Stock to Buy: Mahindra & Mahindra, Bharti Airtel, and More

Stock to Buy

PL Capital has recently revised its list of high-conviction stock picks, showcasing a range of promising opportunities across diverse sectors.

The brokerage highlights its optimistic outlook on Mahindra & Mahindra’s growth in the utility vehicle segment and provides detailed insights into newly added picks such as Bharti Airtel, IndusInd Bank, InterGlobe Aviation, Lupin, BEML, and Lemon Tree Hotels.

This update reflects PL Capital’s strategic focus on companies poised for strong performance amidst evolving market dynamics and economic conditions.

Mahindra & Mahindra (M&M):

PL Capital projects that Mahindra & Mahindra (M&M) will continue its robust growth trajectory in the utility vehicle (UV) segment, driven by evolving consumer preferences and the company’s strategic initiatives.

The firm’s optimistic outlook is supported by the positive market reception of M&M’s new UV models and its ongoing capacity expansion efforts.

For FY24-26, PL Capital forecasts an impressive automotive volume growth rate of 12.6% year-over-year (YoY). This growth is anticipated to be driven by several key factors: the increasing popularity of M&M’s updated UV lineup, which has resonated well with consumers, and the company’s strategic capacity expansion to meet rising demand.

Additionally, tractor sales, which play a significant role in M&M’s overall business, are expected to grow in the mid to high single digits.

This growth is bolstered by the Indian Meteorological Department’s (IMD) forecast of an above-average monsoon, which typically stimulates agricultural activity and, consequently, tractor demand.

Given these positive trends, PL Capital anticipates a substantial increase in M&M’s profit after tax (PAT), with a projected growth rate of 22.1% YoY over FY24-26.

The brokerage has set a target price of ₹3,330 for M&M’s stock. This valuation includes a core business valuation of 25x FY26E earnings per share (EPS), along with separate valuations of ₹229 for its electric vehicle (EV) segment and ₹385 for its listed subsidiaries.

High Conviction Picks:

PL Capital – Prabhudas Lilladher has recently updated its list of conviction picks, removing previously highlighted stocks such as HDFC Bank, ITC, Maruti Suzuki, Eris Lifesciences, and TCI Express.

In their place, the brokerage has added Bharti Airtel, IndusInd Bank, InterGlobe Aviation, Lupin, M&M, BEML, and Lemon Tree Hotels to its high-conviction list. Here’s an in-depth look at these newly included stocks:

• Bharti Airtel:

Bharti Airtel stands out as a significant pick for PL Capital, with the company boasting a customer base of 355 million, including 25 million in the postpaid segment.

The company’s average revenue per user (ARPU) is currently ₹211. Bharti Airtel is strategically focusing on acquiring high-quality customers, transitioning users from prepaid to postpaid plans, expanding into rural areas, and enhancing its business-to-business (B2B) segment.

The anticipated tariff hikes in the prepaid segment for Q1 FY25 are expected to provide additional revenue streams.

PL Capital forecasts a 15-20% growth potential in various postpaid plans, which is expected to strengthen the company’s performance in the latter half of FY25.

The brokerage predicts that Bharti Airtel will add 13 million new customers in FY25 and 19 million in FY26, with ARPU projected to rise to ₹230 by FY25 and ₹268 by FY26. This growth trajectory underscores Bharti Airtel’s strong positioning in the telecom sector.

• IndusInd Bank:

PL Capital has a positive outlook on IndusInd Bank, anticipating credit growth of 16-17% for FY24-26. This growth rate is notably higher than the broader banking sector average.

The bank’s net interest margin (NIM) is expected to remain strong, ranging from 4.3% to 4.4%, which is among the best in its category.

Despite an increase in provisions, IndusInd Bank’s profitability is projected to improve due to robust loan growth and favorable margins. PL Capital estimates a core earnings compound annual growth rate (CAGR) of 19% over FY24-26.

Concerns such as low liability growth and buffer provisions are noted, but the attractive valuation of 1.35x on the estimated adjusted book value (ABV) for FY26 suggests that these issues have already been factored into the stock price.

• InterGlobe Aviation:

InterGlobe Aviation, which operates IndiGo, is focusing on expanding its international business with orders for Airbus A350-900 aircraft and enhancing its premium business class offerings.

Key factors to monitor include fluctuations in fuel prices, increasing competition, and issues related to Pratt & Whitney (P&W) engines.

PL Capital has maintained its EBITDAR forecast for IndiGo, adjusting for higher fuel costs and the inclusion of more fuel-intensive aircraft. Revenue is projected to grow at an annual rate of 16% for FY24-26.

• Lupin:

Lupin’s profitability has seen remarkable growth in FY23-24, with a twofold increase in EBITDA. This improvement is attributed to a favorable product mix, continued exclusive launches in the US market, USFDA approvals for its manufacturing facilities, a revival in domestic formulations, and ongoing cost reduction efforts.

The company’s margins are expected to remain strong, supported by a solid pipeline of products in the US. However, risks include potential competition for Spiriva and delays in new US launches, which could impact these projections.

• BEML:

BEML is well-positioned for sustained growth, backed by a substantial ₹580 billion tender pipeline for FY25. This includes ₹440 billion for rail projects and ₹140 billion for metro projects.

Additionally, modernization plans for armored vehicles and engines could lead to further orders worth ₹400 billion over the next 4-5 years. This strong pipeline reflects BEML’s strategic positioning and long-term growth potential.

• Lemon Tree Hotels:

Lemon Tree Hotels’ strategic decision to exit the low-yield airline business reflects confidence in strong retail demand and improved pricing in the latter half of FY25.

The company’s renovation plans, typically carried out in the first half of the year, are expected to boost occupancy rates in the second half of FY25.

PL Capital maintains its sales and EBITDA CAGR estimates for FY24-26 at 17% and 22%, respectively. The recent dip in the stock price is viewed as a buying opportunity, given the anticipated recovery and growth prospects.

Overall, PL Capital’s updated high-conviction picks offer a diversified set of opportunities across various sectors, reflecting a strategic approach to capitalize on emerging market trends and growth prospects.