Trade Call: 7 Stock Picks For 2024 By Pankaj Pandey of ICICI Direct

In contrast with emerging markets, Indian indices achieved new all-time highs in 2023 and continued to be the best-performing market thanks to the restart of foreign inflows, with net inflows for the present year approaching $17 billion.

In the previous eight years, India's percentage in the Emerging Market Index has nearly doubled from 7% to 14%, and with its economic growth, this percentage is expected to rise even more. According to Mr. Pankaj Pandey, Head of Research at ICICIDirect, the aim for the Nifty is expected to reach 25,000 by December 2024. He has valued the Nifty at 20x PE based on FY26E EPS of Rs. 1,250 per share, while the Sensex is expected to reach 83,250.

Market Outlook

"Corporate earnings recovery has been healthy in the recent past with Nifty earnings growing at 22% CAGR over FY20-23. Going forward, introducing FY26E, we expect Nifty earnings to grow at a CAGR of 16.3% over FY23-26E. Our Dec 2024 target for Nifty is set at 25,000 wherein we have valued Nifty at 20x PE on FY26E EPS of Rs 1,250/share with corresponding Sensex target set as 83,250; offering a potential upside of ~15% from current index levels," said Pankaj Pandey.

"Introducing FY26E, we expect Nifty earnings to grow at a CAGR of 16.3% over FY23-26E. Our Dec 2024 target for Nifty is set at 25,000 wherein we have valued Nifty at 20x PE on FY26E EPS of Rs 1,250/share with corresponding Sensex target set as 83,250; offering a potential upside of ~15% from current index levels," he further added.

Stocks To Buy In 2024

Here are the 7 fundamental picks by Pankaj Pandey, Head of Research at ICICIDirect with buy calls for 2024.

UGRO Capital (CHOSEC)

UGRO Capital is a MSME focused non-deposit taking NBFC. The company offers diversified products including secured LAP, affordable LAP, unsecured business loans, machinery loans and supply chain financing. Selective lending comprising of 8 segments using data tech approach for under-writing remains core strength. Business distribution is carried using branch model (104 branches as of Sep'23), digital channel and partnerships with fintechs. Huge credit gap in MSME financing market and adoption of data backed selective approach enables opportunity for scalable business model. Expect AUM growth to remain robust at ~50% CAGR in FY24-25E to reach ~Rs 13,682 crore in FY25E with 50:50 mix of on-off book.

Enabling partner banks to achieve their priority sector targets through co-lending/ coorigination in a capital efficient manner remains one of the key rationales. Robust growth in AUM, operational leverage and focus on co-lending is expected to aid improvement in RoA to 2.7% in FY24E and further at 3.3% in FY25E. Focus on cashflow based lending coupled with strong in-house collection infrastructure provides comfort on asset quality. Utilizing proprietary tool (GRO score), to access repayment capabilities of customers through continuous monitoring enables early warning signals aiding collection efficiency. Thus, expect Stage 3 assets (at ~1.9%) to remain in a broad range and credit cost at ~2% ahead. Slippages from restructured bucket remains watchful, but given the size at ~0.6% of advances remains manageable. BUY with TP of Rs 350.

SBI Cards

SBI Cards, a subsidiary of State Bank of India (68.9% stake), is the second largest credit card issuer in India. Market share in terms of cards issued is ~19.2% and spends is ~18.0%. High margin business with strong return ratios, ~5% RoA and +20% RoE. Spends (Rs 79,000 crore in Q2FY24) and proportion of revolvers (at 24% of receivables) remain two primary constituents for a credit card business. While spends momentum continued to remain robust owing to healthy customer accretion and rising discretionary spends, proportion of revolvers has been on a gradually declining trend. Levers to boost spends include 1) introduction of UPI functionality on Rupay credit cards, 2) improve productivity leveraging co-branded partnership and 3) product innovation with continued focus on digital channel. Expect growth in spends at ~32% CAGR in FY23-25E.

