From Bandhan Bank to Ashok Leyland, stocks ripe for cherry-picking

With indices getting back on their feet, can stocks be far behind? Here is the list of 10 such stocks from BSE 100 with huge upside promise for investors willing to ride out any potential volatility

Most brokerages remain optimistic about India’s equity market in 2023-24 (FY24) regardless of its poor showing in the past year and a half. According to Bloomberg consensus estimates, the Street expects the S&P BSE Sensex to rally nearly 20 per cent from the current levels to reach 70,500 by the end of March 2024. By comparison, the benchmark index closed at 59,106.4 on Monday.

According to brokerages, the rally will be driven by growth in corporate earnings. Analysts expect the Sensex’s underlying earnings per share (EPS) to grow 18.6 per cent year-on-year in FY24 to Rs 3,621.4, from an expected Rs 3,054.4 at the end of 2022-23.

In contrast, the Sensex’s current trailing 12-month (ended December 2022) EPS is about Rs 2,635 per unit of the index. Simply put, brokerages expect the index underlying EPS to grow 37 per cent from the current levels in the next five quarters. 

The Sensex’s underlying EPS tracks the combined net profit of 30 companies that are part of the index.

Brokerages expect earnings growth to be broad-based, with companies across sectors expected to report higher earnings. This has prompted brokerages to raise the share price targets for a majority of the stocks under their coverage.

For instance, 99 of the 100 stocks in the BSE 100 Index are expected to appreciate from their current levels in the next 12 months, with a median price appreciation of 19.2 per cent. Of these, 46 stocks are expected to appreciate 20 per cent or more by the end of March 2024.

The most aggressive price target is for stocks in sectors such as banking, insurance, automotive, non-ferrous metal, and select picks in cement and consumer durables.

Listed are 10 select stocks from the BSE 100 Index with high upside potential in the next one year, according to Bloomberg data.

BANDHAN BANK

• Bandhan Bank’s stock has one of the biggest upside potential, according to the target price by brokerages
• Brokerages expect the stock price to rise 54 per cent over the next 12 months to Rs 301, from the present-day Rs 196
• In contrast, the stock price is down 40 per cent in the past year due to subpar/higher bad loans
• Brokerages expect a turnaround in the lender, driven by improvement in asset quality, higher earnings, and a sharp rise in its return on equity
• However, the bank’s microfinance portfolio remains a concern with high non-performing assets

UPL

• UPL (formerly United Phosphorus), India’s multinational agrochemical-to-specialty chemical maker, is seeing strong growth across key markets of Latin America, North America, and Europe, led by robust demand, higher prices, product launches, and market-share gains
• While operating profit margins were lower in the October-December quarter of 2022-23 (FY23), led by higher raw material costs and other expenses, a better product mix and improved efficiencies are expected to help scale up profitability in next few years
• Reduction of debt by $500 million in FY23 and up to $1.3 billion later, on the back of better operating performance, improved working capital, and restructuring of business verticals, will be a big leg-up
• Nuvama Research prefers UPL, given a favourable risk/reward, sustained growth in generics, and a structurally improving balance sheet with strong cash-flow generation expected in 2023-24

GODREJ PROPERTIES

• Realty major Godrej Properties reported its best-ever quarter in terms of bookings, with a value of Rs 3,252 crore in the October-December period — more than double recorded in the year-ago quarter
• The company’s sales velocity in its four key markets has been healthy. Its strong sales are expected to further improve, riding on the strategy of entering other micro markets and strong business development additions, observes Elara Securities
• While the company had an operating cash flow of Rs 550 crore, net cash flow continues to be negative due to investment in land. Anticipating cash flow distress, further rerating depends on this metric movement in the quarters ahead
• Geojit Research has upgraded the stock as the brokerage expects demand to remain healthy, in the face of rising mortgage rates

STATE BANK OF INDIA

• The Street remains upbeat on State Bank India (SBI) and expects a 37 per cent upside in its stock price from the current levels
• Brokerages expect SBI’s share price to rise to Rs 721 over the next 12 months, from the present-day Rs 527, driven by better-than-expected profit margins and a decadal high return on equity
• Brokerages estimate India’s largest lender’s net profit to grow 16-18 per cent year-on-year (YoY) in 2023-24 (FY24), while its net interest income is expected to rise 10-12 per cent in FY24
• SBI’s net profit was up 48.6 per cent YoY and net interest income up 16.8 per cent YoY in the first nine months of 2022-23
• Some analysts, however, expect a reversal in the bank’s earnings trajectory in FY24 due to a rise in bad loans and unrealised losses on held-to-maturity bond portfolio

