Articles by Suhas Reddy

The Baseline    
14 Mar 2023
Five analyst picks this week
By Suhas Reddy
  1. Mahindra & Mahindra: Motilal Oswal maintains its ‘Buy’ rating on this cars & utility vehicles manufacturer with a target price of Rs 1,525. This implies an upside of 30.1%. Analysts Jinesh Gandhi, Amber Shukla and Aniket Desai are positive about the company’s prospects as demand for its automobiles and tractors remains healthy despite macroeconomic challenges and supply chain disruptions. 

However, they added, “with multiple industry-wide challenges emerging in the foreseeable future”, the analysts expect lower volume growth for both the divisions, compared to earlier expectations. They project lower growth for the company’s sports utility vehicle (SUV) business in FY25 due to increasing competitive launches. 

Gandhi, Shukla and Desai anticipate margins to improve from its Q3FY23 levels on the back of price hikes, cost-cutting measures and easing supply of semiconductors. According to them, the company also plans to grow its nascent farm equipment business by 10X in FY27. They expect the firm’s net profit to grow at a CAGR of 20% over FY23-25.  

  1. Astral: ICICI Securities maintains its ‘Buy’ rating on this adhesive manufacturing company with a target price of Rs 2,373. This implies an upside of 71.4%. The target price was set for the pre-split share price. Analysts Arun Baid and Sohil Kaura “continue to like Astral for its strong brand, comprehensive product portfolio, wide distribution reach and robust balance sheet”. They see the healthy demand trend in the pipe market as a key positive and say it will lead to robust volume growth in the near term. The analysts also expect the firm’s margins to improve on the back of falling raw material prices and stable PVC resin prices. 

Baid and Kaura are upbeat about the company’s ramp-up in the bathware segment. As of February 2023, the company has opened 320 showrooms and plans to open around 500 more by Q1FY24. The analysts expect the company’s revenue to grow at a CAGR of 17.1% over FY23-25.  

  1. Greenply Industries: IDBI Capital initiates a ‘Buy’ coverage on this plywood manufacturer with a target price of Rs 171. This indicates an upside of 22.9%. Analysts Bhavesh Chauhan and Kuber Chauhan say, “Greenply is a proxy play on rising real estate sales in India as it is the second largest plywood company in India and is on the verge of commissioning a 2,40,000 cubic board metre medium-density fibreboard plant in Vadodara, Gujarat.” They expect the plant to ramp up production during FY24  and anticipate 65% utilisation in FY25, leading to strong growth in overall sales.

Post expansion, Chauhan & Chauhan expect net profit to grow at a CAGR of 35% over FY23-25 and estimate the plant’s revenue potential at Rs 600-650 crore at its peak. They also predict free cash flows will remain strong and net debt will fall sharply during FY24-25, as the company has no major capex plans. According to the analysts, Greenply is a dominant player and its stock is trading at a significant discount, compared to Century Plyboards.

  1. Tata Chemicals: Geojit BNP Paribas reiterates its ‘Buy’ call on this chemicals company with a target price of Rs 1,197, indicating an upside of 23%. In Q3FY23, the company’s profit rose 26% YoY to Rs 391 crore and revenue increased 31.6% YoY. Analysts from Geojit say, “The company posted decent earnings on account of stable demand, better realisations and cost management.” Tata Chemicals’  management expects soda ash demand to rise and supply to tighten in the coming quarters, which the analysts believe will lead to better realisations.

According to the analysts, “Despite recessionary pressure in multiple geographies, the company’s orders are fully booked and they expect a strong market for its products, aided by the Chinese market slowly opening up.” They are also optimistic about the  focus on capacity expansions, maximising plant utilisation and improving cost efficiency. 

  1. Bharti Airtel: Anand Rathi maintains its ‘Buy’ rating on this Telecom Services provider with a target price of Rs 890, indicating an upside of 15.6%. Analysts at Anand Rathi believe that the firm’s revenue will continue to grow over the coming quarters, led by rising customer additions and improving margins. They are upbeat about the firm’s expansion plans as well. “It plans to expand to 40,000 rural areas in India and enhance its combined services (mobile, broadband, DTH, B2B) in existing top 150 cities through 5G rollout,” they add.

