in the Indian color pigments 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) driven by better operating leverage,” Pandey said.
It has shown a sustained focus on margin-enhancing specialty pigments (two-thirds of the portfolio and improving) for which the company has incurred significant capital investments over the past three to four years. A recovery in ROCE (from 8 per cent in FY24E to 16 per cent in FY26E) is expected on the back of improved profitability and asset turnover.
“We value Sudarshan at 22 times FY26E earnings per share (EPS). $32 with a target price of $705,” Pandey said.
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Disclaimer: The opinions and recommendations above are those of individual analysts, experts and brokerage firms, not those of Mint. We advise investors to consult certified experts before making any investment decisions.
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