IndoCount, Chola Finance, FedFina among stocks to see brokerage action with up to 80% upside target

Shriram Finance, Indo-Count Industries, Sterling & Wilson Renewable Energy, Cholamandalam Investment and Finance Company, and FedBank Financial Services have seen fresh interest from various domestic and global brokerage firms, who have recently initiated their coverage on these companies.

Domestic brokerages including Nomura, Mirae Asset Capital, JM Financial, Monarch Networth Capital and Sunidhi Institutional Research have launched their maiden reports on these stocks. Majority of these stocks have 'buy' ratings with an upside potential of up to 80 per cent from their closing price on Tuesday. Here's why these analysts are positive on them:

Mirae Asset Capital on Shriram Finance
Rating: Buy | Target Price: Rs 2,880 | Upside: 20%
Shriram Finance (SHFL) is amongst the largest retail NBFC with an AUM size of Rs 2.1 trillion operating in diversified segments such as vehicle finance, SME, gold loans and more with over 4 decades of experience spanning across various cycles. It has been able to maintain its dominance in the used CV lending space. It can leverage cross-selling opportunities to reach new customers.

Its customer segment offers its pricing power and it has been largely able to pass on higher borrowing costs to its customers with little impact on its margins. It has managed to sustain on a low-cost base focusing on local hiring. Amid a healthy collection mechanism and enhanced digital reach of the company, we expect credit costs to be maintained. We initiate with a buy for a target price of Rs 2,880.

JM Financial on Fedbank Financial Services
Rating: Buy | Target Price: Rs 160 | Upside: 24%
JM Financial initiated coverage on Fedbank Financial Services (FedFina) with a buy rating and a target price of Rs 160. We believe FedFina is a compelling play on the MSME financing segment through secured asset classes. The company is well placed to ride the MSME lending opportunity through its flagship small ticket product which has relatively less competition and offers strong risk-adjusted yields.

Business loans are 16 per cent of the portfolio and add a layer of profitability kicker to FedFina. It being a bank-promoted entity, is uniquely positioned which aids in strong brand recall and relatively better borrowing costs which will be further aided by the recent credit ratings upgrades. Its asset quality also remains quite healthy given its focus on secured business and strong underwriting methods.

Monarch Networth Capital on Sterling & Wilson Renewable Energy
Rating: Buy | Target Price: Rs 800 | Upside: 34%
Monarch Networth initiated on Sterling & Wilson Renewable Energy (SW Solar) with a buy and target price of Rs 800. An eminent and established solar EPC player, with a proven track record of project execution, is coming credibility out of a financially beleaguered phase. It is in an excellent position to bag mid and mega orders in a sector that has been and will continue to enjoy tailwinds, with governmental blessings.

This, combined with the fundamentally capital-light nature of the business, can portend a remarkable inflection in its profitability and therefore share price performance. We illustrate the same with a similar case study within our coverage. We also estimate that in terms of the relative strengths of upside and downside, the risk-reward trade-off remains favourable.

Nomura on Cholamandalam Investment and Finance Company
Rating: Reduce | Target Price: Rs 1,100 | Upside: -1%
Chola Finance surpassed peers on growth/profitability with a 22% EPS CAGR over FY13-23, only lower than Bajaj Finance. Diversified portfolio, over 80 per cent rural portfolio, improved liability management, deep relationship with auto dealers and strong underwriting led to 18 per cent RoE in FY13-23. Performance improved further during/after COVID.

Share of unseasoned new business with relatively high credit cost increases in mix. Further, falling ECL coverage at 2 per cent provides a lower cushion. We expect an AUM CAGR of 24 per cent over FY24-26F vs 37 per cent in FY22-24F and RoA/RoE of 2.3 per cent/ 19 per cent during FY25-26F.Hence, we find its current valuation premium unsustainable.

Sunidhi Institutional Research on Indo-Count Industries
Rating: Buy | Target Price: Rs 524 | Upside: 80%
Indo-Count Industries (ICIL), World’s largest bed-linen player has established its name as a trusted player to many global business chains through quick adaptation to changing market dynamics, by offering an extensive product portfolio to different customer segments having a clear customer-centric approach. The strong cash flows and determination to pare debts are driving a path of debt-free status in the medium term.

Revenue, Ebitda and Adjusted PAT is expected to grow 16 per cent, 19 per cent and 17 per cent CAGR over FY23-26E as more value-added products, higher operating leverage along with the benefit of deleveraging of the balance sheet continue to strengthen earnings. Robust return ratios, FCF generation, and being a futuristic company willing to embrace evolving opportunities would see valuation re-rating aligning to RMG players. We initiate with a 'buy' rating, for a target price of Rs 524.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

Also read: Stock recommendations by analysts for February 21: Gujarat Alkalies, PNB and SBI Life

Also read: Investor wealth climbed Rs 14 lakh crore as Sensex surged 2,200 points in seven sessions; what’s next?