Zomato, ICICI Bank, Titan, and more: MOSL lists top large-cap stock picks for April (2024)

Amid this backdrop, domestic brokerage house Motilal Oswal has come out with its top 11 large-cap stock picks for the month of April. Let's take a look:

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L&T: MOSL predicts that Larsen & Toubro's (L&T) growth trajectory will be steered by an 18% surge in order inflows, propelled by a robust pipeline of prospects. Additionally, a gradual rebound in core Engineering, Procurement, and Construction (EPC) EBITDA margin is projected to reach 9.1% and 9.7% by FY25 and FY26 respectively. MOSL highlights the emergence of green shoots and expects ordering to gain momentum post elections, leading to a sector-wide valuation re-rating. L&T is strategically focusing on expanding its market share by targeting large-scale projects requiring high technical expertise. MOSL anticipates a consolidated revenue growth of 11% year-on-year, driven primarily by a 12% year-on-year growth in Core Engineering and Construction (E&C) revenue. Moreover, an improvement in Core E&C EBITDA margin to 9%, up by 50 basis points year-on-year and 130 basis points quarter-on-quarter, is expected, mainly due to the nearing completion of legacy orders.

SBI: MOSL underscores State Bank of India (SBI) as one of its favored choices within the sector. The brokerage estimates that credit costs will remain manageable at 35-40 basis points, paving the way for a robust 22% earnings compound annual growth rate (CAGR) over FY24-26E. This trajectory is expected to translate into return on assets (RoA) and return on equity (RoE) figures of 1.1% and 19-20% respectively over FY25-26. SBI has proactively fortified its balance sheet and boasts a robust provisioning coverage of 92% on its corporate book. Positioned well, the bank is poised to achieve a loan growth of 13-14% over FY23-26E, supported by an enhanced disbursem*nt rate for sanctioned loans and a resurgence in corporate demand. Moreover, SBI's asset quality remains sturdy, attributed to stringent underwriting standards, the improved financial standing of borrowers, and sustained deleveraging efforts within the corporate sector.

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ICICI Bank: According to MOSL, ICICI Bank (ICICIBC) is strongly positioned with a favorable liability profile, boasting a healthy blend of current account savings account (CASA) and retail deposits. Moreover, the bank maintains a controlled domestic credit-deposit ratio of 85%. MOSL anticipates robust loan growth, primarily driven by the Retail and SME segments, with potential provisions reversals in Asset Investment Fund (AIF) expected to bolster credit cost improvement. With a Tier-I ratio of 16%, ICICI Bank's capitalisation level remains robust, paving the way for a healthy growth trajectory, particularly supported by the steady influx of retail deposits. MOSL projects a loan book CAGR of 18% over FY24-26E for ICICIBC, alongside a return on assets (RoA) and return on equity (RoE) of 2.2% and 17.8%, respectively, in FY26E.

Coal India: MOSL believes COAL is well placed to capitalise on the growth opportunity ahead. It expects total sales of 90-92mt via e-auction in FY25E and 112-115mt in FY26E.

"COAL is confident of achieving 770mt of production during FY24, with five subsidiaries on track to achieve 100% of the annual production target. It is expected to sell 15% of its total volumes under e-auction at auction-determined prices in FY25E. Domestic power generation is expected to grow by 7.7% to 1,750 bu in FY24, which will drive coal demand. Dispatches to coal-fired plants till Jan’24 stood at 509mt (up 7.3mt YoY) and are expected to cross 610mt in FY24E. The company is expected to dispatch over 610mt to the power sector in FY24E, and volumes to the power sector are expected to grow 50mt in FY25E and FY26E," said MOSL.

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Titan: MOSL expects a strong revenue and profit after tax compound annual growth rate of 17% and 26% respectively over FY24-26 for Titan, attributing it to the company's resilient business moats that are not easily replicable. With a solid 8% market share in the sizable ₹5 lakh crore jewellery market, Titan possesses significant potential for growth. In its recent pre-quarterly update for 4QFY24, Titan revealed impressive sales growth of 17% YoY, with its domestic division achieving an even more robust surge of 19% YoY. Concurrently, Titan is expanding its store network and focusing on enhancing execution at existing stores, having added 340 jewellery outlets over the past two years. Notably, the company strategically reduced the gold premium compared to competitors, while implementing other measures to safeguard its operating margin. Despite the escalating competition, management maintains an optimistic outlook, targeting a jewellery EBIT margin of 12-13%, as emphasised by the brokerage's analysis.

