Hero MotoCorp, Aditya Birla Fashion Top 2 Stocks to Buy for Up to 15% Return


by Sandip Das on 13 May 2024,  4 min read


The domestic stock market plunged last week, with the Nifty50 crashing below the crucial 22,000 level. A perfect storm of anxieties – election uncertainty, relentless selling by foreign investors, lackluster corporate earnings, and spiking oil prices – clobbered investor sentiment.

Additionally, lower-than-expected voter turnout in the ongoing elections has raised concerns about the outcome, fostering investor caution. Further, some investors are choosing to take profits after the recent market rally, potentially due to valuations perceived as high. Finally, the delay in a potential US Federal Reserve rate cut and persistent global inflation are contributing to a risk-averse investor sentiment.

The India VIX, a key measure of market volatility, jumped 27 percent WoW to 18.60, signaling that investors are buckling up for a bumpier ride ahead. Most other sectoral indices drowned in the sea of red. Even supportive European cues could not lift spirits, Bank of England left interest rates unchanged at 5.25 percent but hinted at potential cuts in the coming months. Dow Jones too extended its winning streak to seven days on jobless claims data hinting at a possible shift in Federal Reserve policy.

In India, on the economic data front, the HSBC India Composite PMI Output Index moderated to 61.5 in April, from 61.8 in March, the latest reading was one of the highest seen in close to 14 years and signalled a substantial rate of expansion across the private sector. On a separate note, India’s foreign exchange reserves witnessed a decline for the third consecutive week, falling by $2.412 billion to $637.922 billion.

Going forward, the Indian market will continue to remain volatile until the election results are announced while stock-specific action will continue.

Here are the top 2 stocks which can fetch up to 15% upside:
Hero MotoCorp | CMP: Rs 4,878 | Target: Rs 5535 | Upside: 13.4%

Hero MotoCorp has recorded a significant enhancement in operating margin throughout the last quarter of FY24 as well as the entire fiscal year. This improvement is credited to a notable reduction in raw material costs, alongside operating leverage.

Moreover, the company has witnessed substantial growth in revenue, largely driven by the introduction of new models in the premium segment. The company is seeing a surge in demand, particularly in rural areas, supported by the combination of renewed consumer interest and the introduction of new models in the premium segment. This, in turn, has resulted in a YoY growth of 9.6 percent in Q4FY24.

The net operating revenue has recorded a YoY growth of 14.6 percent, driven by a 4.6 percent increase in realisation. The management has indicated that the tough phase of low demand has passed and is now optimistic about a favourable uptick in demand across all segments, encompassing both entry-level and premium categories.

Also read: What is Initial Public Offer (IPO)?

With commodity prices remaining stable, expectations of normal monsoons, and government spending expected to increase, it sees multiple tailwinds for the sector over the upcoming quarters. The company is actively investigating opportunities within the EV sector, which is expected to become a significant catalyst for demand in the upcoming years.

With the successful rollout of its EV model, the company is achieving a weekly production rate of 1,000 units.

Aditya Birla Fashion & Retail | CMP: Rs 258.55 | Target: Rs 295 | Upside: 15%

Aditya Birla Fashion and Retail is a leading apparel retailer in India with distribution network spread across most cities and towns in India. The company has a portfolio of some of the most reputed brands. Multiple strategic initiatives like entry into footwear by acquiring Reebok’s India operations, acquisition of majority stake in Masaba, launch of premium menswear ethnic brand Tasva and setting up a separate platform to build a portfolio of D2C brands are expected to add value over the medium-to-long term.

AB Fashion’s core businesses (Lifestyle brands, Pantaloons) continue to generate healthy cash, which is aiding the company to fund the new initiatives. Integration of TCNS brand under the distribution chain of ABFRL, fast scale-up in the ethnic wear business, GIC’s infusion, and consistent expansion in margin are the key

With improved business fundamentals, enhanced digital capabilities and strong balance sheet, company is focusing on to achieve strong earnings growth. Further, entering into niche businesses will expand its top-line in the long-run.

Going forward, maintaining balance sheet strength coupled with aggressive expansion would remain in focus for the company.

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Disclaimer: The information provided in this blog post is for informational purposes only and should not be construed as investment or trading advice. The author is not a financial advisor and does not have any professional qualifications in this area. The author does not guarantee the accuracy or completeness of the information provided. Any action you take based on the information in this blog post is done at your own risk. Please consult with a financial advisor before making any investment

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