Stocks to buy: Heritage Foods, Bank of India among top fundamental picks by HDFC Securities

The Indian stock market indices, Sensex and Nifty 50, traded higher on Thursday led by gains in automobile and banking stocks. Broader markets outperformed the frontliners as the midcap and smallcap indices gained half a percent each. The market is trading in a range and needs a strong trigger to break out from this range.

Investors now await US inflation data for further cues on Federal Reserve rate actions. On the domestic front, Q3 results season begins today with the IT behemoths Tata Consultancy Services (TCS) and Infosys announcing their December quarter earnings. Market is expected to react to the corporate earnings and macroeconomic data going ahead.

Meanwhile, HDFC Securities’ Retail Research has added three stocks in its Fundamental Picks. These stocks are , Bank of India and . The brokerage believes investors can buy these stocks at current market price and add on dips for a time horizon two to three quarters. Heritage Foods | Buy | TP: 333 Heritage Foods has a strong balance sheet with low debt, improving margins and operating cash flows.

While the EBITDA margins are marginally lower to its closest peers, analysts believe that the inflationary pressure on milk procurement seems to have bottomed out. This coupled with an increasing share of the margin accretive value added products, should drive margin expansion, going forward. “Management has a long term target of 6,000 crore in revenue.

Also, it believes that it can sustain EBITDA margin levels of 7 8% in the long run. At a current P/E of 20x FY25E EPS, Heritage Foods’s attractive valuation relative to its peers makes it a strong candidate for re rating," HDFC Securities said. It believes the base case fair value of the stock is 333 (22.5x FY25E EPS) and the bull case fair value is 355 (24.0x FY25E EPS).

Investors can buy the stock in 294 301 band (20.0x FY25E EPS) and add more on dips in 255 263 (17.5x FY25E EPS) band, the brokerage firm added. Bank of India | Buy | TP: 132 Bank of India is expected to grow its loan book at 13% CAGR while net interest income (NII) and net profit expected to grow at 14% and 36% CAGR respectively over FY23 26E.

ROAA is estimated to improve to 1% in FY26E from the current 0.5% in FY23. “ is trading at 0.69x Dec25 ABV, which is at a considerable discount to its peers. Looking at the growth opportunities we believe that the discount will gradually narrow. We feel that investors can buy the stock in the band of 117 119 (0.69x Dec 25E ABV) & add more on dips to 102 104 band (0.6x Dec 25E ABV).

We expect the base case fair value of 132 (0.77x Dec 25E ABV) and the bull case fair value of 146 (0.85x Dec 25E ABV) over the next 2 3 quarters," HDFC Securities said. Sharda Motor Industries | Buy | TP: 1,547 Sharda Motor Industries’ revenue and net profit is expected to grow at 12 and 19% CAGR over FY23 FY26, led by increased content per vehicle in both the PV and CV segment, improvement in JV profitability and operating leverage.

The company is debt free, holds substantial cash and cash equivalents with healthy return ratios and is available at attractive valuation considering the strong growth prospects, said HDFC Securities. “We believe investors can buy the stock in 1,385 1,410 band and add on dips in 1,245 1,270 band for a base case fair value of 1,547 and bull case fair value of 1,654 over the next 2 3 quarters," the brokerage added.

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