HDFC Bank, Zomato, Infosys, Axis Bank, Paytm, NTPC shares: 10 stock ideas by Bernstein

Bernstein has updated its India portfolio, a composition of bottom-up ideas for the rest of the year. Bernstein introduced NTPC Ltd and One 97 Communications Ltd (Paytm) in the list while it removed Reliance Industries (RIL), State Bank of India (SBI), Lupin and L&T Technology Services from the model portfolio.

"We retain HDFC Bank and Axis Bank in Financials, Infosys in IT, Delhivery and Zomato in consumer tech. Biocon is retained in Healthcare, L&T in Industrials and Ultra tech in Cement," it said.

HDFC Bank Ltd

Bernstein said the sharp compression in the valuation premium against sector, a result of re-rating for most other banks in the sector and the de-rating seen in the case of HDFC Bank, makes the risk-reward ratio compelling. "While the drip feed of merger-related surprises (mostly negative) is a definite source of frustration, the long-term thesis (based on the superior deposit gathering ability and better through-cycle underwriting outcomes) remains intact and the sharp," it said.

Axis Bank Ltd

Bernstein said the ending of uncertainty around the impact of the Citi deal and receding risk of a supply glut has helped Axis bank outperform peers since H2FY23. Yet it trades at a relative discount to peers on a historical average basis.

"However, the rerating from here is likely to be more gradual. compression of valuation premium against the sector results in a compelling risk reward ratio," Bernstein said.

One 97 Communications Ltd

While it's too early to declare winners in the digital lending space especially with the expected entry of Jio Financial Services, Bernstein said Paytm does appear to be on the right side of disruption with its dominant payments platform and a head start in digital credit products.

"Its underwriting and collection outcomes are impressive too, but remain untested through a full credit cycle. We expect Paytm to continue its strong growth in the lending business. Simultaneously, a rise in payments volume will ensure that the business turns profitable in FY25E and achieves an EPS of Rs 130 by FY30E," it said.

Zomato Ltd

Bernstein  said recovery in the food delivery market should lead to stronger gross order value (GOV) growth. Zomato Gold loyalty program is expected to keep driving improvements to buying behaviour, it said. Food delivery Ebitda stands at 2.5 per cent of GOV, with Zomato targeting 4-5 per cent Ebitda  margins.

"The company achieved consolidated adjusted Ebitda & PAT breakeven 3 quarters ahead of its timeline. Blinkit was CM% positive with company guiding adjusted Ebitda breakeven in 4 quarters. Hyperpure and a better Others/Dining Out segment should add to the growth," Bernstein said.

Infosys Ltd

Infosys signed many large billion dollar deals in mid-2023, and could see a record deal book in Q2FY24, Bernstein said adding that the IT firm has also been announcing several AI deals led by Topaz.

"It has a strong track record in AI, investing heavily in AI research and development with a team of over 5,000 AI experts. These deals should drive growth performance for Infosys, and lead to a strong FY25 with a YoY CC revenue growth of 12.3 per cen. We also see Infosys hitting the margin guidance target of 21-22 per cent for FY24. Further, as the current technology cycle (driven by AI) becomes mainstream with more large deals & need of strong execution, the interest for large India IT players Infosys will increase, Bernstein said.

Larsen & Toubro Ltd

Bernstein said L&T is becoming the proxy to invest in not just the Indian infra cycle, but the Middle-East capex as well.

Across India, Middle-East and Africa it sees an opportunity of nearly $100 billion a year in this space. Bernstein said In the last three elections, only in one quarter out of 12 quarters did L&T show a decline in order inflow growth.

"Given the strong performance in Q1 and large wins in Q2, L&T is poised to easily surpass the upper end of the guidance of 10-12 per cent order inflow growth for the year," it said.

Delhivery Ltd

Bernstein said its call on Delhivery is more of a tactical one in nature, largely led by shift to positive operating cashflow which it believes, is a powerful catalyst that protects the downside.

"Key triggers for our tactical call is supportive base, recovery in earnings /cash flows and the continued benefits of being the lowest-cost player in the market. Overall e-com market is not strong this year, but we see a rebound in Delhivery's volume growth to high-teens this year, led by the supportive base. Near term, we expect the market share to sustain," it said.

UltraTech Cement Ltd

Bernstein said cement stocks have outperformed the market in the last one year and most of them continue to trade at a healthy premium to the market and, therefore, it sees limited further upside from here despite the demand momentum.

But within the sector, it still prefers Ultratech as it sees it better placed than peers to take full

advantage of high demand period given timely completion of Phase 1 capacity expansion. Bernstein noted that UltraTech Cement is expanding capacity at the lowest cost per tone and continued to improve efficiency and lower operational gap with Shree Cement.

Biocon Ltd

The positive view on Biocon is on the back of launch pipeline and positive changes in the US biosimilar market for generic players, Bernstein said.

Biocon has launched bAdalimumab in July, which should be a meaningful product despite significant competition, Bernstein said.

"Their approval of Aspart ($800 million TAM) is pending due to FDA's observations for the plant, but we do not see any other competitors coming in so far. Their pipeline also includes bBevacizumab and bAflibercept ($6 billion TAM), the latter expected to boost FY25/26 numbers significantly. The trial vs. Regeneron (Aflibercept Innovator) was completed in August and a positive ruling for Biocon/Viatris could boost the stock," it said.

NTPC Ltd

Bernstein said evening power shortages are on the rise in India and the solution to this is to add more thermal power. It said NTPC is only the large player leading new investment in this space .  Renewables (RE), Bernstein said, require 2-3 times the capex of a thermal plant, and an operating renewable plant does not throw enough cash to fund a new one (first 12 years debt servicing).

NTPC has a borrowing cost of 6-7 per cent compared to 9-10 per cent for most private players.

"In a business where the cost of debt is the biggest differentiator as execution is relatively easy we see them make superior return than peers. Further they have a tripartite agreement with Reserve Bank of India (can dip into state budget if DISCOM does not pay NTPC) - this allows them to get better receivables than private competitors," it said.

 

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