While the NSE benchmark Nifty has corrected 6 per cent in October, many stocks have fallen more than 15 per cent from their 52-week highs.
Emkay Global has picked five stock ideas that look attractive after the recent fall. The negative momentum may not turn around immediately, but these five stocks are all attractive from one-year perspective, the brokerage said.
IndusInd Bank Ltd
Emkay Global said the MFI pain for IndusInd Bank is temporary – this is not a classical down-cycle that wipes out large parts of the book. The bank’s decision to sacrifice growth rather than compromise on credit standards is an overlooked positive, it said.
The auto book should see better traction in H2FY25. The NPLs in some categories may persist for another 1-2 quarters, but it is more of a seasoning factor than a major asset quality crisis, Emkay said.
Also the deposit franchise has held through the last 12M despite a hostile operating environment. “We expect improved growth as the RBI eases liquidity. Stock is available at 1.2 times PBV (1YF) and prices in a worst-case scenario on asset quality and growth. As both normalize, there is scope for significant rerating,” it said.
Saregama India Ltd
The stock seems to have negatively reacted to the company losing out on the bid to acquire Dharma Productions. That is a good thing, Emkay said.
“Dharma is a lumpy, asset-heavy, low-margin business which would have hurt Saregama’s balance sheet and return ratios. The long-term prospects for the music licensing business is robust. The penetration of paid users, at below 3 per cent, has significant upside. There are lumpy costs for acquiring music rights, so quarter-to-quarter may not be the best way to look at this business,” it said.
Saregama stock has corrected 26 per cent from its peak and is now at 30 time one-year forward multiple, Emkay said. The stock is supported by consistent and rising ROIC of over 20 per cent and steady OCF/Ebitda of 60 per cent, it said.
Escorts Kubota Ltd
The Escorts stock recently corrected following the divestment of its Railway Equipment Division to Sona BLW, as the valuation at which it sold appeared to be lower than expected.
“However, this may present a buying opportunity given the positive agricultural outlook from an above-average monsoon leading to a pickup in rural demand and favorable industry base that could support a tractor upcycle, which we believe may start from H2FY25,” Emkay said.
Additionally, Escorts’ strategic initiatives in product expansion, channel development, and increased capacity to address opportunities in India and export markets, alongside Kubota’s growing sourcing from India, are likely to support mid-to-long term growth.
“The stock has corrected 18 per cent from its peak and trades at 24 times core Sep-26E PE vs 27 times for M&M, supported by 16 per cent EPS CAGR in FY25E-27E and over 30 per cent ROIC,” Emkay said.
Hero MotoCorp Ltd
Emkay said the 2W cycle is not done yet. Structural issues like high penetration notwithstanding, the sector is coming out of a 5 year downcycle. Emkay does not see the upswing dying out in 2-3 years.
“The share of budget 2W is rising after a long hiatus, and that benefits HMCL more than others. Channel checks suggest strong festive demand, so the weak 2Q numbers look like an aberration. The stock is now at a very reasonable 18 times 1YF, and with a promising 2HFY25 looming, this looks like a good entry point,” it said.
Mahindra & Mahindra Financial Services Ltd
Emkay said Mahindra Finance’s CEO Raul Rebello is strengthening the business with improved credit delivery and controls. It sees a credible path to 2.5 per cent return on asset (ROA), even if it takes some time to get there.
“Diversification of the portfolio is another long-term positive that will strengthen the business and reduce ROA volatility. The recent clean-up of the book (a long-term positive) provoked a sell-off that has brought the stock to an attractive 1.5x PBV. We see a strong rerating opportunity, even if it takes some time (1-2 years),” it said.