The analysts expect the firm’s average revenue per user (ARPU) to continue to grow and are bullish about the management’s plan to gradually increase it to Rs 300 in the medium term from Rs 193 in Q3FY23. They anticipate Bharti Airtel’s revenue to grow at a CAGR of 16.1% over FY22-25.  

Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

(You can find all analyst picks here)

SECTOR | 13 Mar 2023
Prices pinch FMCG consumers in Q3, monsoon holds the keys to a recovery
By Suhas Reddy

Inflation cast a long shadow over Q3FY23 for FMCG companies, as costs ate away at volume and demand growth. Rising costs forced FMCG firms to focus on price hikes for revenue growth, and rural consumption dropped for the sixth consecutive quarter. The depreciating rupee didn’t help - that along with input cost pressures and sluggish demand, worsened pressures on margins. …

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Trendlyne Analysis released a Economy Update report for FMCG on 13 Mar, 2023.
The Baseline    
28 Feb 2023
Five analyst picks this week
By Suhas Reddy
  1. Prestige Estates Projects: Motilal Oswal maintains its ‘Buy’ rating on this realty company with a target price of Rs 675, implying an upside of 66%. Analysts Pritesh Sheth and Sourabh Gilda note that the company’s plans to double its sales bookings to Rs 25,000 crore by ramping up new launches is a key positive. They point out that Rs 7,500 crore of the firm’s planned capex (Rs 15,700 crore) for the next five years will be funded through external debt. Investors have been concerned about the strain this additional debt may cause on the balance sheet. But analysts believe Prestige’s rising cash flows and net worth will keep its debt-to-equity ratio stable. 

Sheth and Gilda are optimistic about the company’s ambitious growth guidance for the next five years, but believe the realty firm’s business development is key to realise the growth potential. They anticipate robust growth in rental income as well. They say, “Once the commercial portfolio fully stabilises over the next five to six years, it will generate rental income of Rs 3,200 crore.” The analysts expect the company’s revenue to grow at a CAGR of 8.6% over FY23-25. 

  1. Minda Corp: Axis Direct maintains its ‘Buy’ rating on this auto parts & equipment company with a target price of Rs 230, indicating an upside of 19.3%. Analysts Aditya Welekar and Shridhar Kallani maintain their previous recommendation and target price following Minda’s acquisition of a 15.7% stake in Pricol for Rs 400 crore. As this has been a financial investment and the company holds a minority stake, no synergies are expected from the acquisition, they add.  

The analysts maintain their positive outlook on the company’s growth prospects. They expect Minda Corp to be the prime beneficiary of product premiumization, growth in electric vehicle usage and increased business from commercial and passenger vehicle manufacturers. They are also upbeat about the management’s confidence to outperform the industry by 10-12% on the back of margin optimisation measures. 

However, they believe risks such as inflation, interest rate hikes and demand slowdown persist. “We maintain our cautious outlook on the 2W domestic market and overall export market in the next few quarters,” the analysts point out, and add that they expect the firm’s net profit to grow at a CAGR of 21.8% over FY23-25. 

  1. Supreme Petrochem: KRChoksey maintains its ‘Buy’ rating on this petrochemicals stock with a target price of Rs 427, indicating an upside of 12.1%. In Q3FY23, the company’s net profit fell 45.6% YoY to Rs 89.6% and revenue declined by 8.9% YoY. 

Analyst Abhishek Agarwal attributes this weak Q3 performance to lower realisations and volumes. However, the analyst remains optimistic about the company’s growth prospects given its capacity expansion projects, as he believes it will drive future growth. According to him, “The firm is enhancing its polystyrene (PS) and expanded polystyrene insulation (EPS) production capacities to cater to the increasing demand for its products. With enhanced capacity and healthy demand from end-user industries, it will see strong growth in the future.” 

Agarwal expects capacity expansion projects to add 1.2 lakh metric tonnes per annum of additional PS and EPS to its current capacity. The launch of new products and the production expansion will boost volume growth in the coming quarters, he says. He expects the company’s net profit to grow at a CAGR of 10% over FY22-24. 

