Stocks to buy: Greaves Cotton, Bharat Forge, Home First Finance & Suprajit Engineering

Benchmark indices are likely to open lower on Wednesday, thanks to weak global cues. A host of stocks, however, could be in action, following brokerage updates.  Price targets on Greaves Cotton, Bharat Forge, Home First Finance & Suprajit Engineering suggest healthy potential upsides for the four stocks. 

Greaves Cotton | Nuvama | Target Rs 238

Nuvama Institutional Equities said Greaves Cotton’s e-mobility division reported its highest-ever quarterly volumes of 31,000 units (up 7 per cent sequentially), largely in line. But, the  e-mobility segment's margins were marginally lower sequentially as Greaves Cotton chose to reinvest in the business. Traditional business results are also in line, the brokerage said.

"H2FY23 EV sales can come under pressure with the transition to new safety norms from 1 December, 2022 to 1 April, 2023. However, it will be more than recouped in FY24. We value e-mobility at Rs 191 (3.7 times March 2024E sales), factoring-in potential ramp-up (before competition sets in)," the brokerage said.

Nuvama pegs Greaves Cotton's conventional business at 16 times FY24E and has upped its price target revised to Rs 238 from Rs 224 earlier.

Home First Finance | Motilal | Target Rs 900

Motilal said since its initiation on Home First in September, the stock price has corrected 22 per cent. While there could be other extraneous reasons that could have led to this sharp correction, Motilal said it strongly believes its confidence in the NBFC's ability to demonstrate healthy AUM growth, offset margin compression with a sustainable improvement in cost ratios complemented with benign credit costs still remain intact.

"Technical considerations such as the noise around the supply overhang from the existing private equity promoters aside, we believe that with an RoA/RoE profile of 3.8 per cent/16 per cent by FY25E, the current valuation of 2.9 per cent FY24E P/BV has made risk-reward very favourable for a high-growth good asset quality franchise," it said.

Bharat Forge | Nomura | Target Rs 1,021

Nomura India expects a strong commercial vehicle (CV) growth in India, even as it believes global CV revenues may be near the peak by FY24F. Nomura said given impressive progress on new initiatives, it sees upsides to earnings estimates, thanks to defence (artillery guns, 10 per cent revenue potential); new light weighting facilities for PVs, EV components like motors; and stronger growth in new non-Auto segments from Sanghvi/JS Auto.

"We raise our target EV/Ebitda multiple from 14 times to 16 times (15 per cent higher than its average of 14x) to factor in the upsides to estimates from new initiatives. We roll forward valuation to FY25F, discounted to Dec-23F (Sep-23F earlier). The stock is currently trading at 12.9 times FY25F

EV/EBITDA, which is attractive, in our view," it said.

Suprajit Engineering | Emkay Global | Target Rs 450

Emkay Global said Suprajit Engineering’s Q2FY23 revenue jumped 45 per cent, which were slightly above its estimates, thanks to higher revenue in non-auto cable and Light Duty Cable (LDC) segments.

Ebitda declined 2 per cent, which was 7 per cent above its estimate due to higher profitability across segments. Management expects further margin expansion on price increases, commodity deflation, and turnaround in LDC.

"Going forward, we expect FY23E revenue growth to be robust at 53 per cent. The uptrend is likely to endure with FY23-25E revenue CAGR at 12 per cent, led by healthy growth in underlying segments and better wallet share. Ebitda margin is likely to contract from 14.1 per cent in FY22 to 11.1 per cent in FY23, owing to LDC’s acquisition, and then recover to 14.8 per cent in FY25E, driven by better scale, improved net pricing, and expansion of LDC’s margins," it said.

The brokerage's constructive view on the stock is driven by cyclical recovery in the underlying industry; market-share gains vsi a vis the industry, thanks to decentralised plant locations and competitive pricing owing to scale advantages.

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