Stocks to buy in 2023: Trent, Astral, Federal Bank, Rites, MAS Financial are Axis Securities’ top picks

Axis Securities said the Indian economy stands in a sweet spot and remains the "land of stability" against the backdrop of a volatile global economy. For the next 6-9 months, it expects the market to continue to be influenced by the evolving macroeconomic data points. It noted that the consensus view is that of lower quantum of rate hikes by the US Fed going forward.

"While we are hovering near the peak of the rising interest rate cycle, it still continues to be dependent on the evolving data points. Nonetheless, we believe the Fed may take a pause sometime in mid-2023," it said adding that "If the market sails through the next 6-9 months smoothly, we are likely to see the next level of triggers emerging in the market," it said.

The domestic brokerage has picked 10 stocks that it believes can deliver up to 25 per cent upside in 2023. They are:

Hindustan Unilever (HUL) | Target Rs 3,000

Axis Securities said FMCG companies have been battling with a rural slowdown for the last few quarters, impacting their overall volume growth. However, demand is likely to recover in the coming quarters as the inflation moderates, thanks to the RBI intervention, higher farm income MSP, higher crop realization, and higher remittances, it said.

In Q2FY23, HUL highlighted that it expects gross margins to inch up marginally on a sequential basis as most of the key raw material prices are down from its peak. Also in the September quarter,  the premium portfolio (products above Rs 120) grew 2 times of the category growth, with larger growth being seen in the detergent segment.

Axis Securities said HUL's long-term growth prospects remain strong as the management focuses on driving a broad-based portfolio and straddling across the price-value matrix driving premiumisation, cost savings initiatives, market share gains and execution capabilities.

Cipla | Target Rs 1,260

Axis Securities said the new base for Cipla’s US business will be in the range of $170-180 million per quarter led by steady traction in gRevlimid/ Lanreotide (increasing market share) and expected approval for gAdvair in H2FY23.

Besides, peptide injectables and respiratory assets are expected to drive US growth, it said adding that India's non-Covid business is also expected to outperform the IPM, led by sustained momentum in key therapies and retained margin expectation at 21-22 per cent. This is given the increasing R&D (at 5.5-6 per cent of sales) for the respiratory portfolio.

Cholamandalam Investment & Finance | Target Rs 845

Axis Securities said Cholamandalam Investment & Finance is witnessing increasing disbursements, which would help grow its AUM moving forward. The company management suggested that the company is outpacing the industry growth rates on account of value growth in terms of inflation and cost of the vehicle as well as growth in the market share.

This, Axis Securities said has been an encouraging sign. Cholamandalam Investment & Finance, with its conservative management, comfortable liquidity position, and diversified portfolio mix is well[1]placed to ride on the expected demand recovery, Axis Securities said.

Federal Bank | Target Rs 160

Axis Securities said Federal Bank's credit growth witnessed continued growth momentum and remained robust in Q2FY23 with advances growing at 19 per cent YoY. The bank is also keenly focused on neo-banking tie-ups to reach the country’s under-banked population and expects these partnerships to contribute meaningfully to the overall business growth moving forward, Axis Securities said.

The brokerage said Federal Bank has been amongst the few mid-tier banks that have consistently worked towards strengthening their deposit base. The bank has a granular deposit franchise with a healthy CASA Ratio of 36.4 per cent and retail deposits forming 93 per cent of the total deposit base, it said.

"Federal Bank reported a stellar performance in Q2FY23 with the highlight has been the multi-year high RoA of 1.2 per cent, which was led by healthy NIMs of 3.3 per cent (multi-quarter high) and modest Opex growth with the C-I Ratio improving to sub-50 per cent," Axis Securities said while suggesting a 'buy on the stock.

Trent | Target Rs 1,650

Superior store metrics, supply chain optimisation, diligent focus on cost rationalisation, aggressive store expansion, higher contribution from private brands, and innovative offerings in the value space would be key growth drivers for Trent in the long run, said Axis Securities.

