Buy the dip! HAL, PNB, IDFC First Bank among 10 stock ideas from Jefferies

We expect addressable opportunity for India defence players to rise at 14% CAGR in FY24-30E driven by a) government’s indigenization efforts driving 13% CAGR in domestic defence spends vs. 8% CAGR in total defence spends and b) 18% CAGR in exports.

The company has a strong order book of Rs940 bn in FY24 (3.2x sales) and provides healthy revenue visibility for FY24-27E. Additionally, HAL has a strong order pipeline of Rs 1.6-1.7 trn that should be awarded in the next 12-24 months We believe HAL should see 3x rise in absolute profits over 6 years on a debt free B/S with 23%+ ROE.

Agencies

India’s strong economic growth outlook, rising power consumption and thermal capacity additions should fuel healthy 5% volume growth for COAL over FY24-27E. COAL’s cash EBITDA more than doubled over FY21-24; we expect a 6% YoY fall in FY25E, but followed by 7% CAGR over FY25-27E.

Stock is trading at an attractive 8.9x FY26E adjusted PE (excl stripping activity adjustments). Its average adjusted PE contracted from 11x over 2011-18 to 6.6x over 2019-2023, partly due to ESG concerns on coal, which is being alleviated amid rising power demand in India. Versus Nifty, COAL is at 62% discount to Nifty-50 PE vs 26% average discount over 2011-18.

IANS

IndiGo’s recent performance has been impacted by grounding impact, even as Co has scaled to 400+ Aircraft fleet. Management targets to grow capacity through rest of FY25 in early double-digit growth on back of new aircraft and fleet un-grounding. AOGs have started dropping from peak of mid-70s and are now in high 60s; management expects them to drop to mid-40s by FY26 start. This will also enable Co to start to return the short-term damp lease (less efficient) aircraft by early FY26, which will also reflect in normalisation of cost curve.

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Under a new CEO (Sudhir Sitapati), GCPL has taken several structural initiatives including a management revamp, focus on access packs, a step-up in ad-spends, new product innovations, business simplification etc. More steps are underway, with focus on strengthening product efficacy, growing category penetration and enabling deeper rural outreach.

GCPL is likely to deliver ~17% EPS Cagr over FY24-27e, which should be one of the best in our coverage. It is amongst our top picks in staples.

On the bank’s part, performance has been good with healthy growth in loans and deposits (13% and 11%), stable asset quality and high coverage ratio of 90%.

We feel the bank is well placed to deliver 12% Cagr in loans over FY25-27 and ROA of 0.9% in FY26. Upside to ROA/ ROE can arise as the bank switches to new tax rate of 25% vs. 35% (it has stayed with old tax regime due to large deferred tax assets).

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Stock has declined 26% from peak on concerns of potential delays in infrastructure triggers around Palava land. We see limited risks, with clarity likely soon post the upcoming Maharashtra elections (23rd Nov).

Ex-Palava, core resi-sales continue to grow at 20% p.a., and Lodha’s strategy of limited pricing growth & geographic expansion implies a long runway to growth. Stock implies 12x PE to embedded PAT in sales, ex-of Palava land, and we see this as an attractive entry point.

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The correction reflects a) concerns around slowdown in vehicle loan growth due to slowdown in auto volumes across multiple segments and b) some increase in GNPA in multiple segments and upward revision in credit cost guidance.

We expect CIFC to see 28% profit CAGR and 20%+ ROE over FY25-27e. Post the pull back, valuations seem more reasonable and slower growth / asset quality issues seems priced in. Premium to 5 year avg P/B of 3.4 and 5 year avg P/E of 19x has narrowed.

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Dabur has disappointed on earnings in 2Q due to impact of inventory corrections. This was further exacerbated by weak season and high competition in the F&B portfolio. As a result, stock has corrected c.18% from the recent peaks and has seen downgrades in EPS.

Given its high salience from rural, Dabur is a good proxy to play on the improving rural demand. Mgmt. has highlighted that Rural demand is further expected to improve given MSP increases & good Kharif crop; this could benefit Dabur.

Agencies

Correction in stock price reflects disappointment in earnings on the back of slower growth in loans, negative operating leverage and rise in MFI credit costs.

We feel cycle should stabilise now given bank has made reasonable provisions on MFI book, asset quality of retail loans has held up well and deposit franchise has emerged very strongly. We also see operating leverage benefits ensuing in the next two years.

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Over FY24-27E, we expect Honasa to deliver a sector-leading 21% revenue CAGR. Growth should moderate in the flagship Mamaearth brand (~8% cagr) given its absolute scale, although new brands should continue to ramp-up at a rapid pace.

Growth should be accompanied by further improvement in profitability led by scale-benefits over key cost items notably ad-spends. We expect Honasa to reach double-digit Ebitda margins by FY26e vs. 7% in FY24. This should enable a strong ramp-up in absolute Ebitda and pre-exceptional EPS, both rising sharply over FY24 levels.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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