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Brokerage pick: ICICI Securities bullish on this large-cap stock; here's why 

Brokerage pick: ICICI Securities bullish on this large-cap stock; here's why 

ICICI Securities has gained 26% in one year. Long-term investors have made big gains in this large-cap stock.  

The stock closed two per cent lower at Rs 2119.90 against the previous close of Rs 2162.85 on BSE The stock closed two per cent lower at Rs 2119.90 against the previous close of Rs 2162.85 on BSE

Brokerage house ICICI Securities is bullish on off-highway tyres major Balkrishna Industries and has a 'Buy' rating on the stock with a target price of Rs 2,516 per share. 

The stock closed two per cent lower at Rs 2119.90 against the previous close of Rs 2162.85 on BSE. So, if you compare it with the current market price, the stock has an upside potential of around 20 per cent. 

It has gained over 26 per cent in one year. However, long-term investors have made big gains by investing in this large-cap stock as it has surged around 1,400 per cent in the last ten years. 

With a market capitalisation of more than Rs 40,000 crore, the shares are trading higher than five day, 20 day and 50 day moving averages but lower than 100 day and 200 day moving averages. 

ICICI Securities noted that Balkrishna Industries’ (BIL) key export markets reported strong demand trends with Feb’22 industry exports up 20 per cent YoY. Though the data indicates continued momentum in OTR segment and sturdy agri-demand at around 20 per cent YoY, overall sales are flattish QoQ, in line with management commentary of lower supply due to capacity constraints. 

It added that the data continues to support the robust demand momentum driven by both agri and OTR segments (FY22-YTD industry exports are up ~47 per cent YoY on USD basis). 

However, it noted that the recent inflation (12 per cent since Q3FY22) in international rubber prices coupled with capacity constraints are likely to sustain pressure on H1FY23E margins. 

Decadal-high US new housing construction starts and higher infra/mining investments across key markets of US/EU lend realism to our revenue growth assumption of 15 per cent CAGR over FY22-FY24E (12 per cent growth in volumes). 

The brokerage firm pointed out that with its cost arbitrage advantage vs peers, BIL is able to price its products at discount to global peers and in turn make a RoCE of ~20-25 per cent, thus enabling sustainable free cash flow (FCF) generation.  

"Factoring-in 11.5 per cent WACC and five per cent terminal growth in DCF, we arrive at a multiple of ~22x FY24E P/E and maintain our target price of Rs 2,516. We believe any stock price correction in light of crude price surge and capacity constraints provides a good opportunity to buy," ICICI Securities said in its report. 

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