  1. Muthoot Finance: Chola Wealth Direct maintains its ‘Buy’ call on this NBFC with a target price of Rs 1,350. This indicates an upside of 39.4%. According to analyst Huseain Kaizer Bharuchwala, the company has witnessed better gold loan demand in the past two months and it expects to return to double-digit gold loan growth in a few quarters. He believes that the tradeoff between loan growth and margin will persist “in the foreseeable future”.

The analyst says, “Muthoot, in our view, is unlikely to pursue gold loan growth at the cost of profitability. As pressure from banks and fintechs start subsiding and teaser loan rates impact vanish, we expect 10% growth in standalone AUM in FY24.” The analyst remains optimistic, expecting the company to regain some lost market share starting FY24 and returning to a double-digit growth rate in Q2FY24.

  1. Mahindra Lifespace Developers: ICICI Securities retains its ‘Buy’ call on this realty company with a target price of Rs 483, indicating an upside of 29.5%. After the company’s Chief Executive Officer (CEO) and Managing Director (MD) Arvind Subramanian resigned from his post, Mahindra Group replaced him with Amit Kumar Sinha. The resignation will take effect from May 22, 2023. Analyst Adhidev Chattopadhyay says, “The management transition comes at a time when the wheels for growth have been already set in motion, and barring any large churn in department heads, continuity in growth plans should not be a major hurdle.”

The analyst expects the company to achieve Rs 1,900-2,000 crore of FY23 sales bookings, implying 58% growth over FY22 sales. He estimates FY24 and FY25 sales bookings to be at Rs 2,340 crore and Rs 2,710 crore respectively on the back of a robust launch pipeline for FY24 and new project additions. “We believe that the company is on track to achieve its medium-term guidance of Rs 2,500 crore of residential sales bookings by FY25,” the analyst concludes. 

Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

(You can find all analyst picks here)

Hotels, Restaurants & Tourism    
SECTOR | 27 Feb 2023
Hotels see strong margin growth as Indians take extended weekends and ‘workcations’
By Suhas Reddy

The third quarter of the financial year, with its many festivals and weddings, is usually a strong one for the hotels industry. And this year didn’t disappoint – the hotels in focus reported robust growth in revenue and net profit in Q3FY23. Rising leisure travel, revenge tourism and improving corporate travel and events helped drive growth during the quarter. …

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The Baseline    
22 Feb 2023
Which stocks did superstar investors sell in Q3FY23?
By Suhas Reddy

Superstar investors make portfolio changes every quarter, which give us insights into which stocks they are bullish and bearish on. Earlier, we looked at the companies in which superstars bought stakes in Q3FY23. Here, we look at their key sells.  

Rakesh Jhunjhunwala’s portfolio takes holdings below 1% in three companies

Rakesh Jhunjhunwala's portfolio, currently managed by the Rare Enterprises team, sold stakes in 11 companies in Q3FY23. The investment firm reduced stakes to below 1% in Orient Cement, Man Infraconstruction and Anant Raj from 1.2%, 1.2% and 3.1% respectively. 

Over the past year till February 21, the cement & construction firms, Orient Cement and Man Infraconstruction, have fallen by 22% each. The realty firm Anant Raj’s share price rose 60.5%.

The big bull’s portfolio reduced its stake in Dishman Carbogen Amcis by 1.6% to 1.6%. It also cut a 0.4% stake in Titan Co, bringing the holding to 5.2%, and pared stakes in Fortis Healthcare and Star Health & Allied Insurance Co by 0.2% and 0.1% to 4.5% and 17.3% respectively. 

It also sold minor stakes in Metro Brands, Nazara Technologies, Aptech and Indian Hotels Co in Q3FY23. 

Sunil Singhania makes minor changes to portfolio in terms of stake sell

Sunil Singhania’s Abakkus Fund sold a 0.5% stake in industrial machinery company The Anup Engineering in Q3FY23. Its stake in the company is now at 4.2%. The fund also cut a 0.2% stake in Jindal Stainless (Hisar), taking the stake to 3.7%. The stainless steel producer’s net profit fell 32.9% YoY to Rs 344.3 crore in Q3FY23. 

