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1. Pricol: Hem Securities initiates a ‘Buy’ call on this auto parts company with a target price of Rs 165, indicating an upside of 54.7%. In Q3FY22, the company posted a profit of Rs 17.3 crore, down 19% YoY, while revenues were down 11.6% YoY to Rs 394.7 crore. The company has adapted to the growing electric vehicle (EV) market and has started supplying components for EVs to original equipment manufacturers (OEMs). Analyst Chinmay Bhandari says the “company significantly reduced its long term borrowing to 100 crore from 230 crore as of December 31 and will repay the entire debt by the end of FY23”. The auto part maker is a supplier to most major OEMs like Hero MotoCorp, TVS Motors, among others, and is a sole supplier to Tata Motors’ PV models. The company in recent years acquired businesses outside India in order to mark its international presence. The analyst adds, “we believe Pricol can be a turnaround story in the medium-to-long term and it can be a good investment bet in the auto ancillary space.” The brokerage expects the revenues to grow 12% YoY in FY23.

2. TVS Motor: Axis Securities recommends a ‘Buy’ on this two and three-wheeler maker with a target price of Rs 720 and an upside of 35.8%. The motor company is “leveraging its strong product portfolio, and gained market share in both scooters and premium motorcycles segments,” said analysts at Axis Securities. The company’s market share in scooters increased 21%, and 19% in premium motorcycles. The management of the company expects to sustain higher volume and margins owing to the success of new products, cost rationalisation initiatives undertaken by the company and its improving brand equity. TVS is also turning more aggressive on electric vehicles and plans to launch new electric vehicles over the next two years. The company has earmarked Rs 1,000 crore investments for products and capacity expansion. The brokerage expects the company’s volumes to grow by 9.5% CAGR over FY21-24 and robust revenue CAGRs of 16%. 

3. Easy Trip Planners: ICICI Securities maintains a ‘Buy’ rating on this online travel portal company with a target price of Rs 335 indicating an upside of 23.3%. The brokerage expects the online travel market in India to double over the next five years to $31 billion in FY25E, growing at 14% CAGR from FY20 levels. “Easy Trip Planners is the fastest growing and only profitable company in the online travel portal space in India,” says analyst Pankaj Pandey. With travel resuming, the company is well-positioned to benefit from its lean cost model and no convenience fee strategy. This has also led to a healthy repeat transaction rate of 86% in the B2C (business-to-customer) channel. Now, with airlines allowed to operate their full capacity, the brokerage expects further traction in the company’s revenues and profitability. Further benefits would accrue from segments like international air, hotels, and bus booking over the next three to four years.

4. Muthoot Finance: Motilal Oswal recommends a ‘Buy’ on this NBFC (Non-Banking Financial Company) with a target price of Rs 1,750, indicating an upside of 29.4%. The brokerage expects 13%-15% CAGR in gold loans over the next five years, with the company best positioned among its peers to deliver across economic cycles. “Around 55% of its gold loan portfolio has a ticket size of over Rs 1 lakh, which leads to higher stickiness and lesser churn feeding into gold loan growth,” say analysts Abhijit Tibrewal and Nitin Agarwal.  A strong brand presence and deep penetration, have enabled the company to enhance customer confidence in the franchise, according to MOswal. The company’s effective risk management will enable it to further scale up its gold lending business, and lower cost of borrowings will enable it to offer competitive interest rates to customers. The brokerage expects 15% AUM and net profit CAGR over FY22-24E on operating efficiencies.

5. Balaji Amines: CD Equisearch retains a ‘Buy’ call on this specialty stock with a target price of Rs 3,916 and an upside of 42.4%. Despite a fall of 13.8% YoY in consolidated sales volume to 27,589 metric tonnes, the company’s revenue from operations increased leading to 44.1% YoY to Rs 564.9 crore in Q3FY22. Its subsidiary Balaji Specialty delivered a stellar performance by clocking revenues of Rs 130 crore compared to Rs 57.1 crore in the previous year. “Factoring in the sustainability of higher margins, we have upped our FY23 EPS estimates by some 25%,” says the brokerage .The brokerage also believes that the initiation of DMC plant, development in new ethylamines plant and increased productions of acetonitrile in acetic acid along with increased offtake from the subsidiary will lead to better growth. Lastly, with a favourable pricing environment, the brokerage expects the revenues to boost by 69% in FY23.