Moderation in revolvers and increase in cost of funds to impart pressure on margins to be partially offset by higher EMI transactions. Thus margins to decline in FY24E at 11.3-11.4% in FY24E. However, being a beneficiary of anticipated reversal in interest rate cycle, expect margins to recover to 11.5-11.6% in FY25E. Regulations regarding increase in risk weight on unsecured retail credit may impact RoE, however, increase in yields & improving leverage to provide partial support. Gradual decline in customer acquisition cost by improving digital channel productivity is seen to aid moderation in CI ratio ahead. Cautious sourcing of customer with risk calibrated approach to acquire customers with higher propensity to revolve is seen to keep credit cost steady at ~6% in FY24-25E. BUY with TP of Rs 950.

NMDC

NMDC (National Mineral Development Corp.) is the largest iron ore mining company in India with annual production capacity of ~52 million tonne (MT). It is operating seven iron ore mining leases (five in Chhattisgarh & two in Karnataka) with total reserve at >1,500 MT. It supplies one of the highest quality iron ore with average 64% Fe grade. Despite being the world's second largest consumer of finished steel, India's per capita steel consumption of 77 per kg lags far behind the global average of 233 per kg. With the aim to increase the per capita steel consumption to 160 per kg by 2030, the government is targeting a crude steel capacity of 300 MT, inevitably driving the iron ore demand to ~480 MT. NMDC, as a prominent player with six decades of experience in the iron ore mining space, is well positioned to seize this growth opportunity.

NMDC's production volume remained flat over the seven-year period over FY14-21 at ~30-35 MT but is on the path to achieve the production of ~46 MT in FY24 and likely to cross ~50 MT production volume by FY25. We have baked in volume CAGR of ~13% to 55 MT by FY26E. This is amidst its ambitious target to expand its capacity to 67 MT by FY26 and further to 100 MT by FY30. NMDC is also exploring opportunities in other minerals such as bauxite, gold, diamond, lithium, etc., both in India and overseas. With 20 critical mineral blocks, including 5.9 MT lithium reserves, set for auction, NMDC is well poised to tap this new opportunity. We have a positive view on NMDC Ltd and assign BUY rating with a target price of Rs 250 wherein we have valued the company at 6x EV/EBITDA on FY26E basis.

Uno Minda (MININD)

Uno Minda has over the years evolved into one of the largest entities in domestic auto ancillary space, providing solutions in areas of comfort & convenience (automotive switches, interior & exterior lighting, acoustics systems, seating), aesthetics (alloy wheels), safety (airbags, sensors & controllers) and others. MIL is India's largest maker of automotive switches, horns, CV seat & PV alloy wheels and third largest automotive lighting player. FY23 segment mix - 4-W: 54%, 2-W: 46%; switches, lighting, castings, horns and seats comprised 29%, 23%, 19%, 7% and 9% of sales, respectively.

Uno Minda has a history of vast outperformance vs. user industries riding on growth in kit value, new client and product additions as well as inorganic acquisitions. It counts most major 2-W and PV OEMs as clients. OEMs form ~90% of sales with aftermarket constituting the rest. It is largely domestic-focused with India forming ~83% of sales. We like Uno Minda amid its track record of industry leading growth, penchant for content/vehicle increase, robust EV orderbook (peak annual revenues pegged at ~Rs 3,000 crore) & regulatory enabled additions (i.e. airbags). History of successful JVs with foreign partners & minimal EV risk in its existing portfolio are structural positives.

We build 19% sales CAGR over FY23-26E, with PAT CAGR placed at ~25% riding on operating leverage gains in the aforesaid timeframe. Consequent return ratios are expected at ~20% by FY26. We assign BUY rating to Uno Minda with a target price of Rs 810 wherein we have valued the company at 36x PE on FY26E EPS of Rs 22.5.

Greenply Industries

Greenply Industries (GIL) is one the leading players in the plywood business in India with capacity of 48 mn sq. mt. per annum. It has a distribution network of 2,300+dealers/authorised stockists pan-India. It has also forayed into the MDF boards business with manufacturing at Vadodara, Gujarat of 800 CBM/day with revenue potential of ~Rs 600-650 crore per annum.