The marquee investor cut a 0.1% stake in Route Mobile (internet software and services company) and Hindware Home Innovation (consumer durables manufacturer). The fund now holds 2.6% and 4.9% in these companies respectively. Hindware Home Innovation reported a YoY fall of 78.3% in its net profit during the quarter. 

Abakkus Fund also cut a minor stake in IIFL Securities and HIL; it now holds 3.2% and 3.1% respectively.

Ashish Kacholia takes his holdings below 1% in two companies 

Ashish Kacholia sold his stake in Rainbow Children’s Medicare (healthcare facilities company) and SG Finserve (financial services provider) to below 1% during Q3FY23. These companies were added to his portfolio in Q2FY23 when he bought 1% and 1.1% stakes in them respectively. 

Like Singhania, Kacholia also pared his stake in Hindware Home Innovation by 1.3% during the quarter. He now holds a 1.3% stake in the company. The ace investor also sold a 1.2% stake in D-Link (India), an IT company, bringing his stake down to 2.1%. During the quarter, D-Link’s profit increased almost three-fold YoY to Rs 27.3 crore. 

Dolly Khanna bearish in Q3FY23, reduces holdings in 18 companies

Dolly Khanna was on a selling spree in Q3, and pared her stakes in 18 companies. This seems to be a response to the volatility in markets - this investor tends to sell quickly in flat and bearish markets. The ace investor trimmed her stakes to below 1% in seven companies–Aries Agro, J Kumar Infraprojects, Manali Petrochemicals, NCL Industries, Polyplex Corp, Sharda Cropchem and Zuari Industries.

Of the 18 companies the investor cut her stakes in, three were from the cement & construction sector, three from the chemicals & petrochemicals sector, and two each from the fertilizers, automobiles & auto components, commercial services & supplies and textiles sectors.  She also reduced her holdings in one firm each from the realty, FMCG, oil & gas and metals & mining sectors.

She sold a 0.6% stake in cement manufacturer KCP, bringing her holding down to 2.4% in Q3. She pared her stake in Chennai Petroleum Corp by 0.4% to 2.2%, Pondy Oxides & Chemicals by 0.3% to 3.1% and Rama Phosphates by 0.2% to 1.5%. 

Khanna also reduced her holdings in Nitin Spinners, Mangalore Chemicals & Fertilizers, Ajanta Soya, Tinna Rubber & Infrastructure and Deepak Spinners by 0.1% each to 1.4%, 1.2%, 1.5%, 1.6% and 1.2% respectively. She sold minor stakes in Talbros Automotive Components and Control Print as well. 

Vijay Kedia cuts stake in FMCG company Lykis to below 1% 

After reducing his stake in Lykis to 2.7% from 9.3% in Q2FY23, Vijay Kediatook it to below 1% in Q3. Lykis’ share price has surged by 48.1% since the beginning of Q4FY23. In Q3, Kedia cut his stake in Cera Sanitaryware (furnishing products company) also to below 1%, as against the 1% held in Q2FY23. 

Kedia slashed his stake in Talbros Automotive Components to 1.3% from 2.3% held in the previous quarter. He reduced his stake in Tejas Networks (telecom company) to 2.3% by cutting 0.3% and in Ramco Systems (IT consultant) to 1.4% by cutting 0.2%. He sold a minor stake in Repro India also and now holds a 7.1% stake in the company. 

Porinju Veliyath takes stakes below 1% in three companies

Porinju Veliyath reduced his stakes in a total of  four companies in Q3FY23. Among them, three firms were taken to below 1%, namely heavy electrical equipment company HPL Electric Power (from 1.3%), retailing company Praxis Home Retail (from 1.1%) and logistics firm Gati (from 1%). Praxis and Gati have fallen by 64.4% and 20.7% respectively over the past year till February 21. On the other hand, HPL Electric gained 31.6% in the same time period. 

The ace investor also sold a 0.5% stake in Kerala Ayurveda, bringing down his stake in the pharmaceutical company to 1.9%. 

