2 Blue chip stocks which have huge upside potential

2 Blue Chip Stocks To Buy:

Tata Consultancy Services Ltd (TCS)

It is an India-based company engaged in providing information technology services, and digital and business solutions department of the company’s segments include Banking, Financial Services, Insurance, Manufacturing, Retail, and Consumer Business, Communication, Media & Technology, Life Sciences & Healthcare & Others, while the Company’s products include TCS BaNCS, TCS Connected Intelligence Platform, ignio, TCS iON, TCS MasterCraft, TAP, CHROMA. Its platforms include TCS ADD TCS BFSI Platforms ERP on Cloud and TCS HOB, whereas its services portfolio consists of Information Technology and assurance services, business intelligence and performance management, business process services, cloud services, connected marketing solutions, mobility products, and services, and platform solutions, and it serves industries, including insurance, healthcare, retail, telecom, and others, while TCS reported steady revenue growth with their strong client addition across the large revenue buckets and healthy deal wins, while margins lagged our expectations owing to the wage revisions, supply-side challenges and rising discretionary of expenses, but constant currency (CC) revenue grew by 3.5%/15.5% y-o-y in Q1FY2023, in-line with our estimates, and led by continued strong growth in North America and broad-based growth across verticals with huge growth in Retail & CPG. Deal TCVs remained healthy at $8.2 billion (including two large deals worth $400 million+) during Q1FY23, up by 1.2% y-o-y, but it was down 27% q-o-q. The book-to-bill ratio stood at 1.21x, in line with its long-term average book-to-bill ratio. EBIT margin declined by around 190 bps q-o-q to 23.1%, lagged our estimates, and TCS continues to see strong traction across cloud adoption, operating model transformation, vendor consolidation, growth and transformation (G&T) programs, while one would believe the company is well positioned to gain most out of from market opportunities even in case deteriorating macro concerns given its strong marquee clientele, strong capabilities, and solid execution capability, while one can believe that TCS has a robust business model which would then leverage both G&T opportunities and operation transformation program given its strong capabilities and end-to-end service capabilities, and one would expect the company’s US Dollar revenues and earnings to clock a 10%/11% CAGR over FY2022-24E. At CMP, the stock trades at a valuation of 28x/25x its FY2023E/FY2024E earnings, in line with the 5-year average 1-year forward PE multiple, while one would continue to prefer TCS considering its better supply-management capability, best-in-class execution, deep expertise, full-service model and excellent payout ratios, and further, the stock price correction of around 14% on a YTD basis offers good entry opportunity for long-term investment, and hence, one should buy on TCS with a revised PT of Rs. 3,650

  • Market Cap- ₹ 1,227,593 Cr.     
  • Current Price – ₹ 3,355
  • High / Low- ₹ 4,046 / 2,953
  • Stock P/E- 31.6
  • Book Value- ₹ 244
  • Dividend Yield- 1.28 %
  • ROCE- 54.9 %
  • ROE- 43.6 %
  • Face Value- ₹ 1.00

Mahindra and Mahindra Ltd (M&M)

