Diwali Top Picks By Motilal Oswal: SBI, M&M, Cipla, Raymond, 4 Other Stocks Are Recommended To Buy

Diwali is just two days away with Dhanteras illuminating the festival from November 10th onward. The festival will continue for five-days and will be celebrated across regions of India. This will also mark the ending of Samvat 2079, and the hindus across the country will welcome samvat 2080. Following this, brokerage Motilal Oswal has highlighted key themes and ideas for samvat 2080. The brokerage has selected eight stocks as top picks for Diwali 2023.

These stocks are SBI, M&M, Cipla, Dalmia Bharat, Raymond, Kaynes Tech, Spandana Sphoorty, and Restaurant Brands Asia.

According to Motilal Oswal, despite global uncertainties, India remains a shining star and is expected to maintain its outperformance. Nifty is trading at a 12-month forward P/E of 17.6x, which is at a 13% discount to its 10-year average, thus providing comfort. It added, "We believe that over the next couple of quarters, sector rotation could be an important driver along with the overall market uptrend. We also believe valuations will become an important factor in stock selection to drive outperformance in portfolios."

Furthermore, Motilal's note said, "Our last year's Diwali picks have done well, with some of our ideas, such as L&T (+58%), IDFC First (+48%), Lemon Tree (+38%) generating superior returns compared to Nifty's gain of 10%. We present below our key themes and ideas for Samvat 2080."

Here's what Motilal Oswal highlights about eight top picks:

SBI: (TP: Rs 700)

The has strengthened its balance sheet by creating higher provisions. It raised its PCR (including TWO) to 92% in 2QFY24 and held a higher (~99.5%) provision coverage on Corporate NPAs.

Among PSU banks, SBIN remains the best play, with a healthy PCR, Tier I of ~12%, strong liability franchise, and improved operating profitability.

M&M: (TP: Rs 1,770)

M&M has one of the highest exposures to the rural market (~65% of volumes), which is likely to recover considering the rural cash flows. The company's reorientation of its SUV business to maintain its DNA and brand positioning has led to a robust demand momentum for its SUVs.

Motilal expects a 16% volume CAGR in Passenger UVs over FY23-25.

Cipla (TP: Rs 1,450)

Cipla's robust ANDA pipeline with complex products (inhalers, peptides, injectable, etc.) should drive consistent growth in the US generics segment.

This along with a steady outperformance in branded generics market (of India/SA) would enable 19% earnings CAGR over FY23-25E.

Dalmia Bharat: (TP: Rs 2,800)

Dalmia Bharat is benefiting from: 1) a robust increase in cement prices, particularly in the East, where prices have risen by INR40-50/bag, and 2) an improvement in demand.

The brokerage expects 11% volume CAGR over FY23-26, and estimate EBITDA/t of Rs 1,045/ 1,150/ 1,250 in FY24/FY25/FY26 driven by a reduction in opex (operating efficacy and softening fuel prices).

Kaynes Tech: (TP: Rs 3,100)

Kaynes is a prominent end-to-end and IoT-enabled integrated electronics manufacturer, with strong order book growth (96% CAGR over FY20-23) and a higher share of Box Build (~40% in 1HFY24) and PCBA (54%).

The brokerage estimates 41%/56% CAGR in revenue/Adj. PAT over FY23-FY26, driven by healthy order book and a better margin profile (increasing mix of high value order).

Raymond: (TP: Rs 2,600)

Raymond in last 2-3 years has strengthened its leadership team & restructured its group. Demerger and promoter's capital infusion strengthened balance sheet.

It has a collection of established brands like Raymond, Park Avenue, ColorPlus, Ethnix which it plans to grow through capex-light franchisee mode

Spandana Spoorty: (TP: Rs 1,100)

Spandana Sphoorty has pivoted from consolidation to the growth phase to pursue customer acquisition-led growth, with addition of 350k borrowers (up 180% YoY) in 2QFY24.

With reinforced processes, it is now ready to capitalize on the strong opportunity in the MFI sector. The brokerage estimates a 34% AUM CAGR over FY23-FY26, and an RoA/RoE of 4.4%/17% in FY26.

Restaurant Brands Asia: (TP: Rs 135)

Restaurant Brand Asia has has worked on its products, new categories and value segment to attract traffic in the last couple of years. The brokerage sees its business well on track to see a turnaround in the next 2-3 years.

Also, with an aggressive store addition (17% CAGR over FY23-26), RBA is well placed to deliver a strong 26%/45% CAGR in revenue /EBITDA over FY23-26E for India business.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.