Diwali 2023 picks: M&M, TVS Motor, MTAR Technologies, DLF among Anand Rathi's top Samvat 2080 ideas

With Samvat 2079 coming to an end, Anand Rathi Investment Services has picked a bunch of stocks for Samvat 2080. Here's a look at the potential targets and investment rationale behind them.

Syrma SGS Technology: Buy for a target of Rs 735

Rationale

A. Syrma SGS Technology (SYRMA) is a technology-focused engineering & design company specializing in precision manufacturing for diverse end-use industries, including automotive, healthcare, consumer products, Industrial, IT and Railways. The company provides integrated services and solutions to original equipment manufacturers (OEMs) from the initial product concept stage to volume production through concept co-creation and product realization.

B.

Product portfolio of the company consist of Printed circuit board, Radio Frequency identification products, Electromagnetic and electromechanical parts, Motherboards, Memory products - DRAM modules, solid state, and USB drives etc. The company operates eleven manufacturing facilities in North India and South India. The manufacturing facilities in Tamil Nadu are located in a special economic zone. Capex plans: The company has done a capex of Rs 500 million in the Q1 FY24 and plans to spend Rs 2,000-2,500 million in total for the year.

c. Acquistions: The company has acquired a 51% equity stake in Johari Digital Healthcare Limited (JDHL), a Jodhpur-based ODM design company in the medical devices business. The acquisition of JDHL is expected to be accretive to EBITDA and contribute 5-7% to the top-line growth of Syrma SGS. The acquisition of JDHL is seen as a platform for growth in the medical devices business, with expectations of sustained growth and 30%+ EBITDA margins.

D. Order book: The company has a total order book of approximately Rs 35,000 million, with Rs 22,000-23,000 million expected to be delivered in the next 12 months. The order book as of June 30th is Rs 35,000 million, with 25% in automotive, 40% in consumer, 8-9% in healthcare, 20-22% in industrial, and 3-4% in IT and railways.

E.We expect Syrma SGS to report revenue/EBITDA/PAT CAGR of 36%/50%/55% over FY23-25 mainly backed by: (1) Increasing customer base with rising wallet share from existing customers, (2) focus on technologies and innovation to increase product offerings, (3) entry into new business verticals (aerospace & defence, medical) which will improve strong order book visibility, (4) highest capacity in the industry; new capacity addition will give it an edge over peers. We assign a BUY rating on the stock with a target price of Rs 735 per share.

IDFC First Bank: Buy for a target of Rs 735

A. IDFC First Bank Ltd. (IDFCFB) was founded by merging erstwhile IDFC Bank (demerged from IDFC Ltd) and Capital First in Dec 2018. Bank has transformed from infrastructure to retail banking in four years since merger, increasing CASA ratio from 8.6% to 49.77% (March 31, 2023) and increased retail deposits from 27% to 76% of total deposits, and set up 809 branches and 925 ATMs.

B. V. Vaidyanathan – Best in-class execution track record- With over three decades of experience in financial services in India, V. Vaidyanathan has seen India through multiple lenses – first as a banker (1990 – 2000, Citibank), (2000-2019, Head of ICICI Bank in retail division), as an entrepreneur (2010-2019, Capital First), and now as an entrepreneur + banker (MD & CEO, IDFCFB).

C. The bank has achieved a collection efficiency of 99.5% in the current bucket, contributing to low SMA levels and improving asset quality. Gross NPA- Retail, Rural and SME as of Q2 FY24 stands at 2.03% and Net NPA- Retail, Rural and SME as of Q2 FY24 stands at 0.73%. The company's asset quality remains strong, with low NPAs and high collection percentages. Bank’s ability to raise deposits remains strong and it sees no challenge in funding its aspired growth (25%) while also repaying high cost borrowings

D. The company's fee-based businesses, such as tolls, credit cards, and third-party distribution, are generating significant revenues. The company expects strong growth in these fee-based businesses and believes that fee growth will outstrip balance sheet growth. Margins are expected to remain stable as the cost of deposits repricing has peaked and the Indian system is tapering off.

