Bandhan Bank, UPL, Macrotech and Nykaa offer highest upside potential

Consensus target price for these stocks well above current market price

With markets trading at lofty valuations, many investors are looking for bottom-up investment ideas. There are several ways to identify individual stocks that could be winning bets. Under the bottom-up approach, investors often look for stocks that appear attractive on parameters such as price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and earnings growth potential.

The top-down approach involves taking a macro call on the market, economy or a particular sector or theme.

A bottom-up screener applied here involves looking for stocks that offer maximum upside potential vis-à-vis their consensus target price (TP) compiled by Bloomberg.

We have collated the TP of stocks in the BSE 200 universe with analyst coverage from at least 15 brokerages, and then compared the current market price to TP to identify stocks that offer the highest upside and downside.

The result of this screener shows Bandhan Bank, UPL, Macrotech Developers (formerly known as Lodha Developers), and FSN E-Commerce Ventures (Nykaa) currently trading at a maximum discount to their TP.

For instance, private sector lender Bandhan Bank, which is tracked by 29 analysts, has 24 ‘buy’ ratings, one ‘sell’ rating, and four ‘holding’ ratings. The consensus TP for the stock is Rs 333 — 46 per cent higher than its last close of Rs 228.

“Bandhan Bank’s capital position is healthy, with common equity tier 1 at 18.4 per cent and well provided with non-performing loan cover at 75 per cent. We expect credit costs to moderate in the second half and as growth picks up, with the stock at 1.6x 2023-24 P/B for 20 per cent-plus return on equity, we maintain ‘outperform’. Cut 2022-23 (FY23) through 2024-25 earnings per share by 9-19 per cent on lower net interest margins and higher credit costs, reduce TP to Rs 330 (Rs 360),” said a note by Credit Suisse.

Shares of Bandhan Bank are down 23 per cent in the past year.

Similarly, agrochemical firm UPL (formerly United Phosphorus), realty major Macrotech Developers, and beauty retailer Nykaa offer more than 35 per cent potential upside if their consensus TP is anything to go by.

“Nykaa’s stock has corrected partly due to the global tech sell-off on rising yields and more recently due to the imminent lock-in expiry. We believe valuation is now even more appealing and under-appreciates the structural growth opportunity in beauty and personal care,” said a note by HSBC.

The brokerage has a TP of Rs 2,170 for the stock. Shares of Nykaa have nearly halved this year.

UPL, which posted better-than-estimated July-September quarter results, is also fancied by brokerages.

Analysts Rohit Nagraj and Jay Bharat Trivedi of Centrum Research are positive on the company as the recent corporate realignment into four platforms is expected to unlock value and remains the biggest trigger for the stock.

Riding on record bookings in the second quarter of FY23, the country’s second largest listed real estate company is a popular pick.

JM Financial is bullish on the stock as it continues to execute well across ticket prices and micro-markets and has substantial projects on owned land, leading to higher margins and sustained launch momentum.

On the flip side, state-owned engineering firm Bharat Heavy Electricals (BHEL) and debt-laden telecommunications player Vodafone Idea (Vi) are currently trading at a maximum premium to their TP.

BHEL has only two ‘buy’ ratings and 16 ‘sell’ ratings. Its stock trades at Rs 70 — 35 per cent above its TP of Rs 50.

Meanwhile, Vi has zero ‘buy’ calls and 16 ‘sell’ calls with TP of Rs 6 — 28 per cent below its last close of Rs 8.41.

While arriving at TPs, analysts take into account various factors such as valuations, growth estimates, and outstanding debt. As a result, the TP can be a good indicator for potential upside or downside.

The downside, however, of this strategy could be that the consensus TP typically changes with a lag. For instance, if a stock has a potential positive or a negative trigger, analysts could time to identify it and revise the TP.