Anil Kumar Goel cuts stakes in small-cap and micro-cap companies

Anil Kumar Geol & Associatesreduced stakes in three companies in Q3FY23. The investor took his stake below 1% in construction & engineering firm Salasar Techno Engineering. Over the past year till February 21, the stock has gained 73.8% but shed 10.2% in the past month. 

Goel reduced his stake in TCPL Packaging, a paper & paper products company, by 0.3% to 10.2%. He also reduced his stake by 0.1% to 2.2% in Austin Engineering Co, a micro-cap industrial machinery firm. 

The Baseline    
14 Feb 2023
Five infra picks from analysts this week
By Suhas Reddy

This week, for analyst picks, we take a look at companies from the utilities, cement & construction sectors with revenue and profit YoY growth above 10%.

  1. Mahanagar Gas: ICICI Securities maintains its ‘Buy’ rating on this city gas distribution company and increases the target price to Rs 1,050, implying an upside of 12.3%. In Q3FY23, the firm’s net profit jumped over 3X YoY to Rs 172.1 crore and revenue rose 55.2% YoY to Rs 1,582.3 crore.

Analysts Probal Sen and Hardik Solanki write that the firm’s volumes have fallen on a YoY basis, but its profitability is better than expected. They attribute this to aggressive price hikes the company took. Going forward, analysts expect volumes to rise as gas costs will likely reduce due to the Kirit Parikh Committee recommended price implementation. They expect “volumes and margins to see an improvement over FY24-25”. 

Sen and Hardik are optimistic about the company’s prospects for the next 12-18 months. They expect the company’s net profit to grow at a CAGR of 19% over FY23-25.  

  1. Praj Industries: Axis Direct maintains its ‘Buy’ rating on this construction & engineering company with a target price of Rs 500. This indicates an upside of 37.3%. In Q3FY23, the company’s net profit grew 68.2% YoY to Rs 62.3 crore and revenue increased 55.4% YoY to Rs 910 crore. 

Analyst Prathamesh Sawant says that the company’s EBITDA margin and net profit beat his estimates due to the moderation in sleet prices. He adds that the completion of the old fixed cost order in Q3 has helped boost margins. 

Sawant notes, “Praj Industries is the pure equity play on India Ethanol Revolution and now marching its footprints globally”. As the company has begun to expand its engineering services across growth industries like compressed bio-gas, green hydrogen, ethanol production, and others, the analyst believes its growth prospects will improve. He anticipates the firm’s net profit to grow at a CAGR of 29.2% over FY23-25. 

  1. Dalmia Bharat: Motilal Oswal maintains its ‘Buy’ rating on this cement & cement products manufacturer with a target price of Rs 2,120. This implies an upside of 10.5%. In Q3FY23, the company’s net profit jumped 98.1% YoY to Rs 204 crore and revenue rose 22.9% YoY to Rs 3,355 crore. 

Analysts Sanjiv Kumar Singh and Mudit Agarwal are upbeat about the firm’s Q3 performance as it beat their net profit estimates by a healthy margin. They attribute the improvement in profitability to pricing recovery in eastern India and better cost controls. They add that the company is trading at an attractive valuation.

Kumar and Singh believe that Dalmia Bharat has good long-term prospects due to its diversified capacity expansion plan, dominant presence in the high-growth market of east India and its focus on sustainability. According to them, “The company maintains its target of delivering 1.5x demand growth than the industry average in FY23.” The analysts expect the company’s revenue to grow at a CAGR of 10.6% over FY23-25. 

  1. Tata Power: ICICI Securities maintains a ‘Buy’ call on this utilities company with a target price of Rs 262, indicating an upside of 28.8%. In Q3FY23, Tata Power’s net profit increased by 121.9% YoY to Rs 945 crore, while its revenue increased by 30.7% YoY to Rs 14,402 crore. Analysts Rahul Modi and Anshuman Ashit say, “Tata Power’s strong quarterly results continued in Q3FY23 as well, sustained by higher profits from the coal and Mundra businesses, and robust performance of distribution businesses.” 