The MDF plant which was operationalized in H1FY24, is likely to see ramp up gradually. Overall MDF imports which are currently very high, are likely to moderate from February, 2024 onwards as BIS certification rule will kick in making it tedious/ increase in costs for imported products. The capacity utilisation from the MDF plant likely to be ~45-50% in FY24E, would increase thereafter in FY25/FY26. The margin currently at 15.5% is likely to expand ~20-22% in a normalized operational state. We bake in revenues to reach Rs 470 crore in FY26 with margins of 20%.

The company expects 8-10% Plywood volume growth in FY24. We have baked Plywood revenues CAGR of ~10% over FY23-26 to Rs 2186 crore with margins of ~10%, driven by value segment growth. Given the higher margins of MDF in the mix, overall margins are likely to expand to 11.2% in FY26 vs. 9.2%, currently. The bulk of the residential real estate in the last 2-3 years will start hitting completion in CY24 onwards driving the building materials segment like Woodpanel (Ply, Laminates and MDF). Greenply will be one of the key beneficiaries of the same. We have valued the company at P/E of 26x FY25E with a TP of Rs 295.

Birla Corporation

Birla Corporation (BCL), the flagship company of the M.P. Birla Group, is primarily engaged in the manufacturing of cement as its core business activity with a presence in the jute goods industry as well. Cement business contributes ~95% to total revenues and has a total capacity of 20 million tonnes (mtpa) with 11 plants across Madhya Pradesh, Uttar Pradesh, Rajasthan, Maharashtra and West Bengal. With the commissioning of a new cement facility of 3.9 mtpa capacity at Muktaban (Maharashtra) in Apr-22, the company has expanded its reach into untapped markets of western region (Maharashtra & Gujarat) along with the earlier markets of Northern, Central and Eastern India.

On account of new capacity addition, the company's volume growth picked up in FY23 to 10.6% YoY after muted growth witnessed in FY21-22. With further ramp-up, the company's capacity utilization and cement volumes to pick-up further in the coming period. We estimate a volume CAGR of 7.3% (FY23-26E). Operational efficiency measures (raw material sourcing, usage of captive coal & power), govt incentives entitled to the Muktaban facility, softening fuel prices, increasing share of premium products and a further improvement in capacity utilization, we believe that the company's margins to improve significantly over FY24-26E. We estimate blended EBITDA/ton to improve to Rs 993/ton by FY26E from Rs 491/ton in FY23.

Valuation at 7.2x EV/EBITDA on FY26E basis looks attractive considering the multiple tailwinds. We value Birla Corp at Rs 1755 i.e. 8.5x FY26E EV/EBITDA.

Grindwell Norton

Grindwell Norton (GNL) is the market leader in the India abrasive market with ~27 % market share. The segments include abrasives (contributing ~50 . 2 %), ceramics & plastics (41 . 6 % ) and IT services & others ( 9 . 1 % ). The Abrasives industry in India currently has two major players offering a full range of Abrasives products, one of which is GNO. GNO has a leadership position in several product -market segments.

Grindwell Norton (GNL) has doubled its revenues in 6 years from Rs 1364 crore in FY17 to Rs 2541 crore in FY23. Full-year FY23 revenues grew 26 % with good volume growth ~10 % and price value mix has contributed to overall growth. One-third of total revenues comes from PRS Permacel. EBITDA margins profile moving towards 19 -20 % from 16 -17 %. The company will maintain a similar trajectory, going forward. The company has invested heavily in the last 2 . 5 years and did a capex of Rs 424 crore in growth markets. GNL's average 10-year capex is at Rs 54 crore.

For FY24, the company expects a similar kind of capex like last year. All segments have done quite well. Abrasives continue to maintain a growth rate higher than the GDP rate and other business are moving smartly contributing ~15 % CAGR over FY17 -23. Grindwell Norton is extremely bullish on India as it is becoming a base.

Going ahead with strong exposure of GNL towards all core sectors of the economy, abrasives and ceramics segment will bounce back and grow in double digit. We expect, abrasives and ceramics segment to grow at a CAGR of 12.3 % and 16.3 % over FY23 -FY26 E . Overall revenue and PAT are expected at 14 % and 16 % over FY23 -FY26 E. We value the company at 52 x FY26 E EPS to arrive at a fair price of Rs 2700 per share.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.