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1. PCBL: ICICI Securities retains a ‘Buy’ call on this chemicals company with a target price of Rs 160, indicating an upside of 35.9%. “PCBL is the leading manufacturer of carbon black, which is used as a reinforcing material in tyres,” say analysts Chirag Shah and Shashank Kanodia. They add that carbon black fetches high margins and finds application in paints and plastics among others, and the company derives 6% of its sales volume from carbon black. 

The analysts are positive on the stock due to healthy double-digit growth. They expect the company’s revenue and profits to grow at 23% and 16% CAGR respectively, in FY 21-24, building in 11.4% volume CAGR. The analysts say, “With greenfield expansion under execution and successful strides made in the speciality carbon black domain, long term growth prospects are robust with limited competition in overseas markets.”

2. PSP Projects: Axis Securities maintains a ‘Buy’ rating on this construction company and a target price of Rs 620, indicating an upside of 13.9%. The brokerage is bullish on the company’s prospects due to its “robust and diversified” order book and track record of successful and timely project execution. At the end of December 2021, the company's order book stood at Rs 4,008 crore comprising both public and private sector projects, according to Axis Securities, and it believes that “this reflects healthy revenue growth visibility for the next 2-3 years”. The company has built a diversified order book including institutional, industrial, government, and private residential projects located in six different geographies.  

As of the end of December 2021, the company’s cash and cash equivalent along with Fixed Deposits stood at Rs 215 crore, indicating a strong liquidity profile, Axis Securities said. The brokerage expects the company’s profit to rise 16.1% CAGR over FY22-24.

3. Tata Consultancy Services (TCS): Prabhudas Lilladher maintains a ‘Buy’ call on this IT services company but reduces its target price to Rs 4,221. This indicates an upside of 19.6%. The company reported a 3.5% QoQ growth in revenue to Rs 50,591 crore, which is 0.5% higher than the brokerage's estimates, but the profit of Rs 9,926 crore was 1.9% below estimate. “Margins are expected to remain under pressure in the near term due to high manpower costs and return of travel and facility costs,” says analyst Aditi Patil but expects “supply pressures to ease in H2FY23, as quarterly attrition cools off.” 

The company has implemented a new organization structure dividing the business into four groups: acquisition, relationship incubation, enterprise growth, and business transformation. This will help focus more on clients and their changing digital needs and improve delivery times. The brokerage expects this new structure to drive the next phase of growth.

4. Infosys: HDFC Securities maintains a ‘Buy’ rating on this IT services player, but reduces its target price to Rs 2,140 from Rs 2,230, indicating an upside of 32%. The cut in target price is a result of disappointing Q4FY22 results.  However, analysts Apurva Prasad, Amit Chandra, and Vinesh Vala maintained their ‘Buy’ rating as they are confident about the company’s growth prospects. The analysts  “remain confident in the company’s prospects of growth leadership within the tier-1 IT space”. They also expect the company’s investments to scale cloud services to accelerate growth and improve margins in the near term. 

The bullish stance is also because the analysts expect accelerated net-new large deal wins (H2FY22 at $ 2.2 billion compared to $1.6 billion in H1FY22), the addition of 13 new large clients, and recovery in the life science vertical to provide near-term growth visibility. They also expect the company’s revenue to rise 13.74% CAGR over FY22-24.

5. Hindustan Unilever (HUL): ICICI Securities maintains an ‘Add’ rating on this FMCG company with a target price of Rs 2,450, indicating an upside of 12.5%. According to the analysts–Manoj Menon, Aniket Sethi and Karan Bhuwania–HUL’s underperformance of 60% vs the Nifty over Q4FY22 may be potentially interpreted as the stock already factoring in concerns like rural slowdown-led demand pressure and inflation. They also feel, “large players (in commodity-sensitive categories) are beneficiaries of inflation in the medium term.” 

