Jefferies has picked 21 stocks in India from a range of sectors, including financials, autos, real estate and pharma as its top Buy ideas.

Top Buy picks include ICICI Bank, State Bank of India, IndusInd Bank, Tata Motors, Tata Steel, Reliance Industries and Polycab India, Jefferies' equity analysts Mahesh Nandurkar and Abhinav Sinha said in an investor note dated 28 February.

Following are the key details of the brokerage’s top stock picks:

Key highlights from Jefferies’ top ideas are as follows:

ICICI BANK

• ICICI Bank offers among the best risk-reward across peers with superior growth, improved asset quality and higher return on equity (RoE).

• The bank looks well poised to leverage on growth pickup in Indian bank credit and gain market share in times of tighter liquidity and higher rates.

• The bank trades at 2.3x on one-year forward adjusted price-to-book (PB) ratio, which looks well justified by its better growth, improved asset quality and strong profitability and hence, it offers among the best risk-rewards across peers.

• The bank is likely to deliver a 20% CAGR in profit over FY22-FY25 and ROE of about 17%.

STATE BANK OF INDIA

• SBI looks well positioned to deliver healthy growth in earnings with an uptick in the top line and low credit costs. Moreover, valuations look quite attractive as the bank is confident of sustaining return on assets (RoA) at 1%.

• SBI is likely to report ROA of 0.9% and ROE of 17% in FY24. Valuations look attractive at 1.2x adjusted PB and RoE will aid reasonable compounding.

INDUSIND BANK

• IndusInd Bank’s asset quality pressures are behind it as the bank has recognized/provided for most of the stressed book. It is poised to deliver a turnaround in ROA and is attractively priced at 1.4x FY24 adjusted PB.

• There’s potential to ramp up lending (merchant lending, MFI, non-commercial vehicle auto loans), defend margins as well as lower credit costs.

• These can lift the bank’s ROA from 1.2% in FY22 to 1.9% in FY24 and RoE toward 16% by FY24.

HDFC LIFE

• HDFC Life is expected to deliver sector-leading 21% CAGR in annual premium equivalent (APE) and 25% in value of new business (VNB) over FY23-FY25.

• The impact of recent change in taxation rules [withdrawal of tax exemptions on premium of more than 500,000 rupees ($6,048) on non-linked savings products] on APE and VNB trajectory is likely to be limited.

• IRDAI's permission to life insurance companies to expand into health insurance (indemnity-based) holds potential to lift premium growth.

BAJAJ FINANCE

• Bajaj Finance looks well positioned to deliver a healthy growth of 25% CAGR in assets under management (AUM) as it leverages on expansion into new markets and addition of new products.

• The potential opening-up of credit card business will open a large profit-pool opportunity for the company and could account for 5-10% of profits over the next two-to-three years.

• Bajaj Finance should also benefit as rate-hike cycle peaks out with another 25-50 basis points hike in policy rates, which will abate risks on net interest margins (NIMs).

CHOLAMANDALAM INVESTMENT

• Cholamandalam’s AUM should grow at 23% CAGR over FY22-FY25, led by strong growth in autos and growth in its non-autos segment. New business is seeing strong traction and if executed well, could further boost growth.

• The non-bank lender’s asset quality has improved and credit costs should be broadly stable over FY22-FY25.

• Cholamandalam should deliver 19% EPS CAGR and best in class RoE of 18-20% over FY22-FY25, which should support premium valuation.

TATA MOTORS

• A confluence of improved strategy and cyclical recovery is driving a big turnaround in Tata Motors’ India business performance.

• The brokerage likes Tata Motors’ given’s the cyclical recovery and improving franchise in India, early leadership in India electric vehicles (EVs), and Jaguar Land Rover (JLR) focus returning to higher margin Land Rover models.

MARUTI SUZUKI

• FY19-FY22 was among the toughest phases for Maruti, as the combined impact of demand slowdown, chip shortages, weak sport utility vehicle (SUV) presence and sharp metal price.

• rally pulled down EPS by 50% over three years. The demand, product and margin cycles are now aligning favorably, which could almost quadruple EPS over FY22-FY25.

• Maruti's EBITDA margins were in a 10%-15% band for most of FY05-FY20, but fell to a historical low of 6.5% in FY22, partly due to the sharp metal price rally. Margins have improved to 8.8% in 9MFY23 (3Q: 9.8%), led by improving pricing power amid strong industry demand, softer metal prices, and refreshed product portfolio.

• A stronger Japanese yen poses some headwind but margins are likely to expand further, led by good pricing power and normalization of discounts from seasonally higher December quarter. EBITDA margins are likely to be 11.6%-11.8% in FY24-FY25.

TVS MOTOR

• After a long period of subdued margins, TVS is narrowing the gap with peers. Its EBITDA margin has improved from average of just 6.4% in FY10-FY17 to 10% in the last six quarters.

• EBITDA margin is likely to expand to 11.5% in FY24-FY25 as Indian two-wheeler (2W) demand recovery and TVS' improving franchise drive better pricing power.

• TVS plans to launch multiple EVs across 2Ws and three wheelers over the next 12 to 18 months to further expand its portfolio. The company’s earnings are likely to triple over FY22-FY25.

TATA STEEL

• The brokerage likes Tata Steel amid a potential cyclical recovery in China and improving margin profile of the India business.

• Tata Steel’s valuations are reasonable with the stock trading at 1.1x/1x FY24E/FY25E PB for 8%/11% ROE; long-term average is 1x PB for 8% ROE.

