From VA Tech Wabag to PCBL Chemical— Devarsh Vakil of HDFC Securities suggests 5 stocks to buy for long term

Mint

01-06-2025

Stocks to buy for the long term: Indian stock market benchmark, Nifty 50, extended gains to the third consecutive month in May, supported by largely better Q4 earnings, foreign capital inflows and healthy domestic macroeconomic indicators. However, stretched valuations and geopolitical uncertainties kept the gains capped. The Nifty 50 rose nearly 2 per cent in May after a 3 per cent gain in April and a 6 per cent gain in March. Year-to-date, the index has risen 4.7 per cent.
Experts point out the remarkable resilience of the Indian economy and markets, which have overcome domestic and global challenges. They remain positive about the domestic market's medium-term prospects due to a healthy economic growth outlook and a strong influx of retail investors.
"The medium-term outlook remains bright, supported by robust growth prospects driven by a domestically-oriented economy, youthful demographics, and advancing digitalisation— creating diverse, high-quality investment opportunities across industries," said Devarsh Vakil, Head of Prime Research, HDFC Securities.
"India's domestic economic foundation provides protection against global volatility, reinforcing that market downturns are temporary. We maintain a bullish outlook on markets for the long term and present these five long-term investment opportunities," Vakil said.
Vakil picks the following five stocks to buy for the next one to two years for healthy upside. Do you own any?
PCBL Chemical is India's largest and the world's 7th largest carbon black company, which is essentially used as a reinforcing material for manufacturing tyres.
The company has presence in three major product lines: (i) tyres, (ii) performance blacks, and (iii) speciality blacks.
Management is positive on the long-term demand outlook. Management hinted that the completion of de-stocking in the global market and lowering inflation could be positive for demand pickup.
The company will continue to operate in capex mode for the next three years, adding brownfield capacity in Chennai, doubling aqua-pharm capacity, increasing speciality CB capacity, and infusing money into the JV to capture future growth opportunities.
The company has started work on a large-scale pilot plant in India that will develop nano-silicon additives for use in the anodes of Li-Ion batteries. It is looking to invest nearly $30 million in the JV and expects combined JV EBITDA of ₹ 800-900 crore at peak levels in the 36 months after commercialisation. It expects commercialisation by Q4FY27E.
"We expect revenue and PAT to increase at a CAGR of nearly 14 per cent and 20 per cent, respectively, over FY25-27E. At the current market price, the stock trades at 21.5 times FY27E EPS (earnings per share)," said Vakil.
Va Tech Wabag is a pure-play water company with a strong presence of more than 25 years in water technology and customised water treatment solutions through EPC (engineering, procurement, and construction) services, O&M (operations and maintenance) services, research and development, construction and commissioning.
The company exhibits multiple growth triggers, with record FY25 performance across key metrics like sales, EBITDA, PAT, healthy cash balance, and order book (three times sales), ensuring strong revenue predictability for three years.
Wabag's asset-light, profitable growth strategy, 95 per cent multilateral/sovereign-backed order book, expanding international focus, along with an upgraded AA credit rating, exhibits robust investment potential.
"Investors can buy the stock at current levels for a target price of ₹ 2,100 per share (33 times FY26E EPS)," said Vakil.
Star Cement is one of the leading players in the most profitable North-East region. With a cement capacity of 7.7 MTPA, Star commands a nearly 24 per cent share in the North-East market.
"We believe that it has a strong, sustainable competitive advantage in the North East region, as entry of outside players in this market is limited," Vakil said.
Over the years, Star has created a strong brand recall and is well-positioned to capitalise on future growth opportunities.
"We expect a healthy performance from the company in the coming years on the back of increased clinker and cement capacity, leadership position in the profitable and growing North-East market, and cost-saving initiatives to drive profitability," said Vakil.
"We believe investors can buy the stock in ₹ 210-225 band (10.9 times FY27E EV/EBITDA) and add on dips in ₹ 180-195 (9.4 times FY27E EV/EBITDA) band - fair value of ₹ 260 (12.8 times FY27E EV/EBITDA) over the next two to three quarters," said Vakil.
EPL is the leading manufacturer of laminated plastic tubes in the world, with nearly 35 per cent market share in oral care and catering to companies like Unilever, Colgate, P&G, etc.
In the personal care market, EPL's global share stands at nearly 10 per cent, and with an opportunity three times as big as oral care, the runway for growth is long.
EPL is a market leader (nearly 20 times share in global speciality packaging) that is set to continue gaining market share in an industry which is undergoing a structural shift owing to innovative product introduction.
EPL's strong innovation pipeline, a plethora of sustainable solutions, is expected to be quickly adopted by larger personal care brands given their commitment to sustainability goals.
The company has delivered robust results in recent quarters amidst a challenging geopolitical backdrop.
The key positive is the sustained margin expansion, as the EBITDA margin expanded for the 10th consecutive quarter.
EPL's management has committed to delivering double-digit revenue growth and with an EBITDA margin ambition of nearly 20 per cent in FY26. Stability in raw material prices should further aid the margin recovery.
"Going ahead, we expect revenue and EBITDA CAGR of 10 per cent and 14 per cent, respectively, over FY25-27E. RoCE and RoE are expected to increase further from 16.3 per cent and 17.4 per cent, respectively, in FY25 to 17.9 per cent and 21.1 per cent by FY27. The company currently trades at 15.5 times FY27E EPS," said Vakil.
Castrol India is an automotive and industrial lubricant manufacturing company, supported by a strong distribution network that reaches over 1.48 lakh retail outlets and 350 distributors.
Castrol India is focused on brand building, widening the distribution network, and launching new products, which will contribute volume growth and market share expansion.
Recognising the need for advanced cooling solutions in rapidly expanding data centres, Castrol India is leveraging its expertise in fluid technology to innovate in this new domain.
The company is focused on volume growth while maintaining margins and emphasising the premiumisation of products.
"We expect Castrol's lubricants volume to increase by 4.5 per cent and 5 per cent in CY25E and CY26E, respectively. We recommend buying the stock with a target price of ₹ 239. At the current market price of ₹ 217, the stock trades at 19.5 times CY26E," said Vakil.
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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.