My Newsfeed

1. Ashok Leyland: This truck manufacturer’s stock touched its all-time high of Rs 169.4 on Tuesday and rose by 11.8% over the past month till Thursday. The surge in stock price comes on the back of a robust business outlook and a major deal win. This month, the company bagged orders worth $75 million to supply 1,400 buses in the UAE. This is the largest order for buses it has received in the UAE to date.

The company’s total wholesales for the month of August rose by 51% YoY, mainly driven by the surge in demand for trucks and buses. The management says the company’s diverse product portfolio mix and robust distribution network led to an increase in sales and market share. The firm’s domestic market share in trucks improved by 490 bps YoY to 31.1% in Q1. This healthy performance helped the stock make it to this screener which lists companies that outperformed their industry in the past 90 days.

The management expects the demand environment to improve due to increasing construction, infrastructure and mining activities. It also expects the re-opening of schools, colleges and offices to improve demand for buses. The light commercial vehicle segment’s sales volume will continue to grow on rising demand from the e-commerce and agriculture sectors. The street largely holds a bullish outlook for the stock, with a consensus recommendation of ‘Strong Buy’. According to KRChoksey, the company’s pipeline of new product launches will help increase its market share. The management anticipates better profitability in the coming quarters on softening commodity prices and a robust demand environment.

2. Federal Bank:This bank's stock rose 9% in trade on Monday on speculative reports of the bank merging with another private bank. However, the bank denied the news and called it speculative. The stock tanked 8% after the bank issued this clarification. However, this did not affect the stock’s overall performance as it shows up in a screener where it is outperforming its industry by 14.2% in the past 90 days. It also shows up on the screener identifying stocks where FIIs increased their holding.

In a recent interview, the bank’s CEO Shyam Srinivasan said that rupee depreciation has helped improve the bank’s NRI (non-resident Indians) funds account. 21% of India’s remittances are now coming in through the bank. He also adds that earlier these funds were just lying with the bank, but now, the activity in these accounts has improved with investments into properties and other finances. He expects remittances to improve in the upcoming quarter. 

Recently brokerage Nirmal Bang gave a ‘Buy’ rating for this stock as its retail loan AUM (assets under management) improve to 55% in Q1FY23. It also expects asset quality to improve. What impressed the brokerage was the corrective measures taken by the bank to disburse small ticket-sized corporate loans to counter risk. The bank also reported an improved net interest margin to 3.2% in Q1FY23. However, the brokerage believes that the bank should have a higher contingency buffer.Trendlyne’s consensus recommendation saw 21 brokerages recommending a ‘Buy’ on the stock in September.

3. Brigade Enterprises: This realty stock hit its all-time high of Rs 575.4 on Wednesday and has been on an upswing since announcing its Q1FY23 results on August 2. The company’s net profit rose over 4X YoY to Rs 87.7 crore beating Trendlyne’s Forecaster estimates by 161%. Its sales bookings in the residential segment jumped 70% YoY in the same period. The realty firm benefitted from the resurgence in demand for housing, office spaces, and travel as it is present in the residential, commercial, retail, and hospitality segments.

The management expects a favourable demand environment to continue over the coming quarters, and to meet this demand it has added projects worth Rs 500 crore in H2CY22. It plans to add more projects in the remainder of FY23. The company has been funding these projects from the proceeds from its qualified institutional placement (QIP), through which it raised approx Rs 500 crore. This has helped it maintain strong cash flows and a healthy balance sheet. It shows up on this screener which lists companies whose cash flows from operations have been consistently improving over the past two years.

Going forward, the management anticipates leasing out 1.7 million square feet of vacant space by the end of FY23. It expects the growth in rental income to be driven by a rise in demand for office space and retail space. The recovery in rental income will help reduce the risk associated with the residential segment, it added. In the coming years, the company plans to focus on increasing its presence in newer markets, specifically in the residential and commercial segments.

