Top fundamental picks by HDFC Securities

Market


The Indian stock market welcomed the new year with enthusiasm as Sensex gained 327 points and Nifty earned 92 points on Monday. Sensex regained the 61,000-mark and closed at 61,167. Whereas, Nifty closed just shy of 18,200, at 18,197. These benchmark indices started at a slow pace in the beginning of the day.

Given the geopolitical uncertainties, high inflation and probability of a slowdown this year, experts are of the view that the equities around the world may come under pressure in the first half of this year. Meanwhile, some also say that emerging markets equities might benefit from benign global markets. 

Looking at the key factors behind the positive projections of the Indian economy and individual health of companies, HDFC securities has picked Jindal Drilling & Industries, RACL Geartech and Vardhman Special Steels, as its fundamental picks for the next two-three quarters.

Jindal Drilling & Industries

Recommendations: Buy in the band of 284-290 & add more on dips to 257-263 band| TP: 320| CMP: 296.15

According to HDFC Securities, the base case fair value of the stock is 320 and the bull case fair value is 360 over the next 2-3 quarters. Investors can buy the stock in the band of 284-290 and pump in more investments if the price dips to 257-263 band

The leading oil and gas-producing company will gain from the rising global demand for oil and increasing prices of natural gas and oil. Jindal Drilling & Industries Limited (JDIL) is producing natural gas and oil for the last 30 years.

Based on the company’s current rig contracts and its performance in previous quarters, the brokerage firm expects its revenue to grow at a CAGR of 33.6%. In addition to that, the company’s EBITDA and PAT will grow at the rate of 50% and 67.7% over FY22-FY25E.

RACL Geartech Ltd.

Recommendations: Buy in 710-725 band & add more on dips in 640-655 band | TP: 785| CMP: 722

As the company automotive gear manufacturing company, RACL Geartec Ltd(RGL), has maintained a strong growth track record, HDFC Securities has suggested that investors buy the stock in 710-725 band and add on dips in 640-655 band for a base case fair value of 785 and bull case fair value of 855 over the next 2-3 quarters.

Recently, the company has added ZF as a customer. ZF is one of the largest car parts suppliers in the world. It has been getting increasing orders from ZF. Capacity expansion is done only after receiving firm orders curtailing idle capacity and protecting the company from taking unnecessary debt. The company aims to become a 500 cr company by FY25.

It will also seek indirect benefits from the European energy crisis as the increasing cost of manufacturing products in Europe will allow it to tap into some more contracts. Looking at the industry’s inclination towards Electric vehicles, RGL will also plan to expand its operations and manufacturing in the EV sector.

RGL has bagged some significant programs over the last couple of quarters including chassis components from ZF for a European Luxury Car Manufacturer, steering shafts for a rear steering actuator from ZF for Porsche, chassis components from ZF for BMW, transmission components from ZF for a resourcing project, harvester combine parts for Escorts Kubota. The slump in the automotive industry, costlier factor input, and currency volatility, are possible risk factors for RGL.

Vardhman Special Steels Ltd.

Recommendations: Buy in 295-300 band and add on dips to 255-260 band | TP: 328| CMP: 309

Looking at the booming trend in the automotive industry, the brokerage firm has recommended that investors pump in money in Vardhaman Special Steels Ltd. which is a leading steel bar producer for automotive applications. Investors can purchase the stock in 295-300 band and add on dips to 255-260 band for a base case target of 328 and bull case target of 359.5 for 2-3 quarters.

The rise in demand in the automotive sector, healthy offtake from its customers, and expected traction in exports can boost the company’s growth in the near term. The company caters to various sectors such as engineering, automotive, tractor, bearing, and allied industries. Its parent company, Vardhman Textiles (VTXL), is the largest shareholder in VSSL (~60.8%). the current level of 2 Lakh MT, which will mainly be funded through equity infusion and internal accruals. 

Backing by a strong industry leader, growing automotive sector, Indian government’s PLI scheme for steel industry, and moderate debt levels can help the company in attaining strong growth. Volatility in EBITDA margins, user segment slowdown, dependence on steel supplier Aichi Aichi Steel Corporation, and price volatility of raw materials are some of the hurdles on the company’s path of growth. 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.


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