Stocks In Focus | Karnataka Bank, HDFC Bank, NCC, Jamna Auto & More | BQ Prime
ICICI Direct's Pankaj Pandey shares insight on top stocks to watch for in trade today. #BQLive #BQStocks
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00:00 Hello and welcome to BQ Primer. Very good morning to all the viewers. I am Heeral Dadia.
00:04 Clearly, if you go to see from a market's perspective, 2180s where we are trading at
00:08 a pretty flattish move is what we are witnessing. And we have Bank Nifty, which is seeing cuts
00:12 of 0.2% off. Auto stocks are seeing some good traction. M&M Bajaj Auto, good moves coming
00:17 in on those names. Whereas, you are seeing some bit of pressure in terms of HDFC Bank,
00:23 Infosys Wipro from the ITPAC also trading under pressure. Let's welcome in our guest
00:28 Pankaj Pandey to discuss more in terms of the movers and shakers. Pankaj, good morning
00:32 and welcome to the show. Hi, good morning, Heeral.
00:36 Pankaj, let's start with HDFC Bank. All eyes have been on this one now, taking into consideration
00:42 how important it is for the contribution from an HDFC to Bank Nifty and Nifty to sustain
00:49 at current levels. What's your view and what would you advise investors to do?
00:53 HDFC Bank post merger with HDFC has got additional assets of 6 lakh crores plus and liabilities
01:03 of 6.4 lakh crores. Now, historically, if you look at it, HDFC Bank has delivered quite
01:11 superior returns with steady growth and steady margins. But given this merger, a lot of uncertainties
01:18 were there, which is why the stock has been trading in a very narrow range, both in terms
01:23 of price and also in terms of valuation. Now, what the bank is looking to do is that they're
01:28 looking to build up the liability franchise where they're expanding their branch network
01:33 from about 6,300 in March 2022 to I think 7,800 now and possibly doubling in the next
01:42 three, three and a half years. Now, when you're building so much of a liability franchise,
01:48 obviously, the OPEC's cost goes up, which is where I think the overall margins are going
01:58 to be sort of steady or a bit neutral from that perspective, because your cost has sort
02:03 of gone up. And while there are cross-selling opportunities, which they are willing to get
02:08 and they're willing to utilize, but I think because of this, the stock has been sort of
02:13 under pressure. But I think historically, they've delivered quite well on most of the
02:19 parameters and which is why I feel that admin guiding of 17%, 18% kind of a growth rate
02:24 with ROAs of I think 1.8%, 1.9% fairly look achievable, which is why I feel that whatever
02:32 price and the performance we are seeing is a good opportunity to buy with the target
02:35 price of 2050. So, that is what target price is on ISH Bank.
02:40 Batraman, HDFC, Pankaj, a lot of other private and PSU banks. In fact, the PSU pack is spectacular
02:47 in today's session. But let's focus on the private side. If you talk about a Karnataka
02:51 Bank as well, 6% up move coming in in today's session. What's the buzz and what would you
02:56 advise investors to do? So, Karnataka Bank, target price is 285. I
03:04 think where the overall confidence is coming from is that one, the management is guiding
03:09 for 17%, 18% kind of a growth rate in FY24 balance sheet is expected to sort of get doubled
03:16 in 3, 3.5 years' time frame. Now, overall, the thing is that this bank is still available
03:22 at 0.7 times and expected to achieve ROAs of 1.2%. Now, this is despite the fact that
03:28 the bank is spending about Rs.200 crores on the technological upgrades. So, as a result
03:35 of that, the cost is going to be sort of elevated. The benefits of that will accrue in future.
03:41 And then they are sort of looking to sort of improve the overall credit-deposit ratio
03:46 and also keeping the margin steady at 3.5%, probably 3.7% odd. So, I think good ROAs plus
03:55 valuation below book, I think is helping the stock to sort of do well. And our sense is
04:01 that with the kind of spend, what they are doing on the technology side, I think they
04:06 are fairly sort of confident in terms of delivering a high-teen kind of a growth, which is why
04:10 I feel that despite the run-up, this has still sort of potential to run up further and with
04:18 a target price of 285. Right. So, that's with regards to where Bank
04:25 of India, Karnataka Bank goes. Moving on, Bank of India is another one which is seeing
04:29 a smart move in today's session. What's your view?