M&M: MOSL anticipates M&M's auto business to serve as the primary growth catalyst over the next few years, driven by its robust order backlog and forthcoming product launches. The brokerage estimates a compound annual growth rate of 12%, 15%, and 16% in revenue, EBITDA, and profit after tax respectively, spanning FY23-26. According to MOSL, M&M is on course to achieve a 4QFY24-exit capacity of 49k units per month for SUVs. It foresees the SUV portfolio expanding by mid-to-high teens in FY25, a significant contrast to SIAM's industry projection of 3-4% growth for overall passenger vehicles and 10-12% for utility vehicles. MOSL predicts FY25 to offer enhanced growth prospects due to expectations of a normal festive season and a healthy monsoon. Key drivers of growth in FY25 are likely to include robust demand and new launches in the SUV segment, as per management guidance, and a rebound in the tractor segment following base correction, offering better growth prospects compared to FY24.

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GAIL: MOSL expresses optimism regarding GAIL as the capex cycle unwinds, foreseeing a 14% EBITDA compound annual growth rate over FY24-26E, propelled by increasing natural gas transmission volume and enhancements in the petrochemical segment. With a 2% dividend yield, GAIL presents an attractive investment opportunity. The company's 4.3tpd green hydrogen project is pivotal in achieving decarbonisation goals and aims for a long-term target of 20% hydrogen blending in natural gas. Additionally, GAIL's small-scale LNG project (SSLNG), currently in the pilot phase, is expected to play a crucial role in enhancing LNG availability in underpenetrated areas. MOSL anticipates a substantial upturn in the petrochemical segment's profitability during 2HFY25-FY26, as new capacity becomes operational and global low inventories drive restocking demand.

ITC: According to MOSL, ITC stands out as a solid defensive option amidst sectoral uncertainties, with its core business demonstrating resilience and offering a 3-4% dividend yield, making it an attractive choice in the current volatile interest rate environment. Despite challenges, other segments within the FMCG sector also displayed resilience, achieving a commendable 7.3% revenue growth, notably supported by the substantial contribution from digital and modern trade businesses, which accounted for 31% of total revenue. Meanwhile, ITC's agriculture business is concentrating on trading activities, with a new nicotine plant slated to commence operations in March 2024, as highlighted by MOSL. With an 8.5% earnings compound annual growth rate at the profit before tax level from FY18 to FY23, MOSL expects ITC to maintain a 7% earnings CAGR over FY24-26.

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HCL Tech: Given its capabilities and scale within the space, MOSL expects IT & Business service (75% of revenue) to deliver moderate growth of 9.5%/11.5% in FY25E/FY26E, aided by mega deal ramp-up and robust BTB.

"HCLT’s Service business has demonstrated strong performance and grew 15%+ YoY in CC terms each in FY22 and FY23. The revenue growth was supported by a balanced business mix and evenly distributed strengths across various verticals. HCLT derives 60% of its revenues from verticals that are relatively insulated from current macro uncertainties. Given its robust capabilities and scale in ER&D space, and continued investment to drive Digital engineering revenue with strong outsourcing opportunity should provide sustainable and predictable growth going forward," said the brokerage.

Cipla: MOSL continues to favor Cipla as its top pick within the large-cap pharma sector, highlighting the company's robust growth drivers in India, including its diversified growth avenues, strong ANDA pipeline, and reduced regulatory risk through filings from alternative sites. With an anticipated 13% earnings CAGR projected over FY24-26, Cipla is strategically focusing on bolstering its brand presence in both private and over-the-counter (OTC) markets, along with introducing new products. Moreover, the integration of Actor Pharma is poised to further propel growth. In India, the company is actively working on expanding its prescription base and reinforcing its position in trade generics and consumer healthcare segments, contributing to an expected 12% sales CAGR over FY24-26. Additionally, in the US generics segment, Cipla is planning differentiated launches in Peptide, Injectables, and Inhalation, aimed at sustaining growth over the coming years.

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Zomato: The brokerage maintains a positive outlook on Zomato's long-term growth potential, foreseeing limited intensification of competition despite the entry of ONDC into the market. Zomato has reaffirmed Blinkit's Adj. EBITDA break-even guidance by 1QFY25 and is poised to achieve robust year-on-year growth of 70% and 41% in FY24 and FY25, respectively. Blinkit is expected to outpace the food delivery segment due to its geographical expansion, enhanced order frequency, and a more stabilised competitive landscape in the quick commerce industry. Having achieved positivity at the margin level in 3Q, MOSL now projects Zomato to attain EBITDA margins of 4.5% and 10.0% in FY25E and FY26E, respectively.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 16 Apr 2024, 03:24 PM IST