The company’s strategy of price cuts, efforts to improve affordability, and focus on protein nutrition are positive for long-term category development, say the analysts at ICICI Securities. They also expect the company to deliver on steady premiumisation, enhancing digital capabilities including e-commerce salience, D2C brands, and a fair share in newer distribution models.

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

Now that we are in the Q4 earnings season, investors will want to know expectations for the upcoming results. We looked into Trendlyne’s Forecaster data to see which sectors analysts predict will do well in Q4 and FY23.

The key sectors analysts are bullish on (in terms of growth and share price targets) are IT - specifically mid-tier IT companies - capital goods, agrochemicals, capital markets, and banking. The rise in capital spending, digitization push and opening up of export opportunities are driving growth for these sectors. 

In this week’s Analyticks:

• Growth in the middle: Demand outlook for mid-tier IT companies looks strong in FY23
• Revival in private capex: Spending to go up for capital goods sector
• Export surge: Agrochem players will gain in current geopolitical situation
• Mid-sized banks to grow at a faster pace in FY23
• Steady ship for capital market players: Earnings growth to moderate, but remain steady in FY23

Let’s get into it.

Mid-tier IT cos likely to outrun larger peers in growth 

The IT sector is likely to see strong demand in the coming quarters, despite the slowing global economy. According to analysts like Prabhudas Lilladher and Axis Securities, deal momentum will be robust in Q4FY22. Interestingly, mid-tier IT companies like Coforge, Persistent Systems and Mphasis may grow at a faster pace vis-à-vis top tier companies  like Infosys and HCL Technologies. 

Analysts expect this mid-tier group to see 3.9%-8.5% QoQ revenue growth in Q4FY22 on a constant currency basis. On the other hand, top-tier IT companies  may only see a 1.4%-5.5% revenue growth sequentially.

Notably, the Jan-Mar quarter is a seasonally weaker quarter for IT services. Despite this, mid-tier companies are expected to shine, as they were able to consistently win small-sized deals in Q2FY22 and Q3FY22, while large deal momentum dried-up for the top players. Analysts at HDFC Securities and Axis Securities expect Persistent Systems to lead top line growth in Q4FY22 owing to a ramp-up of large deals. 

Capital goods makers may gain from healthy order books

The government’s thrust on higher infra spending along with rising private capex via the PLI scheme drove the growth for the capital goods sector in 9MFY22. In fact, according to ratings agency ICRA, the order book for both original equipment manufacturers (OEM) and EPC companies is at the highest levels in six years. OEMs also have healthy revenue visibility for Q4FY22 and FY23 with their order book to order inflow ratio at 0.87X as on December 31, 2021. 

Back in Q3FY22, ABB India and Siemens saw strong traction for short-tenure projects. The demand for ABB India’s products were driven by sectors like renewables, water and wastewater, data centres and railways. ABB India's focus is also to invest more capital in highly efficient electric motors and drives, which optimise energy utilisation. Hence, the demand from the renewables segment will continue to be strong in FY23. 

Siemens saw robust demand for waste heat recovery systems from end-user industries like steel, cement, chemical, pharma and fertilisers in Q3FY22. Interestingly, the metals and mining sector is still in a favourable cycle, which bodes well for the company in the coming quarters.

Agrochemical players may gain from a bumper Rabi season in Q4FY22

Harvesting for the rabi season (April to May) is in full swing and farmers are getting better prices for crops like wheat, soyabean, mustard and barley, among others. The prices of these commodities jumped over 35% YoY in April 2022 due to the ongoing Russia-Ukraine crisis and export demand. This is likely to boost farm incomes in H1FY23. Notably, Russia and Ukraine are major exporters of wheat, sunflower, barley, rapeseed, millets and maize. Trade sanctions on Russia and fall in exports from war-torn Ukraine are likely to open up export opportunities for Indian farmers.

Agrochemical players like PI Industries, UPL and Sharda Cropchem may see higher demand for their products as farm incomes and cash flows are set to rise in coming months. Notably, these companies manufacture formulations and active ingredients that are used in fungicides, herbicides and insecticides. 