The company had planned a capex of Rs 8,000-10,000 crore, of which Rs 3,000 crore was incurred in H1FY23. The analysts believe that the utilities company has a strong long-term potential, especially its renewables and distribution businesses which can outperform. They also believe that Tata Power is among the best-placed private players in the power sector, with businesses across the value chain and backward integration. 

  1. Star Cement: Bob Capital Market maintains a ‘Buy’ call on this small-cap cement manufacturer with a target price of Rs 138. This indicates an upside of 25.4%. In Q3FY23, the company’s net profit grew 20.7% YoY to Rs 52.9 crore, while its revenue increased 12.3% YoY to Rs 631.3 crore. 

Analysts Milind Raginwar and Yash Thakur state that the revenue growth is backed by higher realisations (up 8% YoY to Rs 6,823 per tonne) and volumes (up 5% YoY to 0.9 metric tonnes), indicating healthy demand in key markets. They further add that the cement manufacturer had hiked price in mid-December and its full impact will be reflected in Q4FY23. 

The analysts “like Star Cement for its strong presence in the remunerative northeast market, plans to de-risk revenue, and light debt burden despite capex”.

Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

(You can find all analyst picks here)

Hindustan Unilever Ltd.    
06 Feb 2023
Amid cost pressures, a silver lining in Hindustan Unilever’s Q3FY23 results
By Suhas Reddy

Hindustan Unilever (HUL) was the first FMCG major to release its Q3FY23 results. Being the largest company in the FMCG sector, its results gave investors an early peek into consumer trends and how the rest of the industry might perform.  

The British multinational’s Indian arm delivered a strong Q3 performance, partly as a result of raising prices. Observers had …

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Hindustan Unilever Ltd.'s price crossed below SMA30 today
The Baseline    
30 Jan 2023
Five analyst picks this week with upgrades in rating or target price
By Suhas Reddy

This week we take a look at analyst picks that saw an upgrade in their target price or rating from brokerages. 

  1. Jindal Steel and Power: ICICI Securities maintains its ‘Buy’ rating on this Iron & Steel Intermediate Products manufacturer and raises its target price to Rs 750 from Rs 605, which indicates a revision of 24%. With the new target price, the upside in the stock stands at 31.3%.

Analysts Amit Dixit, Mohit Lohia and Pritish Urumkar believe the ramp-up in captive thermal coal production and the acquisition of Monnet Power Co’s assets will improve cost efficiencies. They also see an increase in volume due to the company’s logistical advantages and capacity expansion. Although the analysts expect realisations to fall, they see cost efficiencies driving the expansion of margins. 

The analysts add, “Jindal Steel and Power (JSPL) has been the top performer among mainstream ferrous players with a robust return of 45% in the past 3 months.” They anticipate the company’s growth to be driven by cost efficiencies and volume growth. The analysts expect Jindal Steel’s revenue to grow at a CAGR of 9.1% over FY22-24. 

  1. SBI Life Insurance Co: KRChoksey keeps its ‘Buy’ rating on this Life Insurance company and increases its target price to Rs 1,750 from Rs 1,550, a revision of 12.9%. With the new target price, the upside now stands at 42.7%.

Analyst Abhishek Agarwal says the company is trading at an attractive valuation. Even though its Q3FY23 results have been a mixed bag, he expects healthy growth in the coming quarters. The renewal business has seen robust growth along with absolute value of new business (VNB), but the VNB margin contracted due to a higher share of Unit Linked Insurance Plan (ULIP). According to the analyst, “The company had been reporting 30%+ margins in the past few quarters but it contracted in Q3FY23 on the back of a higher share of the ULIP segment.” He believes that the strong margin growth in previous quarters will keep the annual margins healthy at 28-30% in FY23.

Agarwal expects the non-par guaranteed products to continue seeing healthy traction in the coming quarters. He believes that the insurance firm’s net profit will grow at a CAGR of 13.1% over FY22-25.

  1. Canara Bank: Motilal Oswal maintains its ‘Buy’ rating on this PSU Bank and raises its target price to Rs 410 from Rs 300, indicating a revision of 36.7%. The new target price implies an upside of 42.9%. 

