ONGC, Tata Steel, Coal India, JSW Steel, ITC and Dr Reddy’s Labs account for more than half of the Nifty stocks that are trading at a discount of up to 72 per cent to their 10-year valuation average. This is even as the 50-pack barometer is trading at a record high, suggested the latest Bulls & Bears report by Motilal Oswal.
Many of these stocks have price targets that suggest further upside.
The biggest discount for any Nifty constituent is 72 per cent. ONGC’s trailing 12-month PE multiple as on November 30 was 2.4x, down 72 per cent from its historical average of 8.3x. On the other hand, the oil and gas sector trades at a P/E ratio of 12.6 times as against the historical average of 11.9 times. ONGC has an average target price of Rs 174.57, suggesting a potential upside of 21.44 per cent. This is in accordance with publicly available data with trendlines.
Shares of Tata Steel traded at a discount of 63 per cent to 7 times (Nov-end) against 10-year average PE of 19 times. Metals, as a sector, is trading at an EV/Ebitda ratio of 4.9x, which is 25 percent lower than its 10-year historical average of 6.6x.
As per Trendline, the average brokerage target on Tata Steel is Rs 105.43, indicating a potential downside risk of 8.99 per cent for the stock.
Coal India traded at a discount of 47 per cent to its historical average, while JSW Steel and Dr Reddy’s Labs traded at a discount of 35 per cent and 26 per cent, respectively. This was on a trailing PE basis.
Coal India price target indicates potential upside of 19.40 per cent; JSW Steel’s price target indicates a potential downside of 25.4 per cent. Meanwhile, Dr Reddy’s Lab’s price target suggests 15 per cent upside potential. The government has recently withdrawn the export duty on steel and iron ore to the previous level. However, commodity prices remained weak on concerns over Chinese economic growth and nationwide protests over strict implementation of its zero-covid strategy.
Across sectors, private lenders such as IndusInd Bank, HDFC Bank and Kotak Mahindra Bank offered up to 42 per cent discount to their last 12 months price-to-book value (PBV). Overall, the private banking space is trading at a PBV ratio of 2.7x, which is slightly higher than its historical average of 2.5x.
“Most banks expect the credit growth momentum to be sustained on the back of continued traction in the retail and SME segments, while November is likely to see a healthy recovery in the corporate segment with strong systemic credit growth (17 per cent) for the system.” Motilal Oswal said, “While we expect the momentum to sustain, we keep an eye on further monetary tightening and rising inflation, which could dampen demand and delay recovery in the capex cycle.”
IndusInd Bank has a price target recommendation of 8.6 per cent, HDFC Bank with upside of 13.38 per cent and ICICI Bank with upside of 10.25 per cent.
FMCG major ITC trades at a PE of 20.7, 16 per cent lower than its 10-year average of 24.5, shows a study by Motilal Oswal. ITC has an average target price of Rs 373.92 as per the trendline, indicating a potential upside of 11.9 per cent.
healthcare stocks Apollo Hospitals, Sun Pharma and Cipla; and aluminum maker Hindalco are some other stocks which are trading below the historical average. The average target for Apollo Hospitals shows a potential upside of 10.2 per cent, Sun Pharma 7 per cent, Cipla 8.2 per cent and Hindalco 7 per cent.
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