Mahindra stock pattern

It is an India-based company that is primarily engaged in the mobility products and farm solutions, wherein the company’s segments include Automotive and Farm Equipment, in which the Automotive segment comprises the sale of automobiles, spares, mobility solutions, construction equipment and related services, and the Farm Equipment segment comprises the sale of tractors, implements, spares and related services, it also comprises of Powerol and spares business unit, and the Company also offers a range of products and solutions, including sport utility vehicles (SUVs), pickups, commercial vehicles and tractors to electric vehicles, two-wheelers, and construction equipment, while its industries include aerospace, aftermarket, agribusiness, automotive, boats, clean energy, consulting, construction equipment, defense, farm equipment, hospitality, information technology, insurance broking, logistics, power backup, retail, steel, real estate and infrastructure, and vehicle and equipment finance, while Mahindra and Mahindra Ltd (M&M) and British International Investment (BII) have executed a binding agreement towards investing Rs. 1,925 crore ($250 million) each into M&M’s wholly owned subsidiary that will be incorporated soon to spin its passenger electric vehicle (EVCo) business, while BII is a UK government development finance institution and a leading impact investor with the focus on climate change and ESG, and BII is expected to acquire 2.75-4.76% stake in M&M’s subsidiary EVCo at a valuation of US$ 5.1-8.8 billion (Rs. 40,441-70,070 crore), while promoters, along with investors will infuse Rs. 10,000 crore in the new EVCo between FY22 to FY27, to launch five electric vehicle models, and the company targets its Electric SUV penetration to be 20-30% of its overall SUV portfolio by FY2027 and expects EV volumes at 200,000 per annum in best case scenario, while the EVCo will be asset light and leverage M&M’s ecosystem of suppliers, dealers and financers, while M&M will provide manufacturing support, design, product development, technology and sourcing services on arm’s length, and one would firmly believe that M&M is on track with its growth roadmap, and besides its aggressive plans for the farm equipment and ICE passenger car segments, the company is taking the leap towards making strong product portfolio for passenger electric vehicles, and in the ICE segment, M&M has become No.1 in SUV revenue market share in H2FY22 with 16.8% market share, and one would expect Scorpio-N to further consolidate its share in the SUV market, while successful new launches will continue to help M&M to increase its market share in the SUV and LCV segments, and M&M has guided for strengthening of the SUV segment through product launches of 13 new products by FY2027E, including EV launches, and further, the management continues to focus on the farm equipment segment and maintained its guidance to be able to achieve a 10x revenue growth by FY2027. M&M has maintained its FY25E guidance to deliver an 18% RoE and 15-20% EPS growth, while one would expect M&M to benefit from its leadership status in the tractor segment, strengthening its position in the LCV segment and recovering its market share in the highly competitive SUV segment. M&M is on track with its growth roadmap, and the company plans its farm business to grow by 10x by FY2027, while strengthening its SUV segment by adding 13 new products by FY2027, including EV launches, and the investment commitment of around US$ 250 mil by impact investor, British International Investment (BII), in M&M’s passenger electric vehicle arm is a positive development and would help M&M in attracting additional sources of Pvt capital into the EVCo venture. The EVCo business adds Rs. 132 per share to the SOTP based PT, while further, M&M continues to benefit from the turnaround of loss-making subsidiaries, scaling up of digital platforms, and strong performance of its listed entities, which would then improve the company’s FCF going forward, while one can expect standalone earnings to post a 22.5% CAGR during FY22-FY24, driven by a 16.7% revenue CAGR and 190 bps rise in EBITDA margins, so it can be reiterate to buy the stock with a revised PT of Rs. 1,390. The stock trades at a P/E multiple of 17.6x and EV/EBITDA multiples of 11x its FY24E estimates.

  • Market Cap- ₹ 156,866 Cr.
  • Current Price- ₹ 1,262
  • High / Low- ₹ 1,265 / 671
  • Stock P/E- 25.0
  • Book Value- ₹ 379
  • Dividend Yield- 0.92 %
  • ROCE- 11.3 %
  • ROE- 14.2 %
  • Face Value- ₹ 5.00

Reasons as to why one should invest your money with blue chip companies:

1. One can earn the dividends in a stable manner

 If the business has been doing well year after year, and it receives stable earnings to be distributed among employees, shareholders, investors, and stakeholders, therefore it simply means that the company has earned the trust of investors, and this is a very good sign as the company has rooted its fundamentals right, hence one can conclude that if a stock has their stable earnings, and it’s backed up by a strong management team which is doing something right, to take the company’s growth on a stable note, and one can earn rich dividends on the investment portfolio and that is the first and the foremost expectation of all the investments.

2. Timely payment of dividends

 A solid trend that shows that the company is providing timely and consistent dividends to stockholders is treated as icing on the cake among investors, and this is simply because their income increases in tandem with their capital appreciation, therefore one can earn consistent dividends with blue chip stocks, and that is the primary reason, why blue chip companies or inventories are regarded as one of the best forms of investments.

3. Aspect of strong financials

 When a company is a blue-chip one, the company is also backed up by strong financials, which means that the company’s debt-equity ratio is ideal, the financial ratios of the aforesaid company are good, and it has an efficient operating cycle, and so on, therefore from the investor’s point of view holding such blue chip stocks simply means lesser volatility, minimal downside risks, and these are the primary reasons as to why blue chip stocks are preferred over mediocre ones. 

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