Add these 16 stocks to play the unlock theme

The steady decline in Covid cases has led to the lifting of certain lockdown restrictions in the states of Maharashtra, Uttar Pradesh and West Bengal. This in turn is fueling the ongoing rally in stock exchanges with Nifty on a record-breaking spree that has touched a new high of 15,705 in today’s trade.

Axis Securities is of the opinion that if the government is able to arrest Covid 2.0 spread completely in the next 15-30 days, the unlock trade will play in the market and the current rally will sustain. Any delay in unlocking the economy beyond June will be a key risk in the near term. The Indian market may witness some profit booking as it has already crossed its previous high but the long-term structural story stays intact. The broader market looks attractive at the current level and the sector rotation will play a crucial role to generate alpha in the near term.

The brokerage firm has shortlisted 16 stocks to play on the unlocking theme. Here are the top picks.

ICICI Bank | Target price: Rs 750

The management expects the NIM to be steady as interest reversals decline and excess liquidity is utilized with growth picking up. Asset quality is likely to strengthen considering adequate provisioning and stable credit costs QoQ. Slippages and restructuring levels have tapered down and indicate a better asset quality going forward.

Higher loan growth, improving operating profits, strong provision buffer coupled with strong deposit franchise will help return on average equity/return on average assets expansion over FY22-23E. Valuation-wise, the bank has further scope for expansions vis-à-vis its peers.

SBI | Target price: Rs 510

SBI’s unsecured lending profile is strong with >90% comprising salaried government employees. Retail book traction at 16% remains healthy, is supported by home loans and express credit, and further improvement is likely in coming quarters. Bank’s market share in Home loans and Auto Loans is +30%. The management indicated the impact of the second wave of Covid-19 is manageable.

Given a healthy PCR, robust capitalization, a strong liability franchise, and an improved asset quality outlook, SBIN continues to be the best play among PSU banks on the gradual recovery in the Indian economy. Credit costs normalization and improved operational performance will lead to double-digit return on equity of 13-15% by FY22-23E.

Federal Bank | Target price Rs 100

Federal Bank is cautiously building the loan mix toward high-rated corporate and retail loans. The bank’s liability franchise remains strong with CASA (current account saving account deposits) plus Retail TD (term deposits) of +90% and one of the highest LCR amongst banks.

Key positives are increasing retail focus, strong fee income, adequate capitalization, and prudent provisioning. Given strong underwriting standards, changing loan mix, and strong retail deposit franchise, the bank’s valuation to improve from current levels if asset quality trends are maintained and ROA (return on assets) improvement keeps on track.

Equitas Small Finance Bank | Target price: Rs 70

Equitas Small Finance Bank is eligible for re-rating given its improving profitability, asset quality, and return ratios. The bank’s plan to apply for a reverse merger with Equitas Holdings in Sep’21, on completion of 5 years of commencing banking operations, coupled with its application for a universal banking license further supports our rerating rationale.

Varun Beverages | Target price: Rs 1,200

Despite Q2CY21 has been impacted owing to Covid 2.0 led lockdown across states, the business would report healthy growth going forward. Varun Beverages is likely to register Revenues/Earnings CAGR (compounded annual growth rate) of 23%/70% respectively over CY20-22E on account of a low base in CY20. This growth will be driven by further in-roads in underserviced South and West territories, distribution-led market share gains, debt reduction and positive cash flow generation.

Camlin Fine Sciences | Target price: Rs 215

The commercialization of the Ethyl Vanillin plant will create an Rs.400-500 Cr addition to the top line in FY23 while the Dahej plant scale-up will lead to cost savings enhancing the EBITDA Margins further. With regards to the Lockheed Martin deal, it has announced the commercialization of the Gridstar battery. Owing to this Camlin Fine Sciences is expected to register Revenue/EBITDA/PAT CAGR of 20/36/73% respectively over FY20-23E.