Analysts Nitin Aggarwal and Yash Agarwal remain positive on the company’s prospects as it has posted “strong operating performance supported by healthy traction in loan growth and improvement in asset quality, while margin expansion drove NII.” They add that loan growth is also healthy, led by the corporate, retail and agri segments. The improvement in asset quality, led by lower slippages and higher recoveries are seen as key positives by the analysts.

They believe, along with this healthy operational performance, margin expansion and lower provisions have aided in improving profitability. The analysts cite higher NII and lower provisions for raising their net profit estimates by 5% for FY23 and FY24 each. They anticipate the bank’s net profit to grow at a CAGR of 27.4% over FY23-25. 

  1. Supreme Industries: ICICI Direct maintains its ‘Buy’ rating on the Plastic Pipes manufacturer and raises its target price to Rs 2,880 from Rs 2,600, implying a revision of 10.8%. The new target price implies an upside of 12.7%.

Analysts Sanjay Manyal, Hitesh Taunk and Ashwi Bhansali write that the company has posted healthy revenue growth on a YoY basis in Q3FY23, on the back of good volume growth. However, they point out that the margins and net profit are lower YoY but have expanded sequentially. They add that margins will gradually improve as inflation declines.

The analysts believe the company will be a major beneficiary of the Centre’s flagship scheme, ‘Nal Se Jal’, in the long term. They also expect the mix of value-added products in its portfolio to increase in the coming quarters. The analysts say, “Rising contribution of value-added products in the overall top line (increased from 35% in FY18 to ~38% in FY22) will keep the EBITDA margin elevated.” Manyal, Taunk and Bhansali expect the firm’s revenue to grow at a CAGR of 14.1% over FY22-25. 

  1. LTIMindtree: IDBI Capital upgrades its rating on this IT Consulting & Software stock to ‘Buy’ from ‘Hold’ and raises its target price to Rs 5,000 from Rs 4,795, implying a revision of 4.3%. The new target price implies an upside of 13.1%.

Even though the company’s revenue has grown just 1.9% QoQ, analysts Dhevang Bhatt and Dhawal Doshi believe its revenue growth will increase as the merger-related issues iron out. They add, “In terms of synergies, the company is expected to benefit from cross-sell & up-sell opportunities, diversification of portfolio, inorganic growth, end-to-end services, client mining and larger deals.” The analysts also like the IT firm’s focus on winning efficiency deals in legacy and digital, allowing it to save costs.

The analysts note that the firm's cross-sell opportunities and ability to win large deals allow it to sustain healthy revenue growth in the long term. They also see margins improving in the medium term as supply-side pressures ease and operational efficiencies kick in. They expect the firm’s revenue to grow at a CAGR of 17.7% over FY22-25.

Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

(You can find all analyst picks here)

Software & Services    
SECTOR | 23 Jan 2023
Deal wins drive growth for India’s IT giants in Q3, despite economic jitters
By Suhas Reddy

After taking the hit from inflationary pressures and European unrest for the past few quarters, top-tier IT companies’ saw a lift in Q3. They delivered a healthy performance in the seasonally weak quarter of Q3FY23, largely beating the street’s expectations.

Due to the impact of higher furloughs and lesser working days, analysts at HDFC Securities had expected the IT giants …

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BOB Capital Markets Ltd. released a Sector Update report for Software & Services on 10 Mar, 2023.
The Baseline    
17 Jan 2023
Five analyst picks this week
By Suhas Reddy
  1. Gujarat Gas: Motilal Oswal maintains a ‘Buy’ call on this utilities company with a target price of Rs 679, indicating an upside of 51.7%. According to analysts Swarnendu Bhushan and Rohit Thorat, the Russia-Ukraine conflict led to an increase in liquefied natural gas (LNG) prices, which in turn harmed Gujarat Gas. Higher prices forced consumers to switch to cheaper alternatives such as propane and liquefied petroleum gas (LPG). The analysts believe that “the storm seems to be running out of steam with spot LNG prices declining 48% from their peak.” 