Philip Capital expects agrochemical companies to sustain their EBITDA margins, as they will be able to transfer the burden of higher input costs to farmers in H1FY23 (post rabi season).

Moreover, Kotak Securities believes that these agrochemical exporters are likely to benefit more from the positive global agri products cycle compared to their domestic counterparts. The net profits of these players may rise close to 19% YoY (on an average) in FY23, backed by higher export demand and sales realisations. 

Banks to report better incomes, lower provisions and higher net profits in FY22

For most banks, loan advances picked up pace in Q4FY22. With the earnings season coming up, this growth in loan advances will show up in the net interest income (NII). ICICI Securities’ suggests that private banks’ NII is likely to grow 20% YoY in FY22.

Brokerages like Axis Securities, ICICI Securities, and Motilal Oswal expect loan growth to boost NIIs for IndusInd Bank, Bank of Baroda, and CreditAccess Grameen Bank in Q4FY22E. According to Trendlyne’s Forecaster results, these mid-sized banks are set to grow at a decent rate both in Q4FY22 and FY23.

Reducing provisions to boost profits 

Provision norms have to be followed by all banks to safeguard their assets, in case they turn into non-performing assets (NPAs). The pandemic forced banks to allocate an additional provision for the Covid-19 event. This ate up the earnings of most banks, which reflected in the fall in net profits, and in some cases, losses.

However, with economic activity picking up pace and business returning to normal, banks are reducing these additional provisions. Emkay Global suggests that with the reduction in NPAs and better recovery rates, net profit numbers may get a boost in Q4FY22.

With the mild effects of Omicron and Q4 being a seasonally busy quarter for the sector, earnings are likely to be strong for Q4 and continue into FY23 as well.

Capital market players to benefit from higher retail activity and IPO issuances in FY23

Easy liquidity in markets, low interest rates and attractive equity market returns added to the market frenzy in 2020-21. The primary beneficiaries of these trends were capital market companies like BSE, Central Depositary Services (India) (CDSL), and Crisil. 

The above companies are set to finish FY22 on a happy note with over 50% YoY growth expected in Q4FY22 revenues on an average, according to Trendlyne’s Forecaster data. However, rating agency ICRA believes that the earnings growth for this space is set to moderate in FY23. Analysts see the average YoY net profit growth for Crisil, BSE, CDSL to taper off to 15% in FY23 from 60%+ in FY22. 

Interestingly, the outlook for the primary market (IPO) looks robust for 2022 and is set to pick-up further after the LIC initial public offering opens (around April-May 2022). According to news reports, close to 35 companies already have SEBI’s approval to raise Rs 50,000 crore, while another 33 companies will apply to the stock market regulator to raise another Rs 60,000 crore in 2022 (excludes LIC). 

Although the growth forecasts are lower for FY23, capital market companies (including broking companies) will continue to witness steady growth in the longer-term. India still has a long way to go in terms of stock-market coverage. According to HDFC Securities, only 5.8% of the Indian population had demat accounts at the end of February 2022, while this figure is 13.5% for China. 

The quarterly business updates from banks ahead of earnings announcements, indicate that loan growth was strong in Q4FY22. According todata released from RBI, total advances grew 9.6% YoY to Rs 118.9 lakh crore in Q4FY22 with private banks contributing 50.4%, over half of total advances, while public sector banks lagged behind with a contribution of 44.7%. Brokerages likeICICI Securities, andEmkay Global attribute this to an increase in economic activity and healthy business growth in Q4FY22. 

Loan growth will remain steady going forward, and growth will be mostly driven by loans to SMEs and retail loans, according to ICICI Securities. This trend is pervasive across banks.HDFC Bank’s Q4FY22 loanadvances grew 21% YoY to Rs 13.7 lakh crore with retail loans growing 15% YoY at the end of Q4FY22. Similarly,Federal Bank’s grossadvances grew 9.5% YoY to Rs 1.5 lakh crore, and retail advances grew 10.4%, higher than the remaining segments.