• Hero MotoCorp: This two-wheeler maker’s stock fell 10% in the past five sessions after the Russia-Ukraine invasion escalated. The already weak demand situation in this sector is worsened by the semiconductor shortage that has been affecting all auto manufacturers. The semiconductor shortage is set to intensify with the Russia-Ukraine war. Russia is a major exporter of palladium, which is used for the pins that conduct electricity on a chip. Palladium prices have soared close to 16% in the last four days fearing a supply chain disruption. Ukraine is a major supplier of neon gas, constituting about 95% of US supply. Neon gas is used in the critical laser lithography process in semiconductor manufacturing. The company is also affected by this shortage mainly in the motorcycle segment, which constitutes around 94% of total units sold. Hero MotoCorp's Q3FY22 net profit fell 31% YoY to Rs 703.7 crore and revenue fell 18.5% to Rs 8,133.3 crore. The company’s sales volumes fell 30% YoY to 12.92 lakh units owing to subdued consumer demand. With weak demand in the domestic market, the two-wheeler manufacturers are diversifying their revenue mix by focusing more on exports.  In  February 2022, domestic wholesale volumes fell 21% YoY to 3,31,462 units owing to weak demand from rural areas. However, exports rose 48% YoY to 26,792 units. Hero plans to launch a wide range of premium two-wheelers in FY22 and is currently set to launch its first-ever electric two-wheeler in March. However, the semiconductor shortage may hamper production.

• Hindalco: The aluminium manufacturer’s stock bucked the fall in markets, rising 17% in four consecutive sessions. Hindalco’s revenue grew 60% YoY to Rs 50,453 crore and net profit jumped 96% to Rs 3,675 crore in Q3FY22 on strong volume growth in its aluminium and copper businesses. The aluminium business’ revenue rose 55.7% YoY to Rs 8,243 crore, and revenue from the copper business rose 67.2% YoY to Rs 10,255 crore in Q3FY22.

Aluminium prices have increased 40% in the last two-and-a-half months initially due to a drop in output triggered by power problems and recently hit new highs amid the Russia-Ukraine conflict. With prices hitting an all-time high of $3,560 per tonne, the company stands to benefit as its integration would limit the cost increase.

The company was well-positioned to capitalize on the steady rise in aluminium and copper prices as it is the largest integrated primary producer of aluminium in Asia. It expects the domestic demand for aluminium and aluminium FRP (flat-rolled products) to grow by 10% and 6% respectively in Q4FY22. The demand surge will be led by sectors like packaging, consumer durables, electronic products and building & construction demand will improve due to government projects. A favourable macro-environment, demand driven by a resumption in economic activities and rising prices are likely to aid further growth of the company.

• Ambuja Cements: Shares of this cement maker were down 3% on Wednesday, and nearly 22% in a month. Rising fuel prices  are happening even as the company was already reeling under rising costs of raw material and energy, which doesn’t bode well for margins. Power and fuel costs of the company rose 58% and raw material costs 7.9% in Q4CY21. Energy and logistics costs together make up around 60% of the overall costs of cement makers. Due to rising input costs, the company had a disappointing Q4CY21, with revenues rising 2% YoY to Rs 7,709.6 crore and net profit falling 60.3% to Rs 290.6 crore due to the headwinds from hikes in raw material prices, power, and fuel costs.

Ambuja currently has a cement capacity of 31 million tonnes and plans to enhance its capacity to 50 MTPA (million tonnes per annum). With the current Rs 3,500 crore investment, it expects to achieve 40 MTPA by 2024. The long-term demand for the cement industry is on strong footing driven by growing urbanisation. In the short-to-medium term, key cost items like coal, crude, and metals continue to increase in international markets and the prices of fuel are expected to move up post assembly elections in India. With the conflict in Ukraine bearing unpredictable consequences and having an indirect effect on most sectors, the business is in treacherous waters for the time being.

