Companies with strong fundamentals are vital when it comes to building a strong investment portfolio. These companies reward investors with handsome returns, and keep investments relatively safe, even during bad market conditions, as they have a robust underlying business.
Developments in these companies often attract the attention of brokerage firms. Here are two fundamentally strong stocks in which brokerages see an upside of up to 33%:
Maruti Suzuki Ltd
Maruti Suzuki is one of the major automobile manufacturers in the Indian passenger vehicle space, commanding ~43% market share as of FY22. Its shares closed at ₹ 8,444.00 levels.
It is a large-cap company with a market capitalization of ₹ 2,54,383 crores. The company has an ideal debt-to-equity ratio of 0.01 and a return on equity of 7.20%. Its shares are trading at a price-to-equity ratio of 41.93, which is significantly higher than the industry average of 13.37, indicating that the stock might be overvalued as compared to its peers.
The company reported a consolidated total income of ₹ 30541.70 Crore, up 45.05 % from ₹ 21056.50 Crore in the corresponding quarter last year. It reported a net profit after tax of ₹ 2050.00 Crore in the latest quarter.
ICICI Direct has a buy call on the shares of Maruti Suzuki with a target price of ₹ 11,200. This translates to an upside of 32.64%. It said that the auto major is well placed to play upon the underpenetrated passenger vehicle segment domestically.
Key risks: Covid led slowdown in demand, and adverse currency moves i.e. unexpected appreciation of the Yen vs. Rupee.
Indraprastha Gas Ltd
Indraprastha Gas is engaged in the business of city gas distribution in the National Capital Territory of Delhi and nearby regions. It was formed as a joint venture promoted by GAIL (India) and Bharat Petroleum Corporation (BPCL). Its shares closed at ₹ 406.50 apiece.
It is a large-cap company with a market capitalization of ₹ 28,777 crores. It has an ideal return on equity of 21.58% and an ideal debt-to-equity ratio of 0.01. Further, its shares are trading at a price-to-equity ratio of 16.79, which is slightly higher than the industry average of 14.70, indicating that the stock might be overvalued as compared to its peers.
In the September quarter, the company’s revenue stood at ₹3,922.02 crore, up 94.55% against ₹2,015.99 crores in the corresponding quarter last year. It posted a net profit of ₹ 426.84 crores in September 2022 versus ₹ 418.63 crores in the same quarter last year.
ICICI Securities has maintained a buy rating on the stock with a target price of ₹ 540.00 apiece. This indicates an upside of 32.84% as compared to its share price. It said that the gradual increase in volumes from Delhi-NCR is complemented by the potential addition from Gurugram as and when legal issues get resolved.
Key risks: Inability to pass on domestic gas price increases, a downward movement in petrol/diesel/LPG prices, and further delays in Gurugram CGD allocation.
Written by Simran Bafna
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