Corporate credit growth has picked up pace and is contributing well to loan growth for banks. HDFC Bank’s corporate loan growth was higher than retail loan growth at 17.5% YoY. EvenIDFC First Bank’s corporateloans grew 6% YoY. With industrial growth picking up, this segment is likely to report better growth than FY21. This, according toICICI Securities, can lead to a 20% YoY growth in net interest income for banks in Q4FY22.

1. Macrotech Developers: ICICI Securities upgrades its rating to ‘Buy’ from ‘Hold’ on this realty company with a target price of Rs 1,348, indicating an upside of 17.9%. The company’s Indian business sales booking rose 37% YoY to Rs 3,460 crore against the brokerage's estimate of Rs 3,250 crore. “We believe that the sales were largely sustenance driven with no major launches during the quarter and the company has achieved its FY22 sales guidance of Rs 9,000 crore,” says analyst Adhidev Chattopadhyay. The company added new projects with a total saleable area of 8.8 million square feet that are slated to launch in FY23. 

Considering the strong launch pipeline and momentum in sustenance sales, the brokerage expects a sales booking of Rs 11,010 crore.  The company’s net debt reduced 20.6% QoQ to Rs 9,930 crore in Q3FY22 and further reduced by 6.2% QoQ to Rs 9,310 crore which the brokerage believes is driven by improved collections and may enable further debt reduction over FY 23-24.

2. Tata Steel: Axis Securities initiates coverage on this steel-maker with a ‘Buy’ rating and a target price of Rs 1,700, indicating an upside of 30%. The brokerage is bullish on Tata Steel as it expects steel prices to remain high in the coming quarters due to the Russia-Ukraine conflict. This bodes well for the company as it could drive strong cash flows in the upcoming quarters and allow it to continue deleveraging, while pursuing its growth capex. Analyst Aditya Welekar says “strong steel prices, disciplined capex outflow, and working capital management has put the company’s balance sheet on a solid footing”. 

The brokerage expects high international steel prices and China’s decarbonisation leading to lower steel exports, to create export opportunities for Indian steelmakers like Tata Steel. A 40% MoM jump in steel prices in Europe incentivises Indian steelmakers to export to the EU. Although higher coking coal prices would impact margins in H1FY23, the analyst expects the margin trajectory to be above the historical average due to strong steel prices, thereby driving profitability higher.

3. Oil And Natural Gas Corporation (ONGC): HDFC Securities gives this oil and gas explorer a ‘Buy’ rating with a target price of Rs 275 indicating an upside of 62.1%. ONGC “outperformed the Sensex by 74/42% over the last twelve months, as Brent crude price increased by 68%. We expect the outperformance to continue,” say analysts Harshad Katkar, Nilesh Ghuge, Akshay Mane, and Rutvi Chokshi. 

Domestic administered pricing mechanism gas price was revised upwards by 110% to $6.1 per metric million british thermal unit in H1FY23 and the brokerage expects it to rise further by 45%. The brokerage also expects the company to produce 20.8 million metric tonnes of oil and 22.3 billion cubic metres of gas in FY23. It also expects oil and gas production to grow at a CAGR of 3% and 1% respectively in FY23. The analysts add, “ONGC should also benefit from the increase in gas production from the Krishna Godavari basin, with an estimated production target of 3 billion cubic metre and 3.8 billion cubic metre in FY23 and FY24.” 

4. HDFC Bank: Prabhudas Lilladher maintains a ‘Buy’ call on this bank stock and raises its target price to Rs 2,000. This indicates an upside of 34%. The brokerage maintains its stance as HDFC will merge with HDFC Bank. As of December 2021, the total loan size of the merged entity would be Rs 18 lakh crore with the share of mortgages expected to increase from 11% to 33%. “Post the merger, the Bank would be the second-largest entity in terms of loan advance share,” say analysts Gaurav Jani and Palak Shah. HDFC was prohibited from taking CASA Deposits, however with the merger, CASA accretion would be possible resulting in lower funding cost that would improve spreads in the mortgage business.” 

