The Indian market fell in May following three months of continuous rises. This month's drop has been driven by rising US bond yields, sustained foreign investor withdrawals, and investor concern as a result of lingering global uncertainties surrounding the Lok Sabha election.
Overall, brokerage firm Motilal Oswal retains a positive outlook on the market, believing that every dip can be considered as a buying opportunity for long-term investors. It has identified ten large-cap equities that investors might buy over the remainder of this month, ahead of the election results. Let us have a look.
L&T: MOSL highlighted that green shoots are visible, and ordering momentum is projected to pick up in the post-election period, culminating in a valuation re-rating for the entire industry. L&T is aiming to increase market share by focusing on large-scale projects that demand advanced technical skills. The brokerage anticipates 11% year-on-year growth in overall revenue, with Core E&C revenue growing at 12%. As legacy orders near completion, a Core E&C EBITDA margin of 9% is envisaged, up 50 basis points year on year/130 basis points quarter on quarter. L&T's growth is forecast to be driven by an 18% increase in order inflows, supported by a solid prospect pipeline, as well as a modest improvement in core EBITDA margin.
SBI: SBI has quickly recovered from a loss of ₹6,500 crore in FY18 to profits of ₹61,100 crore in FY24, according to MOSL. It stated that the lender's business growth remained strong, with a positive recovery in the corporate sector. SBI's asset quality remained strong as GNPA improved and slippages decreased. The GNPA/NNPA ratios have reduced to 2.24% (the lowest in more than ten years)/0.57% as of 4QFY24, it noted. The lender reported a consistent quarter with stable revenue growth, while good asset quality allowed the bank to retain tight control over provisioning charges. MOSL predicts a RoA/RoE of 1.1%/18.5% for FY26E.
ICICI Bank: ICICI Bank recorded a strong performance in the fourth quarter of FY24, with net earnings growing by 17% year on year. Credit growth was high at 16% YoY/3% QoQ, driven by strong performance in the Retail, SME, and BB groups. Deposit growth exceeded expectations, reaching 20% year on year. According to MOSL, the consistent mix of a high-yielding portfolio (Retail/Business Banking) and ongoing traction in BB, SME, and secured retail fostered broad-based growth, allowing for strong business diversification. The brokerage anticipates the bank to maintain a ~14% CAGR in PAT from FY24-26E, with a RoA/RoE of 2.26%/18.0% in FY26.
MOSL's preferred metals and mining partner is still Coal India. COAL's prognosis remains positive, with solid volume forecasts, healthy e-auction premiums, and lower costs, according to the business. In Q4, COAL production was 242mt (+8% YoY/+22% QoQ), with dispatches of 201mt (+8% YoY/+5% QoQ). COAL supplies 90% of its output to the power industry, whereas thermal electricity accounts for more than 80% of total power generation in India. Coal India has made a long-term commitment to satisfying the power sector's growing coal demand. It aims to generate 838mt in FY25, with e-auction dispatches accounting for 15% of total volumes, according to the brokerage.
Titan: Titan is one of the few consumer companies that has consistently generated sales despite its enormous customer base and discretionary product offerings. According to the brokerage, this illustrates its strong brand positioning and franchising capabilities. It further noted that the company is on track to exceed its current jewellery revenue target of 2.5x FY22 revenue by FY27, indicating an extraordinary 20% CAGR over that period.
MOSL predicts that the progressive improvement in the studded ratio will enable an increase in gross margin in the future. With a current market share of 8% in a ₹5 lakh crore market, there is significant potential for growth. Titan's outstanding growth potential, positive industry trends, and robust balance sheet make it an enticing choice in the discretionary sector. Management expects the jewellery EBIT margin to be 12-13% in FY25, according to the brokerage.
M&M: According to the brokerage, M&M is on track to attain a Q4FY24 exit capacity of 49k SUVs per month. It anticipates the SUV portfolio to rise in the mid-to-high teens in FY25, compared to SIAM's industry projections of 3-4 percent for overall PVs (passenger vehicles) and 10-12 percent for UVs (utility vehicles). MOSL believes FY25 will have stronger growth prospects due to a typical Christmas season and the forecast of a healthy monsoon. MM's vehicle business is likely to be a key growth driver over the next few years, thanks to a solid order backlog and new launches. It predicts a CAGR of 12 percent/15 percent/16 percent in revenue/EBITDA/PAT for FY23-26. However, the near-term picture for tractors remains bleak, it warned.
Hindalco: According to MOSL, Hindalco has committed to a massive $6 billion in multi-locational, multi-product expansion capex over the next five years. Meanwhile, Novelis met its EBITDA target of USD525/t in Q4 and anticipates significant growth in the medium term, owing to a variety of operating levers: 1) capacity development, 2) favorable pricing, 3) increased recycling content, and 4) operating leverage. Novelis has submitted draft IPO documents to the SEC. The aforementioned IPO is likely to be an OFS and will assist in unlocking value for the subsidiary. Volume growth across geographies is projected to be stable in the future. Hindalco forecasts Novelis to generate EBITDA/t of USD600 in the medium to long term, according to MOSL.
ITC: MOSL believes that the resilience of ITC's core business in an uncertain sector, along with a 3-4% dividend yield, makes it a good defensive investment in the present unpredictable interest rate environment. Other FMCG segments continued to perform well, with revenue increase of 7.3%. Digital and modern trade enterprises contributed significantly, accounting for 31% of total revenue. Furthermore, the agriculture industry is mostly focused on trading, with a new nicotine facility expected to begin operations in March 24. The earnings CAGR at the PBT level was 8.5% from FY18 to FY23. MOSL forecasts ITC's earnings to grow at a 7% CAGR over FY24-26. Concerns include increased competitive pressure (local and regional players) and weak demand.
HCL Tech: According to the brokerage, stronger exposure to Cloud, which accounts for a larger percentage of non-discretionary spending, provides greater resilience to HCL Tech's portfolio in the present environment, with increased demand for Cloud, Network, Security, and Digital workplace services. The Q4FY24 new Deal TCV was a solid $2.3 billion. HCLT has maintained its margin forecast band of 18-19% for FY25 and aims for a 19-20% margin in the long term. MOSL anticipates HCLT to emerge stronger in the medium term as a result of its IMS and Digital capabilities, as well as strategic alliances and cloud investments. It expects an FY25 EBIT margin of 18.6%, resulting in an INR PAT CAGR of 12.8% over FY24-26.
Zomato: MOSL remains optimistic about Zomato's long-term growth prospects and does not anticipate more competition despite ONDC's debut into the industry. Zomato maintained Blinkit's adjusted EBITDA break-even guidance for Q1FY25 or earlier. Zomato is predicted to grow by 70%/41% year on year in FY24/FY25, with Blinkit exceeding the food delivery sector due to regional expansion, increased order frequency, and moderation in a competitive environment in the rapid commerce market, it said. A
After turning positive in the third quarter, MOSL now expects Zomato to produce a 4.5%/10.0% EBITDA margin in FY25E/FY26. MOSL also stated that the meal delivery industry in India is still in its early stages, with a long runway for expansion. With a dominant market position and significant growth in the meal delivery sector and Hyperpure, Zomato is expected to post a 38% Adj. revenue CAGR in FY24-26.