LARSEN & TOUBRO

• L&T is in a sweet spot as both the Middle East and domestic markets are doing well, pointing to upside prospects on order flow from the Middle East, where the spend is in hydrocarbon and green energy infrastructure.

• L&T should benefit from execution and margin recovery as impact of supply disruptions and sharp commodity price rise ease.

• The peak of non-core investments in behind and L&T has potential to surprise on execution and order flow expectations.

• Prudent capital allocation and RoE improving to 16% in FY25 from 11% in FY22 (14% in FY20) are other triggers.

THERMAX

• Thermax’s brand looks well placed for its larger agenda of being a leader for India in terms of clean water, clear air and clean energy by offering new product solutions to its existing customers.

• The management focus is on leveraging its brand in green offerings, improving capital allocation, margin improvement and seeking new renewable energy (RE) growth avenues with global tie-ups.

• Revenues will likely rise at 24% CAGR over FY22-FY25, driven by a visible order book, and a product portfolio geared to benefit from industrial capex and ESG-linked spend in cement, steel, refinery, chemicals, textiles and other industries.

MACROTECH DEVELOPERS

• Macrotech’s (Lodha) net debt has halved since listing on equity raise and strong operational cash flows. The management target of gearing is below 0.5x versus December 2022’s 0.7x levels.

• Lodha's investments in UK projects are nearing lifecycle end and the management expects to receive 10 billion rupees of net surplus by the end of FY24.

GODREJ PROPERTIES

• Godrej Properties has done well on new project adds with 275 billion rupees worth of projects signed. About 90% of them are on the buy-out route instead of the partnership model that it favored earlier. The company is staying ahead of cycle in anticipation of rising land prices ahead.

• Post the new acquisitions, there’s we see good visibility to Godrej Properties’ delivering on about 20% medium term growth target.

• The company’s balance sheet is still under-levered (0.3x gearing) and provides scope to add large new projects.

GODREJ CONSUMER

• Godrej Consumer is a good turnaround candidate as the new CEO Sudhir Sitapati is undertaking several structural initiatives, which should yield results over the medium term.

• More steps are underway, with focus on simplification, growing category penetration and better co-ordination across geographies. This course correction is a journey, which would span across several quarters.

• The brokerage expects 20% EPS CAGR over FY23-FY25 for Godrej Consumer, after a muted 4% EPS CAGR seen over the last two years (FY21-FY23E). Valuations are reasonable at 43x FY24E EPS.

RELIANCE INDUSTRIES

• There’s possible upside to oil-to-chemicals (O2C) earnings in FY24 if Chinese demand recovers, driving petrochemical margins to long-term averages.

• There’s a potential delay in tariff hike in the near-term, but the government’s acquisition of equity in Vodafone Idea Ltd. improves the longer term tariff growth outlook.

• The potential export duty withdrawal as diesel margins have corrected could remove a regulatory overhang.

SUN PHARMACEUTICAL

• Sun Pharma’s acquisition of US-based Concert Pharmaceuticals will help position it with best-in-class product in a multibillion Alopecia Areata market.

• Ramp up in products like Cequa and Winlevi should help to grow the US business at high single to low double digit even if sales of generic business does not increase from hereon.

• The company has $2 billion of cash in hand and could add more products to its specialty division, which would further augment growth for the company in medium to long term.

GLOBAL HEALTH

• Medanta's mature hospitals demonstrate a steady margin profile, while its new hospitals in Lucknow and Patna are expected to ramp up strongly and drive overall EBITDA CAGR of 16% over FY23-FY25.

• Lucknow hospital is witnessing strong demand due to which payor has been quite superior with no government schemes patients and this bodes well for a quick ramp up for the hospital.

• Losses in Patna hospital are low and a sustainable breakeven of the unit will result in operating leverage benefits from the facility.

INDIAN HOTELS

• Indian Hotels looks best positioned to capitalize on the sustained recovery in the hotel industry in India, with occupancies and revenue per available room expected to rise over FY23-FY25.

• Indian Hotels will be a top beneficiary of the trend with its strong pipeline of hotels and new signups, improving margin profile, mix of leisure & business hotels, incremental asset light strategy, as well as new initiatives like food delivery and staycation villas.

• The brokerage expects a 14% EBITDA CAGR for FY23-FY25 (after a 4x growth in FY23).

ULTRATECH CEMENT

• Ultratech is likely to remain an outperformer, as it would be the biggest beneficiary from any revival in government/private capex due to its pan India presence and market leadership in each region.

• The company’s successful expansion through organic/inorganic route will drive its growth, while its focus on cost rationalization will further boost the industry leading profitability.

• The brokerage’s current estimates factor in an 11%/10% on year volume growth for FY23/FY24. It expects a 28%/14% on year growth in EBITDA in FY24/FY25, respectively, on the back of flat FY22 and 8% decline in FY23 EBITDA.

POLYCAB INDIA

• Polycab is a beneficiary of infra/capex/housing revival, given its strong market share in cables and

• wires (22%-24%) and 65% business-to-business mix. The brokerage expects FY22-FY25E sales CAGR at 15%-16%.

• The brokerage expects FY22-FY25E adjusted net profit to clock over 30% CAGR, driven by higher volumes, led by housing and expected revival in capex/infra and better fast-moving electric goods traction.

(Note: $1 = 82.6774 Indian rupees)

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