The brokerage expects HDFC to benefit from lower funding cost of HDFC Bank and large distribution franchise, while the bank would gain from the former’s expertise in real estate and efficient loan processing.  The merger would also provide both entities to cross-sell opportunities to their respective customers.

5. Transportation Corporation of India: Motilal Oswal reiterates its ‘Buy’ call on this logistics company with a target price of Rs 880, indicating an upside of 27.5%. “The company has developed robust capabilities in multimodal logistics via its presence across major transportation modes,” say analysts Alok Deora and Dhirendra Patro. 

The company diversified its service offerings into road freight, integrated supply chain solutions, sea freight, etc. The brokerage expects these capabilities to enable consistent growth in volumes and earnings for the company. Easing of Covid-19 restrictions led to a strong pick-up in volumes from the start of Q2FY22 which are expected to continue in FY23. The company recorded margins of 13% each in Q2 and Q3FY22. 

The analysts say, “Road freight will benefit from the impact of reforms like GST and e-way bill, which will result in a shift in market share towards organised players, and improved road connectivity, reducing the turnaround time.” The brokerage expects the company to clock profit, revenue, and EBITDA CAGR of 36%, 18%, and 28%, respectively over FY21-24.

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

1. Marico: The stock of this FMCG major fell nearly 6% after it released its Q4FY22 business update on April 5. According to the company, its Q4 revenue grew in ‘low-single digits’ while there was a marginal rise in the sales volumes. What this means is that the revenue growth was primarily driven by the growth in sales realisations in the quarter gone by. This is understandable as the company hiked prices of products in its value-added hair oils segment, Saffola Edible Oils segment and the FMCG segment in the wake of the current cost inflationary pressures.

What disappointed the street in general was the YoY fall in sales volumes reported by the company’s flagship product segment Parachute Coconut Oil. This segment’s volumes grew a mere 1% YoY back in Q3FY22 as well. Another interesting trend here is softening copra prices, a key raw material for Marico, since February 2021. In fact, the company cut prices for Parachute Oil back in October 2021, December 2021 and January 2022 in order to pass the benefit of lower copra prices to customers. Volumes were still subdued in the past two quarters. A possible reason for this could be market share gains by Dabur in the coconut oil segment. While the overall volumes for the FMCG sector fell in January 2022 and February 2022 (according to Neilsen), Marico’s flagship segment particularly seems at a saturation point even though product prices remain benign.                                                                        

2. Titan: This jewellery and watchmaker’s stock fell over 3.3% on Thursday after it released its Q4FY22 business update. Titan’s jewellery segment revenue fell 4% YoY in Q4FY22 despite the quarter usually being a strong one for the jewellery industry. The disruption due to partial lockdowns in many states across India due to the Omicron wave in January 2022, which started in December 2021, hit revenues. In addition, the volatility in gold prices due to the ongoing Russia-Ukraine war also impacted jewellery sales.

The jewellery segment is a major revenue generator for the company as it contributes over 85% of total revenues. But network expansion continued to progress in Q4 in anticipation of an upbeat Q1FY23, which is expected to be a normal quarter after two years of intermittent lockdowns. Titan added 16 new jewellery stores in Q4FY22 compared to 14 stores in Q3FY22. This takes the total number of jewellery stores to 444.  Revenue from the jewellery segment rose 37% YoY in Q3FY22 to Rs 8,563 crore on the back of festive purchases in October and November.

Titan gets 9% of its total revenues from the watches and wearables segments. This segment clocked a 12% YoY rise in revenue in Q4FY22, despite a challenging external environment with sales increasing across offline channels. Smartwatches and headphones also saw brisk business on the back of new launches like ‘Titan Smart Pro’ in Q4FY22. Eyecare segment’s revenues grew 5% YoY in Q4 while other businesses’ (fragrances and fashion accessories) revenues rose 23% YoY, driven by a strong performance by the fashion accessories businesses.

