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• Cipla: This pharmaceutical company’s results were a mixed bag in Q3FY22. Although its net profits were down by 2.6% YoY to Rs 728.6 crore, but revenues grew 6% YoY to Rs 5,478.9 crore. Domestic revenues were up 12.9% YoY, while US revenues rose 8.8% YoY to Rs 1,124 crore. Growth in US markets was driven by an increase in demand for Cipla’s core products and those in its respiratory portfolio. Revenues from the South African private market also grew 16% YoY to US $60 million.

The company’s ingredients (API) segment’s revenues fell 25% YoY (US $20 million), which pulled its quarterly revenues down. EBITDA margins fell 135 bps YoY to 22.5%, which pulled down profits. Brokerages like HDFC Securities and ICICI Securities are still upbeat about this company’s prospects and upgraded their target price for the stock by nearly 23% to Rs 1,115 and Rs 1,100, respectively, as they see robust growth opportunities in Indian and US markets. The company’s plans to shift focus from loss-making segments like HIV drugs to more profit-making segments like respiratory and core products as these would be the key drivers for growth in FY23. The US market is likely to gain more momentum in terms of revenue growth once the approvals for drugs like gRevlimid, gAdvair, gAbraxane, and Albuterol’s portfolio of drugs come in from the US FDA and they start earning Cipla revenues.

• Lux Industries: This stock slumped on Tuesday and tanked 20% after the markets regulator SEBI held Executive Director Udit Todi guilty of insider trading.  Udit Todi is Managing Director Pradip Kumar Todi’s son. SEBI banned 14 entities for insider trading and ordered impounding of wrongful gains of Rs 2.94 crore. SEBI held that Udit Todi leaked sensitive information about the company’s financials to Avni Todi and Sanjeev Bubna, Udit Todi’s father-in-law. Then the related parties bought shares of the company from May 21, 2021, till right before the earnings were announced on May 25, 2021.

When the stock surged 40% in just three days after the results were announced, the related parties sold off a considerable number of shares and earned substantial profits out of it,  SEBI held in its order. The regulator SEBI has scrutinized the deals on receiving an alert of abnormal trading being carried out. Its preliminary examination gave out detailed information of the insider trading been carried out by Udit Todi, during the UPSI (Unpublished Price Sensitive Information) period and reveals the existence of close connections among the participatory entities. For now, SEBI has banned all the entities from trading into the securities market till the investigation is completed. The company denied this and so did Udit Todi. The company is in the process of seeking clarification for the same, as dictated by SEBI norms. 

• APL Apollo Tubes: The stock of this market leader in the structural steel tubes industry corrected nearly 24% from its 52-week high on December 16, 2021. The company’s Q3FY22 net profit fell 12.4% YoY to Rs 115.6 crore despite revenue rising 24.2% YoY to Rs 3,238.3 crore. Sales volumes in Q3 fell 17% YoY to 4.02 lakh tonne due to an extended monsoon season, weak construction activity and its distributors reducing stocks in anticipation of a fall in steel prices. Interestingly, realisations jumped over 50% YoY to Rs 77,569/tonne, which aided the top line growth.

However, this didn’t completely cushion the impact of higher input costs (up over 30% YoY) which in turn hit profits. Brokerages like HDFC Securities, ICICI Securities,and Motilal Oswal continue to be upbeat on the company’s prospects. This is primarily on account of the company’s medium-term plan to double its sales volumes to four million tonnes per annum by FY25 and maintain its EBITDA/tonne at Rs 5,000 levels. Notably, the management does not see a further correction in steel prices as a detriment to its profitability. Infact, it believes that lower HRC prices make it more competitive vis-à-vis traditional construction materials. With two back-to-back quarters of falling net profits and sales volumes, APL Apollo’s Q4FY22 performance could be an interesting inflection point to watch out for investors.