4. Angel One:The stock of this broking company jumped nearly 14% after it released its business update for August 2022. The company also outperformed the Nifty 500 index by roughly 15 percentage points in the past week.Angel One acquired 4.5 lakh new clients in the month gone by, up by over 28% on a MoM basis. This is especially noteworthy as the company’s client acquisition run rate had fallen to 3.4 lakh clients in June and July after peaking in May.

The average daily  orders rose to over 36 lakh after continuously falling between February and July owing to tepid market activity and bearish sentiment. The Indian markets came alive in August backed by renewed investment fervor especially among foreign institutional investors. The FIIs pumped in roughly Rs 54,000 crore in the Indian equity markets in August, highest since December 2020. Higher market activity also caused Angel One’s average daily turnover to rise over 20% MoM across its product segments. However, the company ended up losing market share in the derivatives segment while it gained over 3% share in the commodities segment. Angel One now holds over 50% market share in the upcoming commodities segment. 

The company now has a client base of over 11 crore and its management is confident that strong client acquisition growth will continue, backed by higher participation of millennials in the markets. Prabhakar Tiwari, Chief Growth Officer, Angel One believes that the total number of demat accounts in the country will cross the 20 crore mark over the next three to four years, doubling from current levels. The company is also in the process of deploying its ‘Super App’ to deliver a personalised investment experience. Angel One beat consensus estimates of analysts in Q1FY23 and is all set to clock over 20% topline growth in FY23.

5. One97 Communications (Paytm): This internet company re-appointed Vijay Shekhar Sharma as its MD & CEO in the last week of August. According to reports, it looks like the CEO is on borrowed time to convert its books to black, given the stock lost 60% of its value since its IPO in November 2021 and investors were not happy.

However, recently Paytm has been in the news for entirely different reasons. The stock fell 2.5% on September 3 after the ED raided the premises of Paytm along with Razorpay and Cashfree, on suspicion of a loan racket run around by Chinese nationals. According to reports, ED seized some Rs 17 crore worth of funds in the form of merchant IDs and bank accounts. Although the company gave an official clarification saying that none of the funds frozen by ED belongs to Paytm or its group companies, the investors are yet to gain their trust back in the stock. 

On September 6, the company published its monthly operational update. Given that the Reserve Bank of India (RBI) has banned Paytm from onboarding new customers, its monthly transacting users (MTU) are still up in August. However, this is just an 11.3% increase since the ban. The number of loans disbursed increased 246% YoY while gross merchandise value is up 72%. The management says that it is seeing a lot of upsell opportunities in this business. Paytm will have to focus on getting the maximum out of its existing users, given that it will take at least 3-5 months for the RBI to take a call on the imposed ban.

Trendlyne's analysts identify stocks that are seeing interesting price movement, analyst calls, or new developments. These are not buy recommendations.

The Reserve Bank of India (RBI) projects India’s GDP to grow by 7.2% in FY23, which places the country among the fastest growing economies in the world. One of the reasons for the rapid growth is that India entered a demographic dividend starting 2018. 

A demographic dividend occurs when a country’s working population is larger than its dependent population. When people have fewer dependents (children and elderly parents), they tend to take more risks, travel for work, and also take up high-productivity jobs. This drives higher GDP growth. 

The ratio of India’s working population to total population is currently higher than countries like China, Japan and Brazil. The population of these countries have already started to decline, while India’s working population will increase till 2045. It will also exceed China’s population by 2030. 

While having a large labour force is an opportunity for countries, translating it into high growth is not straightforward. India has not made significant headway in skilling and educating its workforce. And almost 83% of the workforce is employed in the unorganised sector. 

Employability of India’s workforce was 47.4% in 2019. It fell to 46.2% in 2022 due to the lockdown restrictions during the COVID-19 pandemic owing to online classes, as well as long school and college closures. 