E. Bank is seeing strong performance on its NBFC book which is Rs 150bn currently. More than 80% of the book is rated A and above and rest is BBB and BB+. Only 1% of the book is BB and below

F. Guidance: The bank expects the credit card business to breakeven by FY25. 24-25% of the credit card mix are revolvers. The bank expects to reach 13-15% ROE by FY25 and 1.4-1.6% ROA by FY25.

G. IDFC First has undergone the first phase of its transformation from an infra financier to a granular retail lending bank. Investment in technology and building a scalable liability franchisee would keep costs high in the near term, despite strong granular loan growth. We assign a BUY rating on the stock with a target price of Rs 114 per share.

DLF: Buy for a target of Rs 640

A. DLF Limited, a leading domestic real estate developer with over 76 years of experience, has completed 158 real estate projects, encompassing more than 340 msf. Notably, they've contributed to iconic urban colonies in Delhi, including South Extension, Greater Kailash, Kailash Colony, and Haus Khas, as well as the creation of one of India's largest private townships, DLF City, in Gurgaon, Haryana.

B. The company has a diverse portfolio encompassing residential developments, office spaces, retail, and additional ventures such as service management and hospitality. They hold the potential for 215 million square feet of development and manage a rental portfolio of 42 msf. Their product pipeline includes 46 msf of upcoming projects, with an available pipeline valued at Rs 56,250 million.

C. The company is re-entering Mumbai with a slum redevelopment project in Andheri West. This project is a joint venture with the Trident Group, with DLFU investing Rs 4,000 million for a 51% stake. The planned development spans 3-3.5 msf, with the first 0.9 msf to be launched within 12 months.

D. For FY24, management expects pre-sales to surpass ? 1,20,000 million, driven by significant inventory, upcoming launches, and strong demand. They plan to introduce 11.2 msf of projects valued at ?1,97,000 million, with the majority in Gurugram (7.7 msf, including ultra-luxury, premium, and commercial segments), along with projects in Chennai (1.2 msf, luxury), Chandigarh (1.8 msf, low-rise premium), and Noida (0.8 msf, commercial).

E. The company has launched a project to create a new series of malls in various locations, with the objective of expanding its retail footprint two-fold in the next 4-5 years. Concurrently, the company is actively bolstering its sales, CRM and project execution teams.

F. DLF's strong leadership in the Delhi-NCR region, a vast residential project pipeline, a significant rental portfolio, ample land reserves with low carrying costs, and favorable market conditions create a promising environment for substantial growth. We assign a BUY rating on the stock with a target price of Rs 640 per share.

MTAR Technologies: Buy for a target of Rs 2970

A. MTAR Technology is a leading precision engineering solutions company engaged in the manufacture of mission critical components with close tolerances (5-10 microns). The company serves customers in the clean energy, nuclear, space and defence, sectors.

B. The company has continuously grown, contributing to India's nuclear, space, and defense programs, as well as the global clean energy and aerospace sectors. They've also developed specialized import substitutes like ball screws and water-lubricated bearings for their target industries. The company has an order book of Rs 10,780 million as of June 30,2023 and expects around Rs 12,000 million during the year. The management has maintained its FY24 order book target at ?15,000 million.

C.In the first quarter of FY24, the company achieved a 68% year-on-year revenue growth. During this period, the company also reported EBIDTA margins of 22.6% and PAT margins of 13.3%. Looking ahead to FY24, the company has set revenue growth guidance in the range of 45% to 50% and aims to maintain EBIDTA margins at 28%. Their long-term goal is to become a Rs 30,000 million revenuebased company by FY28.

D. The company is expanding its product range, including valves and semi-cryogenic engines in the defense and space sectors. MTAR expects to secure defense contracts shortly, enabling direct supply to major OEMs and the Ministry of Defense. They are also considering new facilities in Europe and the US to enhance their supply chain and competitiveness. Their electrical and harness system is undergoing certification and is expected to qualify by Q2 FY24.

E. With a strong order book, new global aerospace and clean energy clients, and sustained growth from its major clients, MTARTECH is poised to achieve its projected growth in FY24. The company’s working capital has been affected by delayed payments from a key customer and a decrease in payable days. However, the company is actively addressing this issue by reducing inventories and enhancing payment terms. We assign a BUY rating on the stock with a target price of Rs 2,970 per share.

