Amid a significant selloff, last week saw the market benchmark Nifty 50 halt its four-week winning streak, closing over 2% lower. Investor caution prevailed, especially concerning the lofty valuations in the mid and small-cap segments, alongside subdued global cues and the absence of positive triggers. Nonetheless, the market’s long-term outlook remains optimistic, given expectations of robust economic growth in India for the upcoming financial year.
Fitch Ratings has recently revised its forecast for India’s economic growth to 7% for the next financial year (FY25). The ratings agency highlighted that India has experienced GDP growth of over 8% for three consecutive quarters. However, the growth momentum may slightly ease in the final quarter of the current fiscal year, potentially resulting in India’s growth reaching approximately 7.8% for FY24. Pankaj Pandey, the head of retail research at ICICI Direct, suggests purchasing quality stocks for the long term at this juncture. He has recommended the following five stocks to buy for the next one to two years. Have a look:
Gabriel India | Current market price (CMP): ₹307.65 | Target price: ₹440 | Upside potential: 43 per cent
Gabriel India (GIL) stands as a top-10 global shock absorber manufacturer, catering to various segments including two-wheelers (2-Ws), three-wheelers (3-Ws), passenger vehicles (PVs), commercial vehicles (CVs), railways, and the aftermarket.
The company has witnessed substantial market share growth in the 2W segment, climbing from 25% in FY22 to 32%, largely driven by strong performance at key clients such as TVS and HMSI (Honda Motorcycle and Scooter India). Additionally, it maintains its position as the market leader in the electric 2W segment’s high-speed category, boasting over 80% market share with major EV players like Ola Electric, TVS, Ampere, Ather, among others, as its key clients. In the PV space, Gabriel India has maintained a steady market share of 24%, with plans to elevate it to 30% in the forthcoming years.
Furthermore, the company has seen an improvement in its market share in the overall utility vehicle (UV) space, reaching 35%, supported by new launches such as XUV 700 and Thar. To further expand its presence in the popular SUV segment and capitalize on the trend of premiumization, Gabriel India has ventured into a joint venture (JV) with Inalfa, the world’s second-largest sunroof manufacturer. This JV aims to manufacture sunroof systems and related components for original equipment manufacturers (OEMs) in India.
Pandey expressed optimism regarding the stock, anticipating volume growth and continued market share gains. A 10% net sales CAGR over FY23-26E is anticipated, with a corresponding PAT CAGR of 24%. This outlook factors in a 60 bps improvement in EBITDA margins to 9.2% by FY26E. Gabriel India boasts a healthy balance sheet with a net cash surplus of nearly ₹300 crore and robust capital efficiency, with RoCE at nearly 20%.
“We hold a positive stance on the stock, considering its EV immune product profile and its increasing role in the premiumization segment. We recommend a buy rating on the stock, valuing it at ₹440, equivalent to 25 times the price-to-earnings ratio (P/E) on FY26E,” stated Pandey.
Landmark Cars | CMP: ₹715.05 | Target price: ₹920 | Upside potential: 29 per cent
Landmark Cars holds a prominent position as a leading auto retailer specializing in premium and luxury cars within India.
In the passenger vehicle (PV) sector, its key original equipment manufacturer (OEM) partners include Mercedes Benz, Jeep, Honda, Volkswagen, Renault, MG Motors, Mahindra and Mahindra, and BYD, along with a partnership with Ashok Leyland in the commercial vehicle space. With a network of 117 outlets, Landmark Cars covers various aspects of the automotive retail value chain, encompassing new vehicle sales, pre-owned vehicle sales, after-sales service, spare parts, and more.
Landmark Cars stands out as the top dealer in India for Mercedes Benz, Honda, Jeep, and Volkswagen. The company’s success is attributed to the increasing penetration of luxury cars domestically, driven by a rising number of High Net Worth Individuals (HNI) and Ultra High Net Worth Individuals (UHNI), higher disposable income, and growing consumer preference for premium products. Despite this, luxury car penetration in the Indian PV market remains relatively low at nearly 1%, in contrast to nearly 10% in major economies like China and the US.
Furthermore, only about 4% of Indian millionaires currently purchase luxury cars, compared to the global average of 60%. Reports indicate a significant rise in the number of high-income Indian households, with annual incomes exceeding ₹33 lakhs, by 2030, which is expected to further boost the luxury car segment.