As India shifts from an agricultural nation to a manufacturing/services economy and an exporting powerhouse, policy-makers will have to focus on increasing employability, and bringing more people into the organized sector. It also needs to increase labour participation for women. India currently ranks 178 out of 187 countries in female workforce participation according to the World Bank and its female labour participation rate is 19%, among the lowest in the world.

1. Aptus Value Housing Finance India: LKP Securities maintains its ‘Buy’ rating on this housing finance company with a target price of Rs 526, indicating an upside of 46.7%. Analyst Ajit Kumar Kabi believes the company is well-placed to capitalise on improving business conditions, given its robust cash positions and underwriting practices. The analyst further adds that the company’s return on assets (RoA) has been best-in-class among its peers on a high net interest margin (NIM) and with controlled operating expenses. He expects an NIM of 10.5% and a RoA of 7% in FY23.

Kabi says, “The company has a robust tech-driven customer acquisition platform and follows a stringent credit underwriting process”. He believes this has enabled the company to keep its net non-performing assets (NNPAs) below 1% for several years. Also, its collection efficacy surpassed the pre-covid level and stood at 101.2% in June. Kabi expects the company’s net profit to grow at a CAGR of 40.7% over FY22-24.

2. Nippon Life India Asset Management: Axis Securities maintains its ‘Buy’ rating on this asset management company with a target price of Rs 360, indicating an upside of 20.9%. Analysts Sumit Rathi and Dnyanada Vaidya believe the firm’s growth trajectory is intact given rising inflows from tier 2 & 3 cities, and its strong distribution network. Its extensive distribution network enables it to penetrate the underpenetrated Indian market, the analysts added. The analysts also expect Nippon Life to expand its presence and scale up its offshore business via international tie-ups and partnerships.

Rathi and Vaidya notes, “Nippon Life has adopted a differentiation and low-cost approach and is focused on scaling up its Alternative Investment Fund (AIF)/ Portfolio Management Services (PMS) businesses''. They believe this strategy along with its strength in the retail segment resulted in the company amassing the largest investor base in the industry with 1.7 crore investor folios. The analysts expect the company’s net profit to grow at a CAGR of 9.9% over FY22-24.

3. Jubilant Foodworks: Ashika Research maintains its ‘Buy’ rating on Jubilant Foodworks with a target price of Rs 710, indicating an upside of 17.4%. The brokerage expects the company’s revenue growth to accelerate as it believes customers are shifting to organised quick service restaurants (QSR) from unorganised ones. It believes the company will maintain its dominant position in the Indian QSR space as it is expanding its store network aggressively and diversifying its cuisine portfolio. The firm is also focusing on scaling up its international operations, it added.

The brokerage is bullish for the company as it won exclusive franchise rights to operate the Popeye’s brand restaurants in India, Bangladesh, Nepal and Bhutan. It believes the strategy to diversify its cuisine portfolio will also aid in market share expansion. The brokerage house said, “strong cost control and management commentary on aggressive store additions and thrust on digital & tech initiatives provide a strong growth outlook”. The broker expects the company’s profit to grow at a CAGR of 30.4% over FY22-24.

4. Hindustan Aeronautics (HAL): ICICI Securities maintains a ‘Buy’ call on this aircraft manufacturer and increases the target price to Rs 2,665. This indicates an upside of 12.1%. Abhijit Mitra, Mohit Lohia, and Pritish Urumkar point out that the order lineup for HAL over the next three years is worth Rs 1.5 lakh crore, which includes manufacturing orders worth Rs 45,000 crore. The company’s management is confident of maintaining 24-25% EBITDA margins and set its internal target of Rs 2,500 crore in export revenues by FY25. 

The analysts note, “The biggest certainty to our valuation is the order book, which is expected to cross Rs 1 lakh crore by FY22-23.” The defence company’s current order book stands at Rs 85,000 crore which includes a fresh order of Rs 6,000 crore in Q1FY23. They further add, “There are hardly any defence primes in the world which manufacture combat aircraft and have an equivalent book-to-bill ratio.”