TVS Motor Company : Buy for a target of Rs 1850

A. TVS Motors is among the largest two-wheeler manufacturers in India. It currently manufactures a wide range of 2-wheeler and 3- wheeler at its manufacturing facilities located at Hosur, Tamil Nadu; Mysuru, Karnataka; and Nalagarh, Himachal Pradesh, with a total installed manufacturing capacity of 55 lakh two-wheelers and 2 lakh three-wheelers per annum as on Mar’23.

B. The company also set up a wholly-owned subsidiary in Indonesia i.e PT TVS Motor Company Indonesia for manufacturing motorcycles. In 2020, the company acquired 100% stake in The Norton Motorcycle Co. Limited, UK. The company has a presence in all three categories of the two-wheeler industry, i.e., scooters, motorcycles, and mopeds.

C. TVS has been able to expand its presence beyond the South and currently has a significant presence in all the regions, in terms of sales. The efforts taken over the years to improve its PAN-India dealer network have resulted in having a domestic presence across the categories, with scope for improvement in the west and north regions.

D. In FY23,it recorded higher growth in the motorcycle and scooter segments as compared to that of the industry led by its strong presence, new product launches and increasing market share, resulting in the fourth and second-largest player in the respective domestic segments. its exports market contributed around 28% of total revenue from 24% in FY19.

E. During Q1FY24, company reported a healthy growth of 20.1% YoY to Rs 72,179 million in Q1FY24. The EBITDA of the company grew by 27% YoY to Rs 7,638 million while profit after tax grew by 46% YoY to Rs 4,677 million. The company is witnessing good demand in the urban market, while rural market remained moderate. It aims to grow faster than the industry in domestic and exports market. The company plans to launch new variants into its EV segment in coming years.

F. We believe company is poised to outperform the industry on the back of new product launches in ICE & EV segments, higher focus on exports and premiumization, operating leverage, benign input prices and price hikes. company to report higher volume growth driven by a recovery in the domestic 2W market and in exports. We assign BUY rating on the stock with a target price of Rs 1,850 per share.

Mahindra & Mahindra: Buy for a target of Rs 1,770

A. Mahindra & Mahindra is the most diversified automobile company in India with presence across two-wheelers, three-wheelers, PVs, CVs, tractors and farm equipment. M&M has a strong position in the domestic large UV and tractor markets, with a market share of ~43% in the latter. In terms of volumes, M&M is the world’s largest tractor manufacturer and among the top four PV manufacturers in India.

B. Through its subsidiaries and Group companies, M&M is present in financial services, auto components, hospitality, infrastructure, retail, logistics, steel trading and processing, IT businesses, agribusinesses, aerospace, consulting services, defence, energy and industrial equipment, etc.

C. M&M has been the dominant market leader in the domestic tractor market, commanding a market share of 42.9% in Q1FY24 (41.2% in FY23). With its offerings across different brands of Mahindra, Swaraj, Trakstar and soon to be launched Oja and its well-entrenched sales and service network, it is expected to maintain its leadership position going forward as well.

D. M&M has unveiled its electric SUV – Thar.e, which would be developed as part of the born electric range and would not be an electric conversion of the ICs Thar. It will be based on its new platform called the INGLO platform. Thar.e will have a new Mahindra Logo as copper twin peak will be used only on one EV – XUV400. The timeline to launch Thar.e is yet to be decided. Broadly, M&M has a healthy pipeline to introduce five products on the INGLO platform from Dec’24.

E. In Q1FY24, on a consolidated basis, the company reported net profit of 60% YoY to Rs 35084 million led by 19% YoY rise in revenue from operations to Rs 338,916 million in Q1FY24. EBITDA grew 44% YoY to Rs 73,142 million during the quarter.

F. In Aug’23, the company launched seven new OJA tractor models, designed for the Indian market, on compact and small utility platforms. The company also has plans to launch the OJA range in North America, ASEAN, Brazil, Australia, South Africa, Europe, and the SAARC region. The introduction of new range of OJA tractors is expected to boost its topline in the future. We believe the company’s strategic approach with strong balance sheet will continue to leverage its performance. We assign a BUY rating on the stock with a target price of Rs 1,770 per share.

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