Diwali 2023 shares: SBI, BDL & L&T among ICICIdirect's top Muhurat stock picks

The brokerage suggested a sectoral bias towards banks, capital goods/infrastructure and power. It is avoiding sectors having more global exposure such as IT and oil & gas. "We continue to see reasonable opportunities across the market spectrum with key filter being quality. We continue to advise investors to utilise equities as a key asset class for long term wealth generation by investing in quality companies with strong earnings growth and visibility, stable cash flows, RoE and RoCE," ICICIdirect said.

Here is why the brokerage picked the said stocks for Muhurat trading this year:

Bharat Dynamics | Buy range Rs 970-1,030 |Target Rs 1,260

ICICIdirect said BDL has been expanding capabilities and is developing new products to enhance its market position and competitiveness via research and development, global partnerships and expanding infrastructure. It said the defence PSU's order backlog stood at nearly Rs 23,500 crore, which equals 11.3 times its trailing 12-month revenues. The order book, it said, gives strong visibility in terms of future revenue growth and profitability.

"Moreover, orders pipeline remains strong for missiles, torpedoes, countermeasures over the next 3-5 years; provides more comfort on future earnings," it said adding that there is also huge opportunity for the missile manufacturer in export markets, driven by rising interest from friendly countries with relatively lower manufacturing cost.

It anticipated a profit growth of 53 per cent for BDL compounded annually over FY23-25E, led by pick-up in execution and improvement in margins. Increase in profitability with strong asset turnover may result in healthy return ratios over FY23-24E, it said.

Larsen & Toubro | Buy range Rs 2,870-2,960 | Target Rs 3,560

ICICIdirect said L&T has a diversified presence across business verticals and geographies. The engineering & construction major commands a strong Rs 4,50,000 crore order-backlog in Q2, up 22 per cent YoY.

"This provides strong revenue visibility over next 2- 3 years. Coupled with this a strong project pipeline of Rs 8.8 lakh crore will ensure 15 per cent order inflow growth in FY24. Strong scale up in services business like IT and Finance also provides cushion to cash flows and cyclical risk of engineering business," it said.

ICICIdirect said it remains upbeat on the prospects of L&T and sees the company to be the best proxy play on India capex story and a preferred large cap capital goods pick.

"L&T is expected to deliver 18.6 per cent and 26.5 per cent revenue and PAT CAGR over FY23-FY25E, respectively. We believe selective profitable growth. monetisation of non-core assets, strict balance sheet discipline will help L&T to achieve 18 per cent ROE by 2026 and create shareholder value. We value the company on SoTP basis and arrive at a fair value of Rs 3,560," it said.

State Bank of India | Buy range: Rs 565-585 | Target Rs 1,330

ICICIdirect said that SBI's large customer base and diversified product may aid credit growth, which is expected to be in-line with industry growth of 14-15 per cent in FY24E. Advance growth, it said, is seen to remain broad-based with focus on MSME and retail segment that will enable business growth and support yields. Yields expected to inch up gradually, however, faster accretion in term deposit and repricing of deposit rates is expected to impart some pressure on margins in FY24, the brokerage said.

"SBI has demonstrated its strength in previous quarters both on core operating performance and asset quality. Management confidence on growth (14-15 per cent), steady margins and return ratios remaining at 1 per cent in FY24-25E warrants a re-rating, and should see strong positive momentum. Plough-back of profits leading to improving RoE of 16-17 per cent to add to valuation," it said.

Spandana Sphoorty Financial |Buy range: Rs 840-890 |Target: Rs 1,100

In the case of Spandana Sphoorty Financial, the redefining of business model with focus on customers and employees has led to improvement in business metrics. The micro finance player's continued expansion through branch addition and addition of loan officers have led to strong accretion of customer (at 27 lakhs), ICICIdirect said.

The Spandana Sphoorty management remained confident of 35-40 per cent growth in asset under management (AUM), with continued focus on customer addition and steady average ticket size, ICICIdirect noted.

"Diversifying liabilities mix, improvement in credit rating is seen to offset pressure of rising interest rates, thus keeping margins steady in FY24-25E. Recovery has been witnessed in asset quality with GNPA at 1.4 per cent as of September 2023. Focus on quality customer accretion, stage 3 coverage of 70.3 per cent, provides confidence on credit cost remaining steady at 2 per cent ahead," ICICIdirect said.

The brokerage further said that a sustained recovery in last 6 consecutive quarters translated in an improvement in return on asset and that a strong business growth, steady margins and moderate credit cost are seen keeping RoA healthy above 4.5 per cent, driving valuation ahead.

Century Plyboards | Buy range Rs 595-630 | Target Rs 750

ICICIdirect said the Plywood segment, which formed 56 per cent of Century's FY23 sales, will be driven by healthy traction in mass segment. MDF that accounted for 18 per cent of FY23 sales is likely to be boosted by offtake from new capacities, the brokerage said.

"Similarly, Century’s launch of mass brand “Sainik” in laminate segment (18 per cent) will drive superior growth in the same. We highlight that while muted volume and rise in timber prices have impacted H1FY24, festive demand coupled with underlying new housing led demand will boost growth and profitability. We expect 15 per cent CAGR in revenues over FY23-25. The margins, after some

softness in FY24, are likely to revert back to normalised levels of 16.2 per cent in FY24. This, will result in 19.2 epr cent earning CAGR for the company over FY23-25," the brokerage said.

ICICIdirect said the company is also well poised on balance sheet with net debt free status and capex largely to be funded through internal accruals. "Century has led the industry on most metrics and remains a superior player in the segment. With strong housing demand in last 2 years and likely completion of those sold inventory, woodpanel industry is likely to witness a robust demand spurt ahead. We are enthused by strategic expansion plans across segments and relatively diversified positioning of the company," it said.

Coromandel International | Buy range Rs 1,020-1,080 | Target: Rs 1,330

ICICIdirect noted that Coromandel International is planning to invest Rs 1,000 crore over the next two years and leverage the macro tailwinds in the chemicals sector to build a business of scale.

"CDMO business is likely to start generating revenue in 18-24 months once it wins an order. Currently, the company intends to focus on Agrochemicals CDMO In FY23, Coromandel International has developed a new tech product Nano DAP, for which it is setting up a plant in Andhra Pradesh and is expected to introduce in H2FY24. The product has a potential to replace 50 per cent of the traditional DAP in the next five to seven years," it said.

Besides, "Coromandel has been strengthening its upstream integration capabilities via its strategic tie up with leading integrated players like Tifert (Tunisia) and Foskor (South Africa) for meeting its Phosphoric acid requirements. Further, the company is setting up a new 1,650 MT per day design capacity sulphuric acid plant at its fertiliser complex in Visakhapatnam at a cost of Rs 400 crore," the brokerage noted.

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