• Sun Pharmaceuticals: This pharmaceuticals company’s stock fell 10% after reaching a one-year high of Rs 902.8 last month. Sun Pharma derives about 18% of its revenues from the emerging market segment that includes Russia, Romania, South Africa, and Brazil. Previously, the company had acquired Biosintez Russia in 2016 for $ 24 million to enhance local manufacturing capability. Sun Pharma also has a finished dose manufacturing unit in Russia. Revenues from these markets may be affected by the Russian invasion and sanctions,  with two major factors in play. One factor is the supply chain disruption and the second is the depreciation of the Russian ruble. After Russian troops entered Ukraine on Feb 24, the ruble fell more than 20% against the dollar.

Sun Pharma beat Trendlyne’s Forecaster revenue and profit estimates in Q3FY22. Sun Pharma’s revenue rose 12% to Rs 9,863.1 crore and its profits increased by 7.6% to Rs 2,058.8 crore. Its operating profit margin remained flat despite the prevailing pricing pressure in the US formulations business. The company’s management believes that emerging markets continue to be the key focus area to grow in order to diversify its geographical mix and to move towards higher-margin products. ICICI Securities has a ‘BUY’ rating on Sun Pharma with a target price of Rs 1,075, indicating an upside of 30%. The brokerage expects the company’s revenue to grow at a CAGR of 10.5% over FY21-24E. However, in the short term, the Russia-Ukraine war might slow revenue growth.

• JSW Steel: This steel maker's stock was up by 2.4% on Wednesday as the Russia-Ukraine conflict intensified. The Nifty Metal index rose 4% on Monday, as analysts from Edelweiss predict a positive upturn for steel stocks.

Russia and Ukraine constitute around 10-11% of the global steel export market. If the conflict extends, it may hamper short to medium-term supplies in the European markets. This may prove beneficial for Indian steel makers as Europe imports almost 12% of steel from India. JSW Steel commenced commercial production at its Dolvi plant and is on the way to ramp up production in FY23. The company plans to increase its domestic production to 350 lakh tonnes per annum. The company’s steel production was up 15% YoY to 16.5 lakh tonnes in January 2022.

Analysts from BOB Capital Markets expect robust cash flows to help reduce its net debt by 1.2X by FY24. BOB Caps is positive on the stock and raised its target price by 22% to Rs 810 maintaining a ‘Buy’ rating. However, analysts from ICICI Securities and Prabhudas Lilladher are sceptical because of lower EBITDA in Q3FY22 as consolidated EBITDA fell 12% QoQ to Rs 9,132 crore. Another hiccup is the rising cost of coking coal which may shoot up the cost of raw material consumption. However, the management says the rise in price is well within the company’s guidance.

After the recent turbulence in markets, it is interesting to look at some pockets which are holding on to their gains.Asahi India Glass and Schaeffler India outperformed their industry stock price rise in FY22, till date. Asahi India Glass’ stock price increased by 55% and Schaeffler India’s stock price rose 80.3%. L&T Technology ServicesandTata Elxsi also performed better than their industry average. L&T Technology Services' stock price increased by 70.2% in 1 year while Tata Elxsi’s price jumped 157%. 

The fact that these companies’ Q3FY22 results saw them post decent margin gains could be the reason for their outperformance. Asahi India’s operating profit margin is up by 270 bps YoY to 26% and Schaeffler India’s margin rises 90 bps YoY to 18.9% in Q3FY22. This is because of improved sales and an increase in price realizations.

L&T Technology and Tata Elxsi provide end-to-end engineering solutions. This gives these companies the advantage of earning higher margins. L&T Tech’s operating profit margin increased 210 bps YoY to 21.8% and Tata Elxsi’s operating profit margin rose 310 bps YoY to 33% in Q3FY22.

Companies are working on improving their financial metrics as we near the end of FY22. However, the Russia-Ukraine conflict escalating into a full-blown war has scared stock markets across the world. The Russia sanctions have also caused ripple effects in oil prices, supply chains and consumer sentiment, potentially hampering the performance of various industries in Q4.

1. National Aluminium Company: AxisDirect initiates coverage on this mining company with a ‘Buy’ rating and a target price of Rs 150, indicating a 27.23% upside. Aluminium is expected to remain in deficit for a second consecutive year in CY22, supporting higher prices. “The company is the only pure equity play on Aluminium and Alumina commodities in India,” says analyst Aditya Welekar. The recent geopolitical tensions in Europe have pushed prices to a 13-year high, above $3,300 per tonne and the company is well placed to benefit from higher prices. In response to the surge in aluminium prices, the company started optimising its aluminium production by targeting 100% utilisation of its 460ktpa (kilo tonnes per annum)smelter. With higher aluminium prices, Axis Direct forecasts revenue and net profit CAGR of 23% and 50% respectively over FY21-23. According to the analysts, with capacity utilisation and higher prices, the company looks to benefit well in the current market situation.