04:32 So, I think here on the PSU Bank, there's an entire lot if you look at. There are some
04:38 things which are sort of working in favor for most of the PSU Banks. One is, I think,
04:43 what our sense is that most of them are expected to benefit from the MCLR repricing, which
04:49 is expected to happen in a quarter or two. And that is going to help the margins steady
04:55 for most of them. Liability continues to be very good for most of the PSU Banks. So, obviously,
05:01 there's not much of a challenge, we see. And there is anticipation that the Indian
05:07 bond might get included in the global bond indices, which can probably potentially lead
05:13 to higher inflows on the bond side and potentially it opens up the window for treasury gain for
05:21 some of the PSU Bank. And like I said, valuations continue to remain attractive for most of
05:26 the PSU Banks. Now, coming back to Bank of India in particular,
05:29 the stock has sort of run up, target price was Rs. 117. Now, this is a bank where overall,
05:37 if you look at corporate book is somewhere about 45% of the overall 5.2 lakh crore kind
05:43 of advances what they have and they have sanctioned up worth of sanctions worth about 40,000 odd
05:49 crores. So, I think the corporate book which was sort of lagging with the kind of sanctions
05:54 already in place, I think can grow and then I think the retail plus MSME book, which is
05:59 forming 25% of the book continues to sort of grow in line with the industry. But part
06:05 of that like most of the PSU Banks, the asset quality continues to improve. So, I think
06:11 previously, the gross and periods were closer to 15% odd. Now, that has sort of come down
06:16 to 6.7 odd percent and plus 53% of the book will benefit from the MCLR because of the
06:25 book which is based on MCLR. So, that is probably going to improve the yields for the bank and
06:32 credit cost is expected to be heavy. So, and it's trading at about 0.7 times. So, our sense
06:37 is that both ROAs and valuations can improve. So, which is why PSU as a whole lot looks good and
06:43 bank company has no exception to that. Right. So, that's what regards to where the banking
06:49 pack is concerned. Now, moving on, you have Bharat Electronics as well, which has been in focus. In
06:56 fact, they've won a defense order worth around 3,000 odd crores. How are you looking at Bharat
07:02 Electronics? Plus, the defense space overall is buzzing. Do you think valuations are still
07:10 reasonable to enter these stocks? So, yes, Hiral, valuation is a bit of a,
07:17 I think, given the kind of run up what we have seen, most of your PSUs already,
07:22 including the private ones, are trading at elevated multiples. But I think the news flows
07:27 continues to be very positive for most of the defense PSUs, including private counterparts.
07:33 Like the order what we have seen today of 3,000 odd crores for Bharat Electronics. Here, our
07:38 target price is 160. Now, structurally, why we are liking this stock is that defense equipment
07:44 are sort of getting modernized. So, earlier, the share of electronic component used to be about 35%,
07:49 that is inching up to 40-45% going forward. Now, this company had guided for an order for
07:56 about 20,000 odd crores. I think that till September, they've already got out and close
08:00 off about 14,000 odd crores, more than that, actually. And I think guidance is 20,000 odd
08:06 crores. So, those numbers look easily achievable. And I think current order book is also quite
08:13 healthy at 3.7 times overall FY23 revenues. So, our sense is that on the growth side,
08:19 you get a lot of comfort where the company can keep delivering 15-16% kind of a top line growth
08:25 and 17-18% kind of a bottom line growth. Valuations are definitely sort of rich for most
08:30 of the names and even for this part, relatively, this is still a stock which is at attractive
08:36 valuations and which is why I feel that this company looks good even from a portfolio perspective
08:42 with a target price of 160. Right. So, that's with regards to where defense names
08:48 are concerned as well. Moving on NCC, what's your view coming in on NCC?
08:54 So, NCC is there in news today because they've got a recovery of about 198 odd crores. Now,
09:00 this is one company which truly is benefiting from the overall infrastructure spend what the
09:06 government has sort of doing. Here, our target price is 170. So, they've got order book of about
09:12 54,000 odd crores. Last year, they got somewhere about 26,000 odd crores. Ordering continues to
09:19 be quite healthy in Q1. So, in Q1, they've got about 8,000 odd crores. In Q2 up till now, they've
09:25 got order in force of over 10,000 odd crores. So, our sense is that they will continue to sort of
09:30 deliver good amount of 18% kind of a growth on the top line front and margin expansion of,
09:36 say, from 10.1% to 10.5% on a big top line margin expansion of 45.3 bps is also quite significant
09:45 and which is why I feel that the bottom line growth could be at 25, 26 odd percent. So,
09:50 it's a good inflow and you really do not see too much of debt lying on the books. So,
09:58 they've got a debt of about 1100 odd crores, which will come down with this inflow and possibly our
10:04 sense is that you will see further recoveries of about, I think, probably 150 odd crores in this
10:12 year. So, from that perspective, debt reduction is going to happen. I think the only challenge is
10:18 that the interest rate outlook is still sort of on the higher side. So, whenever we see this
10:22 interest rate tending to sort of turn softer, I think that will provide the necessary leg. Otherwise,
10:29 everything is in place for the stock to sort of do well with the target price of 170.
10:36 Right. So, that's with regards to where overall NCC goes. Moving on, Jamna Auto is another one.
