Diwali Picks: SBI Securities’ Top Recommendations Include Titagarh Railsystems, Coal India, and Bharti Hexacom

Coal India: SBI Securities Sees Over 20% Upside Potential

SBI Securities has identified significant upside potential for Coal India, assigning a price target of Rs 593 for the stock, which reflects an increase of over 20%. The brokerage is particularly impressed with the company’s ambitious production targets for FY25 and FY26, aiming for 838 million tonnes (mnt) and 1 billion tonnes, respectively, following record production and offtake of 773.6 mnt and 753.5 mnt in FY24.

Coal India has made substantial progress in infrastructure development through its First Mile Connectivity (FMC) projects, with 72 initiatives underway to enhance mechanized coal transportation, backed by a capital expenditure of Rs 24,750 crore. Additionally, the company is focusing on cost control by phasing out unviable underground mines and diversifying into non-coal minerals such as graphite, which is crucial for electric vehicles and energy storage.

According to SBI Securities, Coal India’s current valuation reflects FY25E/FY26E EV/EBITDA multiples of 5.7x and 5.2x, respectively, along with a 5.2% dividend yield, which offers some downside protection for investors.

Macrotech Developers

SBI Securities recognizes Lodha as a leading real estate developer, having delivered over 95 million sq. ft. of projects. The company boasts a diversified portfolio that includes residential, commercial, and warehousing properties, and aims to build an annuity income pool of Rs 500 crore by FY26. Notably, Lodha has significantly reduced its debt from Rs 23,363 crore in FY19 to Rs 7,680 crore in FY24, bolstered by strong cash flows.

With a target of 20% CAGR in pre-sales growth by FY26 and a robust launch pipeline, SBI values the stock at Rs 1,398. However, the brokerage highlights potential risks, including project delays and high debt levels.

Bharti Hexacom

SBI Securities highlights Bharti Hexacom’s strong position in the Rajasthan and North East telecom circles, serving 28 million customers as of March 2024. The company boasts a robust infrastructure network, including 25,704 towers and 79,835 mobile broadband stations. Its partnership with Bharti Airtel enhances synergies by providing access to digital infrastructure and management expertise. The recent acquisition of 15 MHz spectrum for Rs 1,000 crore further strengthens its long-term service capabilities.

With a 13.6% revenue growth reported in 1QFY25 and strong average revenue per user (ARPU), Bharti Hexacom is projected to achieve a revenue CAGR of 18.9% through FY26. SBI values the stock at Rs 1,747 for the coming year, although it notes potential risks such as high capital expenditure and regulatory challenges.

Chalet Hotels

SBI Securities notes that Chalet Hotels has a diversified asset portfolio, primarily focused on hospitality, which accounts for the majority of its revenue. The firm anticipates that Chalet’s robust pipeline will boost its hospitality keys by about 28% and office space by 37% by FY27, backed by a capital expenditure plan of Rs 1,500 crore. Additionally, Chalet Hotels has a strong financial track record, with a revenue CAGR of 9.6%, alongside notable improvements in EBITDA margin and debt-equity ratio, underscoring its operational strength and growth potential.

Newgen Software Technologies

SBI Securities highlights Newgen Software Technologies as an R&D-focused company with 32 years of experience in software development across 17 verticals, mainly in Banking & Financial Services, Insurance, and Government. The company holds 45 patents, with 24 granted, and operates in a competitive market with deal sizes ranging from $0.7 to $2 million.

In 2QFY25, Newgen reported strong performance, with Revenue, EBITDA, and PAT increasing by 23.2%, 45.1%, and 47.1% year-over-year, indicating robust growth in key markets. SBI Securities is optimistic about Newgen’s goal of reaching $500 million (~Rs 4,000 crore) in revenue over the next 3-4 years, projecting a CAGR of 20-25% during this period. The brokerage has set a price target of Rs 1,475 for the stock.