Expensive valuations? Half of Nifty50 stocks trade at discount to historical averages

The Nifty50 might have risen 10 per cent in the last six months, but half its constituents are still quoting at valuations below long-term averages. They included ONGC, Tata Steel, Coal India, Dr Reddy’s Labs and Apollo Hospitals, among others. Many of these stocks are a 'buy', with analyst price targets, as per Trendlyne, suggesting 10 per cent to 33 per cent potential upsides.

In the case of ONGC, the average target based on 23 analyst recommendations stands at Rs 173.71, suggesting a 33 per cent potential upside. Emkay Global, which sees ONGC at Rs 190 against Wednesday's Rs 131-odd levels, has kept ONGC's estimates unchanged for FY23 and beyond amid windfall taxes. The brokerage remains positive on upstream companies and expects a healthy dividend payout from them. Shares of ONGC trade at a PE of 2.7, which is a 68 per cent discount from its 10-year average PE of 8.6.
For Tata Steel, a PE of 6.5 is a 66 per cent discount from its 10-year average of 19.2. The average brokerage target of this stock at Rs 122 suggests a 13.7 per cent potential upside.


Even as shares of Coal India have risen 52 per cent year-to-date, its target price suggests a 10 per cent potential upside.

"The stock is in a strong uptrend, making higher lows and higher highs. Recently, it entered a correction. It fell to channel support during correction. The price behaviour is showing evidence that correction might have concluded, and a larger up trend may resume. Buy for a target of Rs 255 with a stop loss of Rs 227," Anand Rathi said on Tuesday.

The mining company's PE at 5.8 is a 49 per cent discount from 10-year average of 11.4.

Dr Reddy's Labs (down 28 per cent) and Apollo Hospitals (down 21 per cent) also trade at steep discounts. Price targets of Dr Reddy's Labs suggest a 17.23 per cent potential upside, while Apollo Hospital is at 17.34 per cent.

In the case of Dr Reddy's Labs (DRL), Nomura India said DRL could record sales of $100-120 million from gRevlimid in the first year of launch, which is 11-13 per cent of the company’s current base revenues.

"Besides gRevlimid, the company expects new launch intensity to remain high, which can contribute to growth in the near term. The company’s facilities, particularly the injectable sites, were recently inspected and cleared by the USFDA, which paves the way for the product approvals/ launches in our view," Nomura said while suggesting a buy on the stock.

Motilal Oswal is positive on Apollo Hospitals, given superior positioning in the pharmacy segment, supported by strong back-end infrastructure and enhanced outlook for healthcare services. The brokerage expects Apollo Hospitals to report a 15 per cent sales CAGR over FY22-24 to Rs 19,400 crore, driven by back-end pharmacy/healthcare and AHLL revenue CAGR of 21 per cent, 12 per cent and 5 per cent, respectively, over the same period.

"The Ebitda CAGR is likely to moderate due to the ongoing huge investments towards Apollo 24/7," it said.
Here's how Nifty50 stocks trade today vis-à-vis their historical valuation averages:

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)