Motilal Oswal’s top largecap investment ideas amid second COVID wave; ICICI Bank, Infosys, Titan and more

SUMMARY

The advent of the second COVID wave has muddied sentiment and impaired the FY22E earnings visibility. With multiple states entering into extended lockdowns and restrictions, brokerage firm Motilal Oswal sees downside risks to its FY22 earnings estimates. The interplay of the resurgence in COVID cases and the pace of vaccination would decide the trajectory of economic recovery going forward. The brokerage is Overweight on BFSI, IT, Metals and Cement, Neutral on Consumer, Healthcare, Auto, Telecom and UW on O&G, Infrastructure.

By Ankit Gohel May 14, 2021 3:22:29 PM IST (Published)

Infosys | Motilal Oswal continues to see Infosys as a key beneficiary of a recovery in IT spends in FY22E, given its capabilities around Cloud and Digital transformation. Leading operational performance in FY21 and strong deal wins should translate into strong outperformance in EPS growth versus the sector.

ICICI Bank | The bank has delivered double-digit RoE (~12.6%) for the first time post FY17 and we expect RoA/RoE to improve to 1.7%/15.2% in FY23E, Motilal Oswal said.

UltraTech Cement | We estimate an 11%/19% consolidated EBITDA/PAT CAGR over FY21–23E, driven by an 11% volume CAGR, lower operating costs, and lower interest costs, the brokerage firm said.

Hindustan Unilever | The strong outlook on rural, GSK Consumer Healthcare synergies, and sustained growth and premiumization in Skin Cleansing offer further medium-term tailwinds, the brokerage said.

Mahindra & Mahindra | Tractors and Pickup UVs are on a strong footing in terms of outlook, M&M’s competitive positioning, and industry-level consolidation. However, M&M’s SUV business is severely challenged. Further, it has guided for an almost 90 percent reduction in international subsidiary losses in FY22E, driven by the completion of phase-1 of the capital allocation exercise, Motilal Oswal said.

SBI | The brokerage believes the earnings normalization cycle for SBI has begun as the uncertainty ushered by COVID-19 has receded significantly. IT maintains FY22E/FY23E estimates and projects RoA/RoE of 0.8%/14.5% by FY23E.

SBI Cards & Payment Services | Gradual decline in the RBI RE book and an increase in the revolver mix, coupled with controlled funding cost, would support margins over the medium term. We estimate a loan book/earnings CAGR of 24%/60% over FY21–23E. We estimate RoA/RoE to improve to 6.8%/28% in FY23E.

HCL Technologies | Given its deep capabilities in the IMS space and strategic partnerships, investments in cloud, and digital capabilities, the brokerage expects HCL Technologies to emerge stronger on the back of an expected increase in enterprise demand for these services.

Titan Company | There is a strong growth runway given Titan's market share of less than 10% and the continuing struggles of unorganized and other organized peers. Balance Sheet improvements, especially on the working capital front, were impressive. If sustained, these could significantly elevate the medium to longer-term RoCE, especially for a business that has prospects of 20% topline growth beyond the near term COVID-related blip, Motilal Oswal said.

Hindalco Industries | Hindalco Industries is Motilal Oswal's preferred non-ferrous pick owing to its strong profitability in the India Aluminum business from its low-cost integrated operations, a positive outlook for Novelis, driven by a recovery in auto demand and cost synergies from Aleris, solid FCF generation, which should reduce leverage sharply, and reasonable valuations.

Divi’s Laboratories | We are encouraged by promising demand prospects and multiple growth levers – a) new product additions, b) a strong chemistry skill set, c) efficient manufacturing capabilities, d) scale-led advantage in legacy molecules, e) minimal financial leverage, and f) sufficient cash available for new projects. We expect 27%/38% sales/earnings CAGR over FY20-23, the brokerage house said.