Brokerage call: 3 debt-free stocks to BUY next week for strong upside potential

Until there is enough cash flow to support future expansion and steadily improving year-over-year sales and earnings growth, a debt-free business will seem more attractive to investors. potential investors. However, it is always best to look for other financial health and ratios other than a company’s balance sheet showing zero debt. SBI Life Insurance, NOCIL Ltd and Jubilant Foodworks Ltd are the three companies without debt according to Value Research and after their Q1FY23 results, brokerage firms are bullish on these stocks. ICICI Securities has set a target price of 1500 for SBI Life Insurance shares, Sharekhan, a brokerage firm, has set a price target of 348 for NOCIL Ltd., and a target price of 675 for Jubilant Foodworks. These stocks can be watched in the coming week, based on the brokerage’s buy recommendation.

NOCIL S.A.

Brokerage firm Sharekhan said in its research note that “NOCIL reports robust results for Q1FY23 with consolidated revenue for Q1FY23 at Rs. 509 crores (up 47.7% YoY; up 10 % YoY), 8% above our estimate of Rs. 473 crores due to a 9% increase in sales volume to 15,251 tonnes (up 16% YoY; up 11% YoY) Mixed achievement of Rs. 334/kg (down 0.9% qoq) was broadly in line with expectations of Rs. 337/kg EBITDA margin improved by 20% in YoY (down 17% QoQ) at Rs. 67/kg and was significantly above our estimate of Rs. 57/kg led by a higher than expected gross margin at Rs. 155/kg (up 19.5% YoY and 9% above our estimate) and benefit from operating leverage (strong volume growth). Margins declined seq uentially due to exceptionally higher margins in Q4FY22. Hence, operating profit/PAT at Rs. 103 crore/Rs. 66 crore, up 39%/40% YoY and 29%/36% above our estimate, supported by strong volume and margin performance.”

“We believe that the tire industry’s strong growth outlook and resilient pricing environment would result in volume/margin driven earnings growth. NOCIL is a play on import substitution and China Plus One strategy by global customers and the same would lead to market share gains with improved finance. The 19.4x/17.1x FY23E/FY24E EPS valuation is attractive given our expectation of a strong 1.5x increase in earnings on FY22-24E and RoE improvement to 16% (vs. 12. 9% in FY22). Therefore, we maintain a long position on NOCIL with an unchanged PT of Rs. 348,” said research analysts at Sharekhan Ltd.

Jubilant Foodworks Ltd

Sharekhan said in a note that “Jubilant Foodworks Limited (JFL) delivered strong performance in the first quarter of fiscal 2023. Revenue growth came in at 41% year-on-year to Rs. 1,240.3 crores , helped by like-for-like growth of 28.3% During the quarter, the combined dine-in and take-out channels experienced strong sequential growth, while momentum continued in the delivery channel. Despite raw material pressure, gross margin edged down 52 bps YoY to 76.7%, while EBITDA margin improved 49 bps YoY to 24, 6%, helped by store-level efficiencies and improved production per store EBITDA and PAT increased 44% and 81% respectively year-on-year The company took a price increase 8 to 10% in its portfolio to mitigate commodity inflation. During the quarter, JFL added 58 Domino’s stores and two Popeyes and Hong’s Kitchen stores. Internationally, Domino’s Sri Lanka recorded strong revenue growth of 83% year-on-year, while Domino’s Bangladesh recorded revenue growth of 49% year-on-year in the first quarter of fiscal 2023.”

“We appreciate JFL’s strategy of investing in core business and new ventures to increase business growth and revenue without compromising medium-term profitability. The company’s differentiated brand strategy, aggressive store additions, improved customer experience on the delivery platform, sustained innovation and customer-centric offerings will drive growth in the medium and long term. The stock has corrected 18% from its recent high and is currently trading at 59.7x/41.4x its FY2023E/FY2024E earnings. We maintain our buy rating on the stock with an unchanged price target (PT) of Rs. 675,” brokerage firm Sharekhan said.

SBI life insurance

Brokerage firm ICICI Securities said in a note that “SBIL’s stock price has risen approximately 44% over the past three years. We believe strong growth guidance supported by strength in distribution (SBI YoNo added now) and improved high-margin product lineup should contribute to overall value. The stock is reasonably priced and is currently trading at 2.5x FY24E intrinsic value. We are keeping our BUY rating on the stock. We value SBIL at ~2.7xFY24 EV still lower than HDFC Life and revise our price target from 1400 to 1500 per share.”

Launch of an annuity product, tie-up with new financial technologies to drive growth, growth forecast of over 25% in NBP to positively reflect overall performance, VNB margins expected to increase with higher protection mix and improve persistence and healthy solvency to help operating metrics are the key signals of SBI Life’s future stock price performance, according to ICICI Securities.

SBI Life reported 17.78% year-over-year (YoY) growth in net profit for the June quarter, at 262.85 crore against 223.16 crores in the same period the previous year. In Q11FY23, gross written premium (GWP) increased by 35% year-over-year to reach 11,350 crore, and the VNB margin increased by 665 basis points year-on-year to 30.4%.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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John A. Bogar