High Conviction Picks: A brokerage company has put down HDFC Bank Ltd, ITC Ltd, Maruti Suzuki India Ltd, ERIS Lifesciences Ltd along TCI Express Ltd off its lists of the top conviction selections.
In addition, the brokerage firm has also included Bharti Airtel Ltd, IndusInd Bank Ltd, Interglobe Aviation Ltd, Lupin Ltd, Mahindra & Mahindra Ltd, BEML Ltd, and Lemon Tree Hotels Ltd in the selections for conviction.
Let’s look at these recently added stocks-
Bharti Airtel
The brokerage says that Bharti Airtel Ltd has 355 million (35.5 crore) customers and 25 million (2.5 crore) customers in the postpaid category. Its ARPU (average revenue per user) is ₹ 211.
Bharti Airtel Ltd is continuing to concentrate on acquiring quality customers, transferring from postpaid to prepaid rural expansion, and growth in the B2B segment.
Bharti Airtel Ltd will profit from the increase in tariffs in the category of prepaid beginning in the first quarter of FY 2025.
However, we currently see a 15-20% increase in various postpaid plans, which will strengthen the figures in the second half of FY25.
The brokerage firm estimates that the company will add 13 million and 19 million new customers in FY25 and 2026 and the company’s ARPU will be ₹230/268 during this period.
IndusInd Bank
The brokerage believes that the bank’s credit growth can be at the level of 16-17% in FY24-26. This rate is higher than the growth rate of the banking system.
The bank’s NIM (net interest margin) can be at 4.3 to 4.4% during this period, which is the best in its category. Despite the increase in provisions, the bank’s profit can see an increase due to better loan growth and margins.
Due to this the bank’s core earnings CAGR can remain at strong levels of 19 percent in FY 24-26. However, low liability growth and buffer provision are a matter of concern.
But given the attractive valuation of 1.35x on FY 2026 estimated ABV, it seems that their impact has been digested.
Interglobe Aviation
Interglobe Aviation Ltd’s strategy focuses on expanding its international business by introducing Airbus A350 to A900 purchases and the introduction of new business classes.
Fuel prices, increasing competition, and P&W engine issues will be monitored to track this stock.
The brokerage has maintained EBITDAR estimates for Interglobe Aviation Ltd at the earlier level over the next two years, adjusting for high fuel CASK due to an increase in VAT and the inclusion of more fuel-consuming CEO aircraft through damp lease.
Revenue is expected to grow 16 percent annually in FY 2024-26.
Lupin
Lupin Ltd’s profit margins have seen significant growth over the past year with a double jump on its EBITDA.
This is driven by a better product mix, continued exclusive launches in the US, USFDA approval of production units, resumption of domestic formulations, and efforts to reduce costs.
The margins are expected to stay robust due to the pipeline’s strength across the US. Any competition with Spiriva and delays to the launch of new products in the US are the most significant threats to these estimates.
Mahindra & Mahindra
The brokerage expects Mahindra & Mahindra Ltd to continue to grow due to changing consumer preferences in the UV segment.
Mahindra & Mahindra Ltd is expected to see good growth going forward due to the positive response to its new UV models and capacity expansion.
This is why the company has forecasted an increase in the volume of cars by 12.6 % annually over FY24-26E. Further, tractor sales are expected to grow in mid to high single digits due to IMD’s forecast of above-average monsoon.
Considering the improved growth prospects, we expect the company’s PAT to grow 22.1% YoY during FY24-26E. The target price for the stock based on SoTP is set at ₹3,330.
The company’s core business is valued at 25x FY26E’s core earnings It assigns a value of 229 rupees for its EV business and 385 rupees for its listed subsidiaries.
BEML
The brokerage says BEML Ltd is well positioned for sustained and long-term growth on the back of a ₹580 billion (rail ₹440 billion and metro ₹140 billion) tender pipeline related to metro and Vande Bharat in FY25 and a ₹320 billion tender pipeline in FY26.
In addition, the modernization of armored vehicles as well as engines could give BEML Ltd orders of up to around 400 billion rupees over the next four to five years.
Lemon Tree Hotels
Lemon Tree Hotels Ltd’s decision to leave the low-yield air travel business was a reflection of confidence in the strong consumer demand. It improved pricing for the second quarter of FY25.
The majority of renovations that happen in the first quarter are expected to increase occupancy during the second half of FY25.
Renovations that usually happen in the first half are expected to boost occupancy in the second half of FY25.
The brokerage believes that the challenges acknowledged by Lemon Tree Hotels Ltd were driven by expectations of better recovery in the future.
The brokerage firm keeps its estimate of the CAGR for sales/EBITDA in FY24 to FY26E at 17/22 and sees the recent drop in the price of its stock as an opportunity to buy.
Quick Fact
Company name: Bharti Airtel
| Company name | Bharti Airtel |
|---|---|
| Customers | 355 million |
| Postpaid customers | 25 million |
| ARPU | ₹211 |
| Focus areas | Quality customers, rural expansion, B2B growth |
| Expected ARPU FY25/FY26 | ₹230/₹268 |
| Customer addition FY25 | 13 million |
| Customer addition FY26 | 19 million |
| Time for prepaid tariff rise | 1st quarter FY25 |
| Expected rise in postpaid plan | 15-20% |
Company name: IndusInd Bank
| Company name | IndusInd Bank |
|---|---|
| Credit growth | 16-17% FY24-26 |
| NIM | 4.3-4.4% FY24-26 |
| Core earnings CAGR | 19% FY24-26 |
| Concerns | Low liability growth, buffer provision |
| Valuation | 1.35x on FY26 estimated ABV |
Company name: Interglobe Aviation
| Company name | Interglobe Aviation |
|---|---|
| Strategy focus | International expansion, new aircrafts |
| Monitoring factors | Fuel prices, competition, engine issues |
| Revenue growth | 16% FY24-26 |
| EBITDAR estimate | Maintained |
Company name: Lupin
| Company name | Lupin |
|---|---|
| Profit margin growth | Significant, double EBITDA growth |
| Key drivers | Better product mix, US launches, cost reduction |
| Potential threats | Spiriva competition, US launch delays |
| Margin outlook | Strong due to US pipeline strength |
Company name: Mahindra & Mahindra
| Company name | Mahindra & Mahindra |
|---|---|
| Growth drivers | New UV models, capacity expansion |
| Car volume growth | 13% FY24-26 |
| Tractor sales growth | Mid to high single digits |
| Possible target price | ₹3,330 |
| Core business valuation | 25x FY26 core earnings |
| EV business value | ₹229 |
| Listed subsidiaries value | ₹385 |
Company name: BEML
| Company name | BEML |
|---|---|
| Growth potential | ₹580 billion rail & metro pipeline FY25 |
| Pipeline FY26 | ₹320 billion |
| Additional orders potential | ₹400 billion for armored vehicles and engines |
Company name: Lemon Tree Hotels
| Company name | Lemon Tree Hotels |
|---|---|
| Business shift | Left low-yield air travel segment |
| Focus areas | Occupancy increase, strong consumer demand |
| Expected growth | Boost in occupancy from 2nd half FY25 |
| Sales/EBITDA CAGR | 17/22% FY24-26E |
| Stock price drop | Seen as buy opportunity |
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