Brokerage firm Motilal Oswal has handpicked some major companies from across sectors like banking, hospitality, information technology, auto and food & beverages as some of its top picks for Diwali and Samvat 2078.
The selections are based on overall macroeconomic trends like high frequency indicators doing well and exports pushing the growth cycle in the second quarter of the current fiscal and the country managing to overcome.
State Bank of India
Investment rationale: Among public sector banks, SBI remains the best play on a gradual recovery in the Indian economy, says the brokerage firm as it has a healthy Provisioning Coverage Ratio (PCR), tier-I of 11.3 per cent, strong liability franchise and improved core operating profit. It appears well positioned to report strong uptick in earnings, led by normalisation in credit cost.
Recovery is underway in all of the three businesses of Tata Motors. While India commercial vehicles business would see cyclical recovery, JLR is witnessing both cyclical and structural, supported by a favorable product mix. This could drive recovery in JLR’s EBIT margins and leave scope for a surprise on profitability. The India personal vehicles business (34 per cent CAGR) would witness structural recovery aided by refreshed product portfolio and market share gains.
It expects Infosys to deliver top quartile growth performance in 2021-22 on the back of its strong capabilities and ramp up of large deal wins in 2020-21. Motilal Oswal expects Infosys to be able to sustain margin, led by strong top-line growth and resultant operating leverage, further flattening of the pyramid and continued operating efficiency measures.
Ultratech Cement enjoys leadership position across regions, which helps it maintain its premium pricing in most markets. It is setting up cement capacities of 19.5 million tonnes per annum, which would drive sales volume CAGR of 10 per cent over 2020-21 and 2023-24.
The brokerage firm expects Ultratech Cement to turn cash positive in 2023-24 and expect RoE to improve further to 15 per cent by 2023-24 on higher asset turnover, led by an enhancement in capacity utilisation, continued debt reduction, and improvement in EBIT margin.
Recovery post the second COVID wave has been faster than that in 2020-21 and continues to improve.
The outlook appears promising with on-trade channel returning to normalcy, increased occasions for home indulgence and the ongoing strategic review of half of the popular portfolio to be concluded by December 21, which would offer further primacy to the Prestige & Above (P&A) segment. Also potential success in the P&A segment in terms of both growth and margin and also with the new CEO taking over recently, raise the company’s chances.
Motilal Oswal expects gradual recovery in the current fiscal and sharp recovery in 2022-23 on a low base, improved occupancies, positivity in cost rationalisation efforts in 2020-21, an increase in food & beverage income as banqueting and conferences resume and finally higher income from management contracts.
The company is on the right track to grow its EBITDA as new revenue-generating avenues are seeing higher EBITDA margins.
VIP industries is the largest luggage manufacturing company and would immensely benefit from opening up of the economy and pick up in domestic leisure travel.