10:47 In fact, ancillary stocks, Pankaj, have been on the move. And this is last week as well after we
10:52 heard of, you know, there's a possibility of a PLI skin coming in. Supplies to EVs is something
10:58 that is being looked at as well. And second consecutive session where we're seeing a smart
11:02 move in the auto space itself. How are you looking at a Jamna Auto?
11:07 So, Jamna Auto is again one of the few OEM ancillary companies which have got very great
11:16 financials. So, they've got one of the highest ROCs. Here our target price is 135. Now,
11:23 this company is largely providing parabolic springs or primary leaf, which is largely used
11:32 in the CV and we all know that CV, especially the MHCV cycle is sort of turning out good given the
11:38 overall interest spend. I mean, we used to sell about 2.5 lakh MHCV last year, since is that,
11:46 sorry, in 2020. Possibly this number is about 3.6 lakh last year FY23. And we are again expecting
11:56 this number to sort of touch 4 lakh. So, I think the core business continues to see a good amount
12:02 of growth and they largely cater to all your big names, I mean, be it Tata Motors, Ashok Leyland or
12:07 Volvo. Now, good part is that company is looking to sort of diversify from this. So, they're looking
12:15 at overall 50% of the revenue should come from new products. So, they have launched agricultural
12:22 implants and a number of other products. And which is why I feel that overall, their growth
12:28 is going to be pretty good going forward. So, overall turnover growth could be about 15%
12:33 and again, bottom line growth is expected to be about 27%. ROCs are quite good at 25%.
12:41 And this company is net cash positive. So, we feel that even at 20, kind of a P multiple on FY25,
12:51 this is a good stock to be into. So, and this has been a very consistent sort of underperformer,
12:58 a performer, outperformer within the ancillary pack. So, which is why I feel that good
13:04 overall setup plus venturing into new areas, which is again, a very good ROC kind of a business.
13:12 I think the stock will sort of continue to deliver well.
13:16 Right. Very lastly, Midani, another one to focus on smart moves coming in.
13:21 Clearly, last couple of trading sessions as well have been pretty strong.
13:26 Last week has been pretty good. I think if I'm not mistaken for Midani along with the other
13:31 metal names. What's your view? So, Midani is again, while it is
13:38 in the specialized alloy or titanium alloy segment, but largely catering to the defense
13:44 and space industry. Now, this is one company which hasn't really done much in the last few years. So,
13:50 last three year CAGR revenue would be about 7% or 8%. But our sense is that this is probably going
13:57 to change largely because they've got about 1600 kind of order book and which should get executed
14:05 in the next one, one and a half years. So, that would imply that they can deliver about 20% kind
14:09 of a growth rate. Now, the reason for liking this company is also that when we sort of hear that
14:15 HL is going to manufacture a lot of aircraft domestically or for example, even choppers
14:22 domestically. This company manufactures specialized titanium alloys, which are key
14:29 components required or key metals sort of required for machining or even for engines.
14:37 So, this company is expected to sort of play a key role and plus I think, when the government is
14:42 looking to open up the critical mining area. So, obviously, the opportunity pie for this company
14:47 increases because a lot of import substitution can happen. And like I said, last three years,
14:53 they haven't done much, but our sense is that with our drink was about 1600 crores,
14:58 they are expected to do well and without sort of keep getting better, which is I feel that
15:04 profit growth could be about 80% or so. So, this is another defense PSU, I would say,
15:11 which is looking to sort of catch up. And given that we haven't seen much of a price performance
15:18 at a little brother, valuation might look high at 40 times, but I think one needs to take cognizant
15:24 to have that last two years, the company hasn't really sort of delivered growth. But our sense
15:29 is that that is about to change and which is why I feel that our target of 465 looks good for a
15:35 company like this. Thank you, Pankaj, so much for joining us on the show and sharing the views. So,
15:43 clearly, we are seeing stock specific action, but overall, in terms of the markets are concerned,
15:49 it's a pretty flattish move. And one of the events that we have been tracking closely from
15:56 a macro perspective is the special session of Parliament 2023, which has begun as well. In fact,
16:03 there is what we're picking up is that there is a ruckus in the Lok Sabha as the five day special
16:08 session has begun. And you have Om Birla, who's the Lok Sabha speaker who's actually started with
16:15 his opening address as well, clearly indicating that the decision during taken during the G20
16:21 summit are for the global good. And G20 focus is now on more human centric approach. PM Modi's
16:29 vision and guidance led to consensus on even sensitive issues in the New Delhi declaration
16:35 issued by the G20 leaders. So lots, a lot of comments coming in there, you will be shortly
16:41 able to hear and watch what's happening in the Lok Sabha as well in the special session of
16:46 Parliament from now. That's all that we have on this session. Thanks for watching. And please stay
16:51 tuned to BK Bright.
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