ACC

• Adani Group-owned ACC is the top pick by brokerages in the cement space
• Brokerages expect the cement producer’s share price to rise 34 per cent to Rs 2,288 in the next 12 months, from the present-day Rs 1,708
• In contrast, ACC’s share price is down 25 per cent in the past year due to a decline in its earnings and selling in Adani Group stocks
• Brokerages are betting on price reversal, driven by faster volume and earnings growth in 2023-24 in the cement business
• Slowdown in volume growth and high energy cost, however, remain a challenge for cement makers, including ACC

MAHINDRA & MAHINDRA

• Passenger vehicle sales in March were at their highest ever at 35,967 units, up 31 per cent year-on-year. Strong order book for launches, ramp-up in production, and capacity expansion should help meet demand and maintain the monthly sales momentum
• March tractor sales, too, have been robust, with growth of 20 per cent. Higher crop output, firm mandi prices, higher minimum support prices, and the Mahatma Gandhi National Rural Employment Guarantee Act are expected to boost tractor demand in the months ahead, says the management
• Margins for both the automotive and farm equipment segments are expected to improve, given the hike in product prices, lower prices of raw material, and cost-cutting measures
• ICICI Securities recently upgraded the stock to ‘buy’ after a recent correction. The stock is trading at 12.5x its core net profit, compared to a long-term multiple of 15x

HINDALCO

• Aluminium and copper producer Hindalco remains a top bet for brokerages in the metal space
• Brokerages expect its share price to rise to Rs 532 in the next 12 months, from the current Rs 402
• In contrast, Hindalco’s share price has declined nearly 30 per cent in 12 months
• Hindalco’s net profit was down 22.2 per cent year-on-year (YoY) in the first nine months of 2022-23, while its net sales were up 20 per cent YoY in this period
• Analysts remain upbeat on Hindalco’s long-term prospects, driven by capital expenditure (capex) and higher volumes
• Brokerages say Hindalco has a comfortable balance sheet, which, along with internal accruals, will help the metal major fund its long-term capex plans — most of which is into downstream value-added projects

ICICI LOMBARD GENERAL INSURANCE COMPANY

• General insurance major ICICI Lombard General Insurance Company (ICICI Lombard) is the top pick of brokerages in the insurance sector
• Brokerages expect ICICI Lombard’s share price to rise 30.6 per cent over the next 12 months to Rs 1,397, from the present-day Rs 1,081
• By comparison, the stock is down about 20 per cent in the past year due to lower-than-expected growth in the company’s premium income and net profit in the nine months ended December 2022
• Brokerages expect a better showing by the company in 2023-24, driven by a decline in competitive intensity, as well as a reduction in its expense ratio

CROMPTON GREAVES CONSUMER ELECTRICALS

• In addition to expanding its portfolio to kitchen appliances, the acquisition of Butterfly Gandhimathi Appliances will help achieve cost synergies, expand its geographic presence, and create a base for product launches
• Jefferies Research expects Crompton Greaves Consumer Electricals to post a 28 per cent annual growth in net profit over the next two years, driven by synergies and margin expansion
• While strong distribution reach and a lean cost structure have helped the company gain market share in the past, some brokerages are cautious, given increased competition in the core electrical business and headwinds in the kitchen appliance segment 
• The stock, which is down 25 per cent over the past six months, has sharply underperformed the broader markets and is attractively priced after correction

ASHOK LEYLAND

• The commercial vehicle major posted better-than-expected sales in March, with domestic medium and heavy commercial (M&HCV) vehicle sales growing 25 per cent year-on-year
• The M&HCV sector volumes improved sequentially, led by higher replacement demand, advance buying in anticipation of price hikes due to Bharat Stage VI Phase 2 transition, and year-end buying to claim depreciation, according to JM Financial
• With freight rates witnessing gradual increase, the profitability of fleet operators is expected to improve, propping up Ashok Leyland
• SMIFS Research expects demand will remain healthy in 2023-24 and 2024-25, with a possibility of 10 per cent annual growth, driven by demand across sectors, scrappage buying, and higher spending expected from the government due to the national election in 2024