• Shoppers Stop: On January 21, this departmental store chain’s stock hit a 52-week high on the bourses after its bottomline returned to black for the first time in 11 quarters. The stock is up nearly 7.6% in the past week. Investors must be wondering whether this trend in profitability is sustainable or will Omicron ruin this party yet again. Consolidated net profit was Rs 77.3 crore in Q3FY22 as against a loss of Rs 25.1 crore a year ago. Revenues  rose 34% YoY to Rs 972.6 crore led by a robust festive period and marriage season during October-November 2021. Customer footfalls rose 65% YoY to 1.09 crore and average transaction by 13% YoY to Rs 4,345. If we further dissect the revenue growth segment-wise, beauty and private brands were the primary growth drivers in Q3. The sales from the beauty segment and private brands were up 40% and 31% YoY, respectively.

The focus of the new Managing Director Venu Nair is to steadily increase the share of high-margin private brands in the overall sales mix. Sales from the digital channels jumped 39% YoY to Rs 70 crore. While ICICI Securities is positive on the medium-term prospects of the company given its aim to double its sales by FY25, Motilal Oswal is cautious. This is because the brokerage feels the company’s past performance isn’t much to write home about. In the past five years, the company witnessed a sustained fall in the same-store sales growth (SSSG) and closure of non-performing stores. Only time will tell if the new management can sustain the current quarters’ performance over FY22-23 and achieve its target SSSG growth of 9-11% in the near term.

• Sharda Cropchem: This agrochemicals company’s stock is on fire after it announced its Q3FY22 results that saw its consolidated net profitmore than double to Rs 102.2 crore on a 1.8X rise in revenues to nearly Rs 880 crore. The company announced its results on Saturday, and when trade opened after the weekend on Monday, the stock was up 17% and touched a 52-week high. Then on Thursday, breached this 52-week high and touched a lifetime high of Rs 577.85. This upmove made the company’s stock the most overbought among the Nifty 500 companies according to technical indicators like MFI and RSI.

Although passenger traffic is up 33% YoY and airlines carried nearly 8.35 crore passengers in 2021, the 2019 level of 14.4 crore passengers is so far, out of reach. This was especially due to weak demand from the corporate traveler segment. Domestic air passenger traffic rose over 2X on a YoY basis in Q3FY22 to 3.03 crore, thanks to low Covid 19 infections and holiday travel. The festival rush made headlines - the media reported serpentine airport queues, missed flights, and arguments over people trying to skip the line.

The rise in passenger traffic by 1.08 crore in Q3FY22 had a positive impact on the passenger load factor (PLF) of major airlines. PLF measures the capacity utilization of an airline. The average PLF for the top five airlines rose to 79.5% for Q3FY22, up 10 percentage points from 69.6% in Q3FY21. Market leader InterGlobe Aviation (Indigo) flew 63 lakh more passengers in Q3FY22 and improved its PLF by 8.3 percentage points. Surprisingly, Air India’s average PLF in Q3FY22 jumped 12.5 percentage points YoY, the highest amongst the other top airlines.

Go First not only improved its average PLF by 11.2 percentage points in Q3FY22, but also captured higher market share, flying past Air India and SpiceJet, as the new number 2. This development comes ahead of the company’s planned  Rs 3,600-crore IPO. Recent reports suggest that the IPO might be postponed. 

While the airlines witnessed meaningful recovery in Q3, their happiness is likely to be short-lived owing to the third wave of the pandemic in India. With the fall in leisure as well as business travel, air passenger numbers fell to around 2.4 lakh on January 9, down from 3.85 lakh recorded on December 26. Anticipating a weak Q4, airlines like Indigo have already withdrawn 20% of their capacity in January 2022.

The rating agency ICRA released another grim statistic for the airline industry recently. The industry is staring at a loss of Rs 25,000-26,000 crore in FY22. Not surprisingly, the CEO of Indigo called the sector “chronically ill” and sought immediate relief from the government. Yet another disappointing quarter lies ahead for investors.

1. UltraTech Cement: HDFC Securities maintains a ‘Buy’ call on this cement stock with a target price of Rs 8,775 indicating an upside of 19.3%. “We continue to like the company for its strong growth and margin outlook and balance sheet management,” says the analyst Rajesh Ravi. UltraTech Cement’s consolidated EBITDA in Q3FY22 fell 22% to Rs 2,420 crore and profit after tax fell 26% YoY to Rs 1,170 crore, owing to weak demand but the company is hopeful that cost inflation has peaked and noted that the demand was strong post some weakness in November 2021. This should strengthen pricing power and help pass on cost increases to customers. The business is aggressively expanding its green power capacities and working to increase its construction chemicals business, and hence HDFC Securities remains positive on the company.

