Brokerage Reports: 19th December 2023

Jefferies’ View on ITC:
Recommendation: Buy, Target Price: Rs 530
(BAT) is encountering challenges due to volume declines and a significant debt load, leading to its valuation dropping to a 6x P/E, the lowest among its tobacco peers. Notably, ITC’s recent strong performance has surpassed BAT’s market capitalization. Recent updates suggest BAT may consider reducing its stake in ITC by approximately 4 percentage points, bringing it down to 25%. There are indications that hotels might be considered non-core, hinting at a potential stake sale post the listing of ITC Hotels.

🚨 British American Tobacco (BAT), ITC's major shareholder, is open to reducing its 29.02% stake, stating that holding over 25% isn't necessary for strategic influence, including veto rights, says BAT CEO Tadeu Marroco.#ITC #Nifty pic.twitter.com/ItfMEWNEzO

— BigBreakingWire (@BigBreakingWire) December 16, 2023

Antique on Sansera Engineering:
Recommendation: Buy, Target Price: Rs 1150
The company is a comprehensive player in the manufacturing sector, producing vital components and precision engine parts for various vehicles, including 4-wheelers, 2-wheelers, and commercial vehicles. Additionally, it manufactures parts for aerospace, defense, and EVs. As of 2QFY24, the company’s order book stands at Rs 19.3 billion. A significant 52% of this order book is attributed to tech-neutral, xEV, and non-automotive sectors, indicating potential robust revenue growth. The forecast predicts a 19% revenue growth from FY23-26E, with a projected margin of 17.7% for FY25/26. This growth trajectory is expected to boost PAT by a CAGR of 32% between FY23-26E. Anticipated RoE/RoCE for FY26 stands at 19%/20.2%, up from 13.3%/14.3% in FY23.

CLSA’s Take on Devyani:
Rating: Outperform, Target Price: Rs 211
The company has revealed its acquisition of a 50% effective stake in Restaurant Development, the entity operating 274 KFC outlets in Thailand. The transaction will cost Devyani Rs 3414 million. The deal includes a local bank debt of Rs 3.85 billion and is valued at a trailing twelve-month EV/Sales ratio of 0.83x.

Motilal Oswal Outlook on PSU Banks:
Positioned for Re-rating 2.0
With a 1% RoA transitioning from an aspiration to a sustainable metric, the valuations remain favorable. It’s projected that the earnings pool for PSBs will grow to INR 1.7 trillion by FY26E, a jump from INR 573 billion in FY22. The liability framework is robust, with the LCR ratio maintaining comfortable levels.

Motilal Oswal Ratings on Specific PSU Banks (Updated Targets):
– SBI: Buy, Target Price revised to Rs 800
– PNB: Neutral, Target Price: Rs 90
– BOB: Buy, Target Price adjusted to Rs 280
– Canara Bank: Buy, Target Price raised to Rs 550
– Union Bank: Buy, Target Price upped to Rs 150
– Indian Bank: Buy, Target Price revised to Rs 525

UBS’s on Reliance Industries:
Recommendation: Buy, Target Price increased to Rs 3000
There’s a heightened focus on consumer businesses, with concerns about leverage deemed excessive. Over the FY23-26E period, consumer businesses are anticipated to contribute approximately 85% of the incremental EBITDA, compared to just 40% in FY21-23. This shift is expected to raise their segment EBITDA share from 49% in FY23 to 58% in FY26E. The anticipated improvement in earnings could generate ample free cash flow, paving the way for debt reduction post-FY24. Investors have yet to fully acknowledge the potential of earnings growth driven by consumer businesses. The emerging opportunities in the new energy sector are not entirely reflected in the current valuation, contributing an additional Rs 225/share in the Sum of the Parts (SOTP) valuation.

Axis Capital’s on Avalon Tech:
Recommendation: Buy, Target Price: Rs 720

The growth rate of India’s EMS is anticipated to surpass that of the global EMS sector. Avalon stands out as a highly integrated player in the EMS landscape.

Projected EPS growth suggests a 34% CAGR from FY23-26, accompanied by an average RoE of 15%.

CLSA’s on Dixon:

Reaffirm Outperform rating; Increase target price to Rs 7070, up from Rs 5675.

Positive growth prospects continue to strengthen.

Anticipate that backward integration will drive the next phase of expansion.

Positioned favorably in the consumer electronics sector.