5. Grasim Industries: Motilal Oswal maintains a ‘Buy’ call on this cement producer with a target price of Rs 1,880, indicating an upside of 10.1%. “Garsim’s FY22 Annual Report highlights integration across the value-chain and diversification into new businesses,” say analysts Sanjeev Kumar Singh and Mudit Agarwal. 

The company’s standalone revenue increased 68% YoY to Rs 20,900 crore, EBITDA increased 105% YoY to Rs 3,200 crore and EBITDA margin increased by 2.8 basis points YoY to 15.4%. According to the analysts, “The improvement in performance was led by higher sales volume and better realisation, which was partly offset by a rise in raw material and input cost in H2FY22 amid a volatile external environment.”

Singh and Agarwal are positive on the cement manufacturer on the back of the company expanding capacity to cater to the growing demand across businesses and its foray into high growth businesses such as paints and B2B e-commerce.

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

India registered strong double-digit GDP growth in the first quarter of FY23. But the 13.5% growth rate is lower than RBI's estimate of 16.2%. India faces multiple speedbumps - rising interest rates, uneven monsoons - but is better placed than developed countries that are struggling with high inflation, and China with its self-goals of city-wide Covid lockdowns.

A rebound in the services sector has helped deliver India's Q1 growth. Within services, a Big Two rivalry in a key industry - telecom - is driving a big cycle of spending.

In this week’s Analyticks:

• Reliance Jio v/s Bharti Airtel: Who will win the 5G war?
• Screener: Companies outperforming their industry in returns on capital, and growth

Let’s get into it.

Will Reliance Jio's 5G launch help it gain over Bharti Airtel?

For businesses, the rise of a new technology is a fresh chance to win market share. And it looks like Reliance Jio is counting on its 5G rollout to build a massive lead over its competitors. Reliance Chairman Mukesh Ambani announced a special Diwali present for Indians in the 45^thannual general meeting of Reliance Industries. If you are a Reliance Jio user living in any of the four metros or major cities like Bangalore, Ahmedabad and Pune, you will be able to  access 5G technology by this Diwali.

5G opens the door to much faster data. While 4G gives us a download speed of upto 150 mbps, 5G offers speeds of upto 10 gbps, nearly 67 times higher. The upload speed is also 20 times higher than that of 4G. People living in smaller cities and towns are expected to get Jio 5G by December 2023. 

This ambitious plan comes at a hefty price tag for Reliance. 

The company will incur a capital expenditure of Rs 2 lakh crore via its telecom arm Reliance Jio Infocomm, to roll out 5G services. The planned capex spend includes Rs 88,078 crore spent on the 5G spectrum auction held recently. The remaining amount is earmarked for setting up 5G network infrastructure. 

Notably, the spectrum cost is evenly spread out over a period of 20 years. So including two spectrum installments, Reliance Jio is set to spend over Rs 1.25 lakh crore on the rollout of 5G services in the next 18 months. This is 20% more than the last three years of combined capex for Jio.

Meanwhile, Bharti Airtel is also focusing on its 5G rollout plans. The telecom major plans to cover the entire country with its 5G services by the end of March 2024, at half the cost Reliance is spending.

According to its recent earnings call, Bharti will incur a capex for the next three years similar to what it spent between FY20 and FY22 - which is around Rs 75,000 crore. The majority of the capex will be spent in the next 18 months itself. 

Now, the key question is: which of these telecom majors will emerge as the more successful 5G service provider?

Throwing money at the problem, and winning: Reliance Jio’s lightning fast growth in the last five years

Thanks to its parent company’s deep pockets, Reliance Jio witnessed massive network expansion as well as revenue growth (which jumped 4X) in just five years. This growth was fueled by the doubling of its total subscriber base, which crossed the 40 crore mark in FY21. In fact, Jio surpassed Airtel on this metric by FY20, within three years of its 4G launch. 