2. HCL Technologies: Axis Securities recommends a ‘Buy’ rating for this IT services company with a target price of Rs 1,600, indicating an upside of 37%. The analyst Omkar Tanksale says, “HCL Technologies Q3FY22 performance stood above our expectations and beat our estimate on all fronts.” The company's revenue was up 8.1% QoQ to Rs 22,331 crore while operating profits were up 8.3% QoQ to Rs 5,242 crore. The company’s deal wins continued to remain strong, up 38% YoY. The management gave double-digit revenue growth guidance for FY22 and expects EBIT margins at 19%-21%. According to Axis, the company has built a resilient business model by securing multiple and high-value long-term contracts with the world’s leading brand.

3. Bajaj Finance: ICICIdirect assigns a ‘Buy’ rating to the financial lender based on the company’s healthy business momentum in Q3FY22 and improved asset quality. The brokerage has a target price of Rs 9,500, indicating an upside of 28.8%. Bajaj Finance posted a strong net interest income growth of 39.7% YoY, beating ICICIdirect’s estimates, says analyst Pankaj Pandey. Asset quality was healthy as GNPA and Net NPA ratios declined 72 bps QoQ to 1.73% and 32 bps to 0.78%,  respectively.  The key ratios are now back to pre-covid levels. According to Pandey, the core business has potential and is well on track to get transformed into an adaptable new age fintech.

4. Newgen Software Technologies: Edelweiss maintains a ‘Buy’ rating on this software company with a target price of Rs 900 (an upside of 52.2%.) In Q3FY22, the company’s revenue was up 9% QoQ to Rs 202.5 crore and EBITDA margin came in at 29%, up 350 basis points QoQ against 32% expected by Edelweiss. The IT services firm won 17 new deals in mature markets which gives decent revenue visibility. Edelweiss expects strong demand for digital transformation. It also sees the initiatives taken by the company on transition-related initiatives taken by diversifying the sales channel and its pricing model to help it grow. Adding to this the foray into developed markets, will help the company to record a 22% CAGR in revenues, and 24% CAGR in profits over FY 21-24, according to Edelweiss.

5. ICICI Securities: Motilal Oswal maintains a ‘Buy’ Rating on this brokerage stock, with a target price of Rs 1,000 indicating an upside of 28.5%. “ICICI Securities witnessed flattish retail broking revenue for the seventh consecutive quarter despite improved traction in client acquisitions,” says analyst Prayesh Jain. However, this was more than offset by the strong performance in distribution, Jain adds. The company’s Q3FY22 revenue stood at Rs 940 crore, up by 52% YoY which was 10% higher than Motilal Oswal’s forecasts. Profit after tax rose 42% YoY to Rs 380 crore which was 11% ahead of the brokerage’s estimates. The company saw significant traction in client additions over the past few quarters, driven by digital organic sourcing, strong capital markets, the new tie-up with HDFC Life and new loan product launches. Motilal Oswal expects this momentum to sustain.

• Sterlite Technologies (STL): This optical fibre and wireless solutions-based company’s stock crashed nearly 11% in Thursday’s trading session as investors were surprised by the company’s Q3FY22 results STL clocked losses of nearly Rs 137 crore during the quarter as against a profit of Rs 86.6 crore in Q3FY21. Back in Q2FY22, the company was extremely bullish on the prospects of 5G transition in the telecom industry with reforms and revival and capex cycle underway. Infact, it aimed to clock annual revenues of Rs 10,000 crore by the end of Q4FY23 from around Rs 4,868 crore achieved in FY21, This would have translated to a CAGR of 43%. So what went wrong for this Vedanta Group company? The company charged a one-time provision for losses of Rs 48 crore to its total revenue and Rs 116 crore to its operating expenses which ultimately led to a fall in profits.

