Stocks To Buy, Hold For Years From Brokerage Firm Motilal Oswal

Important Highlights from Motilal Oswal

Since March of this year, the midcap 100 and smallcap 100 have outpaced the Nifty. The midcap 100 and smallcap 100 have had 13/8 months of positive returns in a row.

This is the highest level ever for the Midcap 100, and the second highest level ever for the Smallcap 100.

The re-rating component has diminished, but profits growth has been a primary driver of Nifty and Midcap 100 index total gains over the last 5 years (June 2016-June 21).

The earnings for FY22 are projected to start off strong, with Nifty earnings expected to increase by 94 percent year on year. Lockdowns in April and May, on the other hand, will result in a 19 percent Q-o-Q drop in earnings for the MOFSL/Nifty universe.

Stocks To Buy, Hold For Years From Brokerage Firm Motilal Oswal

Stocks To Buy From Brokerage Firm Motilal Oswal: Bajaj Finance

Bajaj Finance Limited is an Indian non-banking financial organisation that is a subsidiary of Bajaj Finserv. Consumer financing, SME and commercial lending, and wealth management are all areas where the organization operates. The stock returned 154.08 percent over three years, compared to 43.73 percent for the Nifty 100.

"The Annual Report of Bajaj Finance (BAF) gives an overview of the management's two-pronged approach for FY21: a) conservatism and prudence, and b) the acceleration of the business transformation plan. BAF is confident in reaching better volumes, a leaner cost structure, and a robust digital platform enabling superior services across the value chain as a result of the many initiatives taken during the epidemic. The management has made the best of a bad situation by speeding up the digitalization process across the board. We believe that COVID's short-term stress will be fleeting, and that BAF has strong foundations in place to capitalise on recovery. Despite the earnings pressure, ROEs are projected to be healthy at around 20%", the report said.

"The overall customer base increased 14% YoY to 48.6m, significantly below the earlier range of 25-30%. In 1HFY21, the management adopted a highly risk-averse stance, with the absence of updated bureau scores and prudence due to the lack of clarity on macros," added further.

Valuations

Stocks To Buy From Brokerage Firm Motilal Oswal: Vinati Organics

Vinati Organics Ltd., founded in 1989, is a Chemicals-focused Mid Cap business with a market capitalization of Rs 20,086.18 crore. Stock appreciated 303.54 percent over three years, compared to 47.0 percent for the Nifty Midcap 100.

"The FY21 Annual Report from Vinati Organic (VO) demonstrates the company's capacity to adapt to change while achieving strong performance throughout the year. Despite these difficulties, the company was able to preserve its market-leading position in the ATBS and IBB divisions. The business is optimistic in achieving growth and stronger synergies with ATBS capacity development, the addition of Butyl Phenols, and ongoing capex for further IB derivatives", the report said.

The stock still has a BUY rating from us, with a target price of INR2,170.

For the past three years, the company has showed a good profit growth of 23.24 percent. Vinati Organics has a ROA of 16.96%, which is a positive indicator of future performance, it's always preferable to have higher values. Vinati Organics has a Current ratio of 6.17 .

The stock is trading at 36x FY23E EPS of INR50.5 and 26x FY23E EV/EBITDA, with 25 percent return ratios (+600bps v/s FY21). It has a 1.3x fixed asset turnover, which is expected to double over the next three years. We forecast a 34% EBITDA CAGR over FY21-24E and value the company at 43x FY23E EPS to arrive at a target price of INR2,170. The stock is still rated BUY by us, the brokerage said.

Valuations

Stocks To Hold: Bajaj Auto

Prudent cost management resulted in increased margins.

The BJAUT FY21 annual report highlights the company's resilient performance in a year impacted by the COVID-19 outbreak, which was driven by continuous premiumization and a focus on R&D.

Its emphasis on exports and Premium Motorcycles enabled it to outperform the 2W industry during a difficult year. In FY21, the contribution of exports to net sales increased by 480 basis points to 46.8 percent. While its domestic Motorcycle market share fell marginally (50bp) to 18%, this was primarily due to a 770bp loss in the Sports segment due to cannibalization by the Pulsar 125cc, according to Motilal Oswal report.

Valuations at 20.7x/17.9x. FY22E/FY23E consolidated EPS largely capture in an expected recovery. We maintain our Neutral stance, with a TP of INR4,211/share (~18x Mar'23E consolidated EPS), it added.

Under the revised policy, dividend payout is linked to the level of cash on its books, as follows:

Cash over INR150b - dividend payout of 90% of PAT
Cash at INR75-150b - dividend payout of 70% of PAT 
Cash below INR75b - dividend payout of 50% of PAT

Valuation

Disclaimer

All of the stocks mentioned above were selected from Motilal Oswal's brokerage report. Stock investing is risky, and investors should conduct their own research. The author, brokerage firm, or Greynium Information Technologies Pvt Ltd are not liable for any losses incurred as a result of a decision based on the above article. As a result, investors should proceed with caution, as markets have risen significantly.