After analysing historic prices of over eight years, Bhushan and Thorat revealed that  LNG, on average, has been cheaper than propane and LPG by 15% and 19% respectively, when the entire demand is met through long-term contracts. They said, “Barring the current flux in gas markets, LNG should continue to remain cheaper than alternate fuels by a similar magnitude, except for 3-4 months in a year.”

They remain optimistic as Gujarat Gas can raise volumes through several avenues, in addition to the growth from the industrial and compressed natural gas pick-up in the existing areas.

  1. Bank of Baroda: Prabhudas Lilladher reiterates its ‘Buy’ call on this bank with a target price of Rs 220. This indicates an upside of 18.3%. Analysts Gaurav Jani and Palak Shah say that domestic corporate credit growth has touched an 8-year high of 13% YoY and is reviving. According to them, Bank of Baroda would be a key beneficiary as its corporate loan share is 40% and market share in overall advances is sizeable at 6.6% post-merger. The analysts also believe that the bank could expand net interest margins for half a year, while private bank margins peak in Q3FY22, due to a higher share of MCLR (marginal cost of funds-based lending rate) linked loans.

Jani and Shah believe that the bank’s balance sheet is stronger than ever with net non-performing assets to equity ratio at a multi-quarter low of 10.5%, which gives it leeway to grow. Talking about the sector, the analysts said, “With sustained loan growth and benign asset quality environment, there could be further earnings upgrades across PSU banks.”

  1. Macrotech Developers: ICICI Securities maintains its ‘Buy’ rating on this realty company with a target price of Rs 1,304. This indicates an upside of 27.8%. Adhidev Chattopadhyay remains positive on the realty firm as its Q3 sales bookings have outperformed the brokerage’s estimates. The analyst believes the company will exceed its FY23 sales bookings guidance of Rs 11,500 crore, given that it has “already achieved 9MFY23 sales bookings of Rs 90.4bn (79% of FY23 guidance)”. He adds that the robust sales are  “driven by a combination of monetization of ready/completed inventory and new launches”.

Chattopadhyay believes that the company’s robust launch pipeline and expansion into new markets like Pune and Bengaluru provide healthy growth visibility in the medium term. The analyst is also upbeat on the sequential reduction in net debt on the back of higher collections and falling interest costs. He expects the firm’s net profit to grow at a CAGR of 36.3% over FY22-24. 

  1. VIP Industries: Axis Direct upgrades its rating on this luggage and travel accessories maker to ‘Buy’ from ‘Hold’ with a target price of Rs 750, indicating an upside of 7.2%. Analysts at the brokerage expect demand to rise on the back of the upcoming wedding season and robust pick-up in travel & tourism. They also see the company gaining market share as they expect demand for premium products to rise. Along with the uptick in travel, “increasing number of International departures of students to foreign universities shall help boost demand for Hard Luggage”, they say. 

The analysts believe the company’s focus on adding depth and diversifying its product portfolio will make its products more appealing to a wider audience. They are hopeful that this will boost market share gains and sales. Overall, the analysts anticipate VIP Industries to capitalise on the improvement in demand, given its diverse product offerings. They expect the firm’s revenue to grow at a CAGR of 40.9% over FY22-24.  

  1. Tata Consultancy Services (TCS): ICICI Direct maintains its ‘Buy’ rating on this IT consulting & software company with a target price of Rs 3,780. This indicates an upside of 12.7%. In Q3FY23, the IT giant’s net profit has risen by 4% QoQ to Rs 10,846 crore and revenue by 5.3% QoQ. 

Analysts Sameer Pardikar and Sujay Chavan believe the company’s EBIT margin rising by 50 bps QoQ is a key positive. They expect “margins to improve from FY23 onwards due to utilisation improvement and moderation of sub-contractor costs''. They see margins growing by 110 bps over FY23-25, and expect cash flow to remain robust in the coming quarters.

Pardikar and Chavan view the company’s new organisational structure, which is aimed at improving clients’ stickiness, as likely to enhance market share gains. The analysts say that increased outsourcing in Europe, vendor consolidation, and a healthy deal pipeline will drive growth. They expect TCS’ net profit to grow at a CAGR of 11.5% over FY22-25. 

Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

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