Anand Rathi sees up to 22% upside in these 7 stocks; should you buy?

Brokerage Anand Rathi Share and Stock Brokers see up to 22% upside in select stocks from sectors including infrastructure, auto and chemicals. Some of the stocks in the list included Ahluwalia Contracts, PNC Infratech, Ashok Leyland and AIA Engineering, among others. The benchmark BSE Sensex traded 56 points, or 0.10%, higher at 55,629 in the morning trade on Tuesday. Likewise, the 50-share Nifty index was up 0.08% at 16,575. Amid the ongoing rally on Dalal Street, Anand Rathi Share and Stock Brokers suggested the below 7 stocks.

Ahluwalia Contracts | Target price: Rs 441 | Market price: Rs 377 | Upside: 17%

Q1’s healthy pace of execution amid a Covid-bruised quarter reinforces Ahluwalia’s proven execution capabilities. Its EBITDA margin returning to double digits after seven quarters makes the performance all the more pleasing. These two have the potential to make Ahluwalia further build on the Q1 performance. Its well-set balance sheet and ample revenue assurance would pave the way to an inspiring performance ahead. Though growth requisites (capital, OB, capacity) are in place, on the contained potential we rate the stock a ‘Hold’.

AIA Engineering | Target price: Rs 2,283 | Market price: Rs 1,990 | Upside: 15%

Higher realisations led to AIA Engineering posting a better Q1 due to the pass-through of higher raw material and freight costs. On the other hand, sales volumes (60,318 tonnes) were below estimate, largely from lower mining volumes because of no exports to Canada. Also, travel restrictions continue to take a toll on marketing, leading to delayed customer additions and order bookings. From a long-term perspective, the brokerage expects AIA Engineering to benefit from the lower penetration of high-chrome grinding media, its large global market share and net-cash balance sheet. With lower-than-expected sales volume, Anand Rathi trims the company’s volume estimate but raises realisation estimate based on higher costs being passed on. With this and the recent fall in stock price, the brokerage firm upgrades the rating to a ‘Buy’.

Ashok Leyland | Target price: Rs 155 | Market price: Rs 127 | Upside: 22%

Anand Rathi continues to expect strong replacement demand for higher-tonnage and multi-axle vehicles to kick in by H2 FY22. This would lead to significant operating leverage-led margin expansion. Also, improvement in LCV volumes on the back of a surge in e-commerce augurs well for growth beyond FY22.

JB Chemicals | Target price: Rs 1,890 | Market price: Rs 1,707 | Upside: 11%

JB Chemicals’ Q1 FY22 16% sales growth was driven by 39.7% growth in India while exports slipped 1%. The gross margin was maintained at 64.3% while promotional-cost normalisation and higher freight costs led to the Ebitda margin contracting 275 basis points to 27%. The company is on track to diversify its revenue stream in India by launching products and levering its existing platform in exports. It recently floated an ESOP, likely to result in an annual non-cash expense of Rs 500 million-600 million. Anand Rathi raises FY22 and FY23 EPS 5.1% and 5.6%, respectively, due to strong traction in India.

Cummins India | Target price: Rs 1,045 | Market price: Rs 1,017 | Upside: 3%

As per management, the domestic market continued to be promising, driven by the government’s infra push, pent-up demand and economic recovery. Also, a pick-up was seen in several export regions. Management aims to expand the Ebitda margin by 100 basis points per annum boosted by better products at higher prices, greater operating leverage and localisation. Factoring in the robust demand scenario for FY23, the brokerage believes further a re-rating is possible.

KNR Construction | Target price: Rs 309 | Market price: Rs 304 | Upside: 2%

Having dealt with the Covid-19 first wave in FY21, KNR was better set to deal with the second. Hence, the impact was contained to a great extent. Its Q1, therefore, was inspiring, with delivery on almost all fronts. The execution was healthy, margins, industry-leading, and the balance sheet in shape. The prospects pipeline, too, is buoyant.

PNC Infratech | Target price: Rs 360 | Market price: Rs 308 | Upside: 17%

Even with no orders for six months now, PNC’s existing order book looks good to deliver on FY22 revenue-growth guidance and keep growth going for a large part of FY23. For growth beyond that, healthy bid prospects and slightly less competition for large orders (especially hybrid annuities) keep us sanguine of PNC adding orders in time to keep growth going beyond the foreseeable future. The balance-sheet strength is largely intact; any success with its asset monetisation efforts would have the potential to strengthen it further. On higher margins and emerging clarity on non-road orders, the brokerage raises the target price to Rs 360 (from Rs 323 earlier).