Mold Tek Packaging | Target price: Rs 585

Mold-Tek Packaging to register Revenue/EBITDA/PAT CAGR of 18%/23%/30% respectively over FY20-23E. For FY22, the management remains hopeful of scaling back to a positive volume growth trajectory despite Q1FY22 being impacted by the lockdown.

PI Industries | Target price: Rs 2,875

PI Industries is well placed from a long-term perspective given its strong product portfolio of existing and new launches and sustained 3-4 new product launches annually. Clear revenue visibility in the CSM segment and strong domestic formulation business with foray in the fast-growing adjacent Pharma CSM segment.

Amber Enterprises | Target price: Rs 3,290

While the short-term outlook remains uncertain due to lockdown-led restrictions, the long-term growth remains intact. Moving forward, demand recovery post-lockdown relaxations, foray into the Commercial AC segment, entry into export markets, participation in the PLI scheme, and increasing opportunities in the mobility business (Sidwal subsidiary) will drive the company’s long-term growth.

Minda Corporation | Target price: Rs 148

Minda Corporation’s profitability of the company to improve over FY21-23E in the backdrop of a wide product basket, robust market share, new product addition, and operating leverage. Growth will be led by improved content-per-vehicle as well as higher indigenous content. Return ratios would improve by FY23 led by improving profit margins and asset turnover crossing 2x (peak of 3x seen between FY13-16).

Steel Strip Wheels | Target price: Rs 908

Being in an oligopoly market, Steel Strip Wheels commands leadership with a ~55% market share in the steel wheel rims and ~20% in alloy wheels. The company will outperform the industry growth given its sticky relations with OEMs across all the auto segment viz., 2/3W, PV, CV, and Tractors. Expect Revenue/EBIDTA (earnings before interest depreciation tax and amortisation)/PAT (Profit after tax) CAGR of 34%/43%/139% over FY20-23E.

Lupin | Target price: Rs 1,400

Lupin has taken several steps to improve overall EBITDA margins that include the launch of value-added products including biosimilars could improve gross margins. Alternate vendor strategies to bring down the overall procurement costs. Bring down manpower costs to rationalize expenses for the launch of new products. Rationalization of R&D costs to have more focus on complex products (8% R&D costs over the long term) and lower cost in Solosec promotions could improve EBITDA margins by 590 basis points over the period FY20-FY23E.

Tech Mahindra | Target price: Rs 1,130

Tech Mahindra has a resilient business structure and better revenue growth visibility from a long-term perspective but trading at discount as compared to its Indian peers. The management sees initial traction in 5G both on (a) Communications side where traction is visible in modernization IT, network, process and systems, and (b) Enterprise side where it signed 3 Manufacturing 5G solutions in Europe and 1 in the US. While the timing of pickup is difficult to predict, the management expects 5G growth to pick up in FY22 or at most in FY23.

Bharti Airtel | Target price: Rs 700

Airtel sees headroom to gain market share with opportunities in cloud communication by offering voice, video, chat through API; and cybersecurity integrated with connectivity for SME; (iii) IOT which was launched recently. The company is to focus on partnerships for cloud and cybersecurity.

HCL Technologies | Target price: Rs 1,090

HCL Tech had reported better than expected Q4FY21 numbers on both margin and revenue front. Strong revenue growth in Mode 2 business (10.9% YoY) helps HCL Tech to achieve higher growth momentum in longer-term with more advanced technologies. A better business matrix will help to generate higher operating business even if there is pricing pressure across verticals. We believe a better business matrix and large long-term contracts make HCL Tech a promising investment as compared to its Indian peers.

ACC | Target price: Rs 2,230

ACC reported stellar Q1CY21 results as Revenue/EBITDA/APAT grew by 23%/47%/74% on a YoY basis respectively. With a revival of cement demand in its key markets in both trade and non-trade segment as well as cost optimization measures and increasing sell of value-added and premium products. Aided by capacity expansion, we believe, the company is well-positioned to grow its revenue and profitability going forward.