Landmark Cars also holds a significant presence in the after-sales service segment, which is considered the most lucrative business proposition for the auto retailer. With healthy gross margins of nearly 40%, EBITDA margins at almost 18%, and Return on Capital Employed (RoCE) exceeding 30%, Landmark derives approximately 25% of its revenue from this segment, contributing nearly 70% to the total EBITDA.
Pandey expressed a positive outlook on Landmark Cars, citing the tailwind of premiumization in the domestic PV space, its strong and enduring relationships with marquee OEMs, diversification efforts including the pre-owned car business, and a healthy financial profile, with RoCEs exceeding 20% and a CFO yield of nearly 7% on a forward basis. We recommended a buy rating on the stock, valuing it at ₹920, equivalent to 22 times the price-to-earnings ratio (PE) on FY26E.
Astra Microwave Products | CMP: ₹567.65 | Target price: ₹740 | Upside potential: 30 per cent
The company has witnessed a significant improvement in operational performance in recent quarters, primarily driven by the execution of higher-margin domestic contracts.
As of the end of December 2023, the order backlog stood at ₹1,813 crore, equivalent to 2.2 times the trailing twelve-month revenues, with strong orders inflow of ₹825 crore during the first nine months of FY24.
Management anticipates order opportunities of nearly ₹8,000 crore for the company until 2028, predominantly in defence and space electronics.
Further enhancement in operational performance is expected, mainly due to changes in the contract mix, with nearly 80% of the order backlog being domestic with higher value addition.
Additionally, the government’s emphasis on indigenisation and the increased utilization of electronics in defence and space sectors present a robust order pipeline for the company.
“We project a revenue Compound Annual Growth Rate (CAGR) of 17% over FY23-26E, with Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) and Profit After Tax (PAT) expected to grow at nearly 25% and nearly 36% CAGR, respectively. Valuations at 30 times Price-to-Earnings (P/E) on FY26E appear attractive, offering significant upside potential,” stated Pandey.
Greenply Industries | CMP: ₹229.10 | Target price: ₹320 | Upside potential: 40 per cent
Greenply Industries is a leading player in the plywood business in India, boasting a capacity of 48 million square meters per annum. In addition, the company has ventured into the MDF boards business, operating a manufacturing facility in Vadodara, Gujarat, with a current capacity of 800 cubic meters per day (set to expand to 1000 cubic meters per day in FY25), presenting a revenue potential of approximately ₹650-700 crore per annum.
The MDF imports, which currently stand at high levels, are expected to moderate in FY25 due to the implementation of the BIS certification rule starting from February 2024. This rule is anticipated to increase costs for imported products, particularly considering the elevated freight costs. Pandey predicts an overall topline Compound Annual Growth Rate (CAGR) of 16% over FY23-26, with plywood revenues projected to grow at a CAGR of 10%. The current MDF margin, standing at 13.5%, is expected to expand by nearly 20% under normalized operational conditions and with the introduction of higher value-added products. With the inclusion of higher-margin MDF in the product mix, overall margins are forecasted to expand to 12% in FY26, compared to the current 9.1%, with an earnings CAGR of approximately 24.6% over FY23-26.
The completion of a significant portion of residential real estate projects over the last two to three years is expected to drive growth in the building materials segment, including wood panels (Ply, Laminates, and MDF). Greenply is poised to be one of the primary beneficiaries of this trend.
Sudarshan Chemical Industries | CMP: ₹574.35 | Target price: ₹705 | Upside potential: 23 per cent
Sudarshan Chemical, a key player in the Indian color pigment industry, commands nearly 35% of the market share and ranks as the third largest player globally.
Pandey anticipates an enhanced margin trajectory, projecting an increase from 11% in FY24E to 16% in FY26E, driven by improvements in operating leverage.
The company has demonstrated a consistent focus on margin-boosting specialty pigments, which constitute two-thirds of its portfolio and are showing signs of improvement. Significant capital expenditure has been invested in this area over the past three to four years. A recovery in Return on Capital Employed (ROCE) is expected, rising from 8% in FY24E to 16% in FY26E, supported by improved profitability and asset turnover.
Pandey values Sudarshan at 22 times FY26E earnings per share (EPS) of ₹32, setting a target price of ₹705.