3. Zee Entertainment Enterprises: The stock of this media and entertainment company slipped nearly 2% in trade on April 7, 2022 after its single largest investor, Invesco announced its intention to sell nearly 7.8% stake in the company, according to news reports. Invesco will continue to hold around 11% stake in the company even after this stake sale. This comes shortly after Invesco decided not to pursue its demand for an extraordinary general meeting to remove Managing Director Punit Goenka and two independent directors. In fact, Invesco believes that the corporate governance issues that persisted earlier will get resolved once the board gets reconstituted after the merger of Sony Pictures and Zee Entertainment.

Notably, Invesco had picked up a 11% stake in Zee Entertainment for Rs 4,224 crore back in May 2019 to rescue its promoters as they were in dire need of funds. The average price of the stock as on May 27, 2019 was Rs 357.45. Hence, it is quite intriguing that Invesco now is willing to offload its stake at a loss of roughly 20% now, even though it reiterated its faith in the Sony-Zee merger deal. Invesco is reducing its stake in Zee Entertainment in accordance with their overall ‘portfolio construction approach’ for Asian markets. With Invesco cutting its stake to 11%, the merger deal going through is almost assured.

4. Bandhan Bank: This bank’s Q4FY22 business update indicates that its fortunes are turning for the better after three painful quarters in FY22. Its loan book grew 16% YoY to Rs 1.01 lakh crore, while its deposits grew 24% YoY to Rs 96,331 crore and retail by 21% YoY to Rs 74,441 crore. This is due to a strong recovery in credit demand as lockdowns eased. With economic activity picking up, the prospects for improvement in asset quality look promising as the overall collection efficiency ratio (CER) was 96% in Q4FY22 compared to 93% in Q3FY22. Collection efficiency ratio indicates the total  loans recovered to total loans to be recovered during the same financial period. Emerging Entrepreneurs Business’ (EEB) collection efficiency was 98% in Q4FY22, close to its pre-covid level of 99%. “Improving trends in collection efficiency should continue to moderate credit cost and support earnings,” said analysts at Motilal Oswal.

Also, the bank's parent company-Bandhan Financial Holdings-led consortium is set to acquire IDFC Asset Management Company (AMC) Rs 4,500 crore. The acquisition brings the group closer to its goal of diversifying its product portfolio to expand its presence in the financial services sector. Through this acquisition, the group will be able to offer financial products such as mutual funds. For the bank though, this is an opportunity to boost its fee income through cross-selling of mutual fund products, as currently the share of non-interest income of the overall income for the bank is less than 25%. The holding company wants to scale up the business (post-acquisition) by strengthening the product portfolio. It plans to add more equity-based funds targeted toward retail investors and enhance the distribution footprint by tying up with banks and small finance banks.

5. Hindustan Aeronautics (HAL): This aerospace company’s stock rose 6.1% in five consecutive sessions, till Thursday, after it announced record high revenues. In FY22, revenue grew 6% YoY to Rs 24,000 crore. This was led by production and delivery of 44 new helicopters, 84 new engines, and the overhaul of 203 aircraft and 478 engines in FY22. Recently, the company bagged a contract to make aircrafts worth Rs 3,887 crore for the Indian Air Force and the Indian Army. Additional orders are expected for helicopters and the LCA (Light-Combat Aircraft) in the coming quarters.

With a robust order pipeline, the company's Chairman and Managing Director R Madhavan said revenues will grow 6-7% in FY23. The order inflow is expected to grow as the Centre pushes for more indigenisation of its defence needs to reduce dependence on imports. The Ministry of Defence has fixed timelines for indigenisation, after which certain products will be procured domestically. The share of domestic procurement in the total defence capital outlay is estimated to rise from less than 60% in FY20 to 68% in FY23. HAL’s order at the end of Q3FY22 stands at Rs 79,230 and the order pipeline for the next two years looks strong at Rs 50,000 crore. A strong order book and healthy business outlook bodes well for HAL.

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