However, this blockbuster growth came at a high capex cost for Reliance Jio. The subsidiary saw negative free cash flows of over Rs 1.10 lakh crore between FY18 and FY20, backed by higher investments. It finally generated positive free cash flows in FY21, only to see them fall materially in FY22.

Now Jio is embarking on another capex cycle, which may once again strain its free cash flows. 

At the consolidated level, Reliance Industries generated operating cash flows of around Rs 1.10 lakh crore in FY22. This should give some comfort to investors for planned 5G investments if we assume a similar level for FY23.

However, there are also other competing investments. The company announced fresh investments of Rs 75,000 crore in the oils to chemical business. There are more long-term commitments on the new energy side which are over Rs 6.5 lakh crore. So there is a good chance that the company may see negative free cash flows for FY23 and look for external sources of funding. 

Reliance Jio is going for a costlier 5G approach. But is the price tag worth it?

Bharti Airtel and Reliance Jio have chosen two different approaches to deploy 5G technology. Airtel is going for the cheaper, and globally accepted non-stand-alone approach while Jio is opting for the stand-alone approach.

In Airtel's non-stand-alone (NSA) approach, a telecom operator delivers the 5G radio signal over existing 4G network infrastructure.  A standalone (SA) 5G network on the other hand, runs on an entirely new network infrastructure (say new radio towers) which requires higher capital investments. 

Jio will develop this new infrastructure in-house and leverage its partnership with Qualcomm. The advantage of going for the SA structure is that it offers ultra-low latency which basically means minimal time lag in data transfer. This makes it suitable for applications in remote surgeries, gaming and robotics. 

However, the challenge here is that the ecosystem for this structure is not yet developed. Very few mobile phones can actually support a 5G SA structure. 

To enable the new structure, Jio acquired the highly expensive 700 MHz frequency waves along with the 3.3 GHz waves in the recent spectrum auction. This may not give Jio much of an advantage. According to Nokia, the 700 MHz band does offer better area coverage but the speed is only a little bit better than 4G. The same sentiments were echoed by Gopal Vittal in the recent earnings call. 

The difference in these approaches explains why Airtel will roll-out 5G services at half the capex cost of Reliance Jio. Airtel can always opt for the advanced SA structure later on once the ecosystem is well established and there is evidence of higher revenue per user (ARPU).

Currently, none of the global telecom operators are making any incremental ARPU on the service, and it does make sense to wait and watch before going all out for an expensive architecture. 

We won't know right away which strategy will pay off. Will Jio grab a higher share in the subscriber base and better ARPU with 5G, or will Airtel, the more 'sensible' player, win out? Analysts, meanwhile, anticipate a higher jump in Bharti Airtel’s net profits in next two years.

Screener: Sector outperformers in capital returns and revenue growth

This screener reflects stocks which outperformed the industry on annual return on capital employed (ROCE), return on equity (ROE), annual net profit growth and revenue growth. 

It is dominated by stocks from the pharmaceutical industry and also includes stocks from auto parts and equipments and footwear. Major stocks featured in this screener are Divi’s Laboratories, Tube Investments, Ajanta Pharma and Metro Brands.

Divi’s Laboratories outperformed the pharmaceutical industry annual ROCE by 9.4 percentage points as well as surpassed the annual revenue YoY growth of the industry by 18.5 percentage points. Growth in the custom synthesis segment and efforts towards backward integration and debottlenecking aided this outperformance. 

Tube Investments outperformed the auto parts industry in annual ROCE by nearly 10 percentage points and in annual revenue growth by over 80 percentage points. Its revenue growth was primarily driven by its engineering business which did well owing to market share gains and doubling of exports.

Metro Brands outperformed the footwear industry in annual revenue growth by 18.1 percentage points. This is helped by the growth in sales volumes due to reopening of offices , festive and the wedding season. Its annual PE TTM is also lower than the industry average. This has helped the stock to outperform the industry returns by 18 percentage points. 

You can find some popular screeners here.