It noted that consumer sentiment has improved post-pandemic. This is manifested in Trent’s operating performance in Q2FY23, it said 

The company reported 30 per cent revenue growth on a 3-year CAGR, the highest among peer retail players, led by newly added stores in the last 12 months. The management is aiming to double down on the growth agenda over the medium term, Axis Securities said.

Also, Trent continues to remain focused and committed to its accelerated store expansion agenda and that the management is prioritising refreshing stores and simultaneously consolidating/exiting stores that have been reporting suboptimal performance from a brand perspective, Axis Securities said.

Astral | Target Rs 2,280

Axis Securities said Astral has reported volume growth of 10mper cent in the piping segment – the highest among peers in the last 4 years, manifesting that the company is gaining market share in the plumbing segment. Raw material and PVC prices have been falling continuously, which would aid in improving its gross margins once inventory stabilises, Axis Securities said.

Astral may deliver consolidated margins in the range of 17-18 per cent in the upcoming quarters, it predicted.

"Furthermore, Astral’s foray into valves, resins, sanitaryware, and tanks would add revenue growth in the upcoming years, it said.

MAS Financial Services | Rs 955

Axis Securities said MAS entered FY23 on a strong footing clocking an AUM growth of 30 per cent YoY in H1FY23. AUM growth was primarily driven by the MSME segment with microenterprise and SME segment reporting a healthy growth of 24/33 per cent YoY, it said.

With credit demand remaining robust and MAS is pushing the growth pedal, the company expects to grow the book to Rs 10,000 crore over the next 2-3 years, implying a robust growth of 25 per cent CAGR, the brokerage said.

"The company will also look to improve the share of the ‘Wheels’ (two-wheelers and CV) segment from 10 per cent currently to 20-25 per cent over the medium term. MAS also foresees ample growth headroom in its housing finance subsidiary and expects to grow the housing book at 30-35 per cent CAGR over the medium term. Thus, with growth visibility across segments, we expect the company to grow its AUM at 27 per cent CAGR over FY22-25E," it said.

Axis Securities said MAS remains well-placed to deliver superior growth and return ratios while maintaining stable asset quality.

Rites | Target Rs 405

Axis Securities said it continues to like the company’s execution capability and its order book position, clean balance sheet and high dividend payout and expect revenues and Ebitda to grow at 18 per cent CAGR each over FY21-24. It sees adjusted profit to grow at 14 per cent compounded annually over the same period. The stock is currently trading at 13 times FY23 and 12 times FY24E earnings.

Axis Securities values Rites at 15 times FY24 EPS of Rs 27.

"RITES has a strong order book of Rs 5,950 crore. It is well-diversified with high-margin consultancy contributing 41 per cent, Turnkey projects 49 per cent, exports 5 per cent, and the rest from Leasing. Furthermore, 80 per cent of the order book is sourced from the GoI and its PSU while the rest are from private parties. The order book gives revenue visibility for the next two years," Axis Securities said.

V-Mart | Target Rs 3,500

Axis Securities  sees value players such as V-Mart and Relaxo should see earnings and profitability improvement as rural and small towns recover, market share gain from smaller/unorganized players, continued demand for quality value-for-money products, and sustained product additions.

The company intends to continue its healthy growth trajectory in the backdrop of increased demand driven by the resumption of economic activity and the market share shifting from the unorganised to organised sector.

The company’s is also focusing on the newly formed south zone through Unlimited stores to cross-populate selective stocks from South to North.

"Higher inflation and increase in prices of essential goods are impacting overall consumption in rural and smaller towns. However, the footfalls are likely to recover FY24 as the demand environment normalises in Tier 2-3 towns (V-Mart’s key markets), which would be driven by moderating inflation, rural revival on the good harvest season, government spending ahead of the election year, and high remittances, among others. We expect traction in the value retailers such as V-Mart to boost by the end of FY23 and onwards," it said.

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