2. One97 Communications (Paytm):ICICIDirect initiates coverage on the digital payments company with a ‘Buy’ rating and a target price of Rs 1,352, indicating a 72.78% upside. “Paytm has built a sizable two-sided digital ecosystem with proven leadership in payments,” say analysts Kunal Shah, Chintan Shah and Vishal Singh. The company amassed a sizable base of 64.4 million MTUs (monthly transacting user base) and 24.4 million merchants on its platform. It claims it now commands more than 40% market share in mobile payments. The brokerage expects the digital payments industry to expand a lot more as P2M (person-to-merchant) digital payments are expected to grow six-fold from Rs 22 lakh crore in FY21 to Rs 130 lakh crore ($1.8 trillion) by FY26. The online transacting user base is estimated to grow three-fold to 70-75 crore by FY26. The brokerage expects Paytm’s monthly transacting user base to double to 12 crore over FY22-26 and the company’s gross merchandise value (GMV) to grow at 30% CAGR. It estimates 18-19 million consumers and 1.2 million merchants to avail lending products through the company’s platform by FY26. The brokerage expects financial services revenue for the company to grow at a CAGR of 57% over FY 22-26.

3. Ambuja Cements: Prabhudas Lilladher maintains a ‘Buy’ rating on this cement company’s stock but reduces its target price to Rs 390. This indicates an upside of 27.4% on the stock. The cement company reported a 49.4% YoY fall in profit to Rs 251.7 crore. The increase in fuel and power cost was 58% YoY to Rs 576, higher compared to peers. “High-cost inventory and restrictions on usage of cheaper high-sulphur pet coke in Gujarat operations resulted in a steeper increase in Ambuja Cements’ energy cost,” say analysts Kamlesh Bagmar and Amit Khimesra. The company is expanding its capacity by 9.4 million tonnes in the east and 1.5 million tonnes in Punjab. According to the brokerage, with multifold increase in volumes under measurement systems analysis, acceleration in investments in waste heat recovery plants, and new expansion plans the company showed a positive earnings growth in the last couple of years. “Given the better visibility on volume growth and improved margins trajectory,” the analysts said. 

4. Deepak Fertilisers & Petrochemicals Corporation (DFPCL): AUM Capital recommends ‘Buy’ on this chemicals company with a target price of Rs 627 and an upside of 11.6%. “Market leadership in key segments and astounding demand outlook would strengthen top line growth, EBITDA & profitability, perpetually,” say analysts Rajesh Agarwal and Tanya Kothary. Going forward the company is expected to benefit from increased Tantalum Nitride and Nitric Acid off-take, a trend that the brokerage believes will likely continue. In Q3FY22 the company attained a topline of Rs 1,956 crore, revenue growth of 35%, the operating profit increased 63% YoY to Rs 369 crore and EBITDA margins expanded 300 basis points to 18% YoY. The analysts are positive on the stock as the company’s “net profits virtually doubled owing to significant margin expansion in the chemicals segment”.

5. Mahindra CIE Automotive: Motilal Oswal maintains a ‘Buy’ call on this automotive parts maker, but reduces its target price to Rs 245 which indicates an upside of 40.7%. “Mahindra CIE Automotive’s weak performance in Q4CY21 was a reflection of high raw material/energy cost and operating deleverage in both geographies,” say analysts Jinesh Gandhi, Vipul Agrawal, and Aniket Desai. The analysts further added, “there is good progress on order wins in EVs/hybrids in both geographies.” The company’s adjusted profit fell 20% YoY to Rs 89.3 crore while consolidated revenues grew 5% YoY to Rs 2,060 crore. The brokerage expects the private and commercial vehicles (CV) business to grow on strong demand, subject to semiconductor availability. CVs are seeing good demand in Europe, contributing 39% to total European revenues.  The analysts say, “The company’s growth story is on track, driven by its organic initiatives. This, coupled with cost-cutting initiatives in both India and the EU, will drive margin expansion.”