This was done to provide for possible bad debts that can arise from certain ongoing and older projects on its service side of the business. Put simply, the management is anticipating lack of cash collections here. Cash generation was a pertinent issue back in H1FY22 as well with the company reporting an EBITDA of Rs 530 crore and cash flow from operations (before tax) of just Rs 294.5 crore. Notably, the management did not disclose finer details of these old projects nearing their completion in its earnings call. Interestingly, even if we ignore the one-time charge here, the company would still clock a subdued revenue growth of 7% YoY and EBITDA margin of just 10%. In Q2FY22, management gave an EBITDA margin guidance of 16-18% for upcoming quarters. Investors would want to keep an eye on the collection issues this company is facing.

• Indraprastha Gas: On Wednesday, Indraprastha Gas hit a 52-week low of Rs 450.5 on the bourses. This came after a draft policy note released by the Delhi Government indicated on the minimum requirement of electric vehicles for cab aggregators and delivery services. The company had earlier hiked prices to combat a sharp spike in gas prices.

This policy would require  that 5% (four-wheelers) and 10% (two-wheelers) of their fleet new purchases are electric vehicles by March 2022. Additionally, 50% of all new two-wheelers and 25% of all new four-wheelers should be electric by March 2023. Interestingly, cab aggregators account for 30-40% of total CNG sales for IGL. Even if this new policy draft was to be approved with certain relaxations, the long-term sales volume growth outlook for the company could alter drastically. Sales volumes may also be impacted in H2FY22 if the price gap between CNG and petrol prices narrows further with IGL hiking prices frequently over the past few weeks. According to Motilal Oswal, two prominent CGDs in China suffered fall in sales growth of 3-11% as EVs gained prominence in the country. Understandably, it is anticipating a flat profit growth trajectory for IGL between FY22-24. The stock could face further pressure in the near term owing to a slowdown in mobility and in road traffic congestion amid the 3rd wave of Covid.

• Nazara Technologies: This Indian gaming company gained nearly 13.5% in the last one week as it continued on its acquisition spree. The company recently announced  its acquisition of Planet Superheroes and Datawrkz. This is its  continuing effort to build a ‘Friends of Nazara’ network since 2017. It will acquire a 55% stake in Datawrkz for a consideration of nearly Rs 124 crore. The rationale behind this investment is to boost advertising revenues from certain platforms and products like world cricket championship and Sportskeeda. The other key reason is to reduce the user acquisition costs which are more than 20% of Nazara’s revenues.

Earlier in January, its subsidiary Nodwin Gaming acquired a complete stake in Planet Superheroes for Rs 4.2 crore. The company hopes to effectively engage with a growing Indian gaming community by selling merchandise be it game-based T-shirts, caps, character toys, mugs and lamp shades etc. Planet Superheroes offers its users global merchandise from brands such as Marvel, Disney, Hamleys and Toys R Us. Interestingly, the company also raised the limit for inter-corporate loans to Rs 1,000 crore from Rs 550 crore according to its recent filing. This comes as a red flag for a company which generated net profits of only Rs 28.7 crore on revenues of Rs 533 crore in the last 12 months and a negative cash flow operations of Rs 7 crore in H1FY22. Basically, the previous deals are yet to generate meaningful profit and cash for the company.  Nazara Tech raised Rs 315 crore back in October 2021 from institutional investors. This is after its IPO of Rs 583 crore in March 2021. It will be interesting to see how far these acquisitions go to create durable cash flow generation.

• Tata Elxsi: This design and technology services company’s stock has been on fire over the past two years rising nearly nine times over the past two years. But in the past two trading sessions, this stock rose over 17%, after it announced its Q3FY22 results touching a new 52-week high on Thursday. This makes it one of the most overbought stocks among the Nifty 500 companies. The company’s profit during the quarter rose nearly 20% QoQ (43.5% YoY), while its revenues were up 6.7% QoQ (33.2% YoY). Trendlyne’s Forecaster consensus average target price is Rs 4,932, while the stock is trading near Rs 7,500 levels. No wonder the consensus recommendation on the stock is to hold on to it.

• Max Healthcare Institute: This hospital company saw a surge in its promoter group’s pledged shareholding in Q3FY22. This is the first time since Q1FY21 that the company’s promoter shareholding was pledged. The promoter entity Kayak Investments Holding Ptepledged nearly 69% of its stake in the company (69% of 36.40 crore shares or 37.54% stake held by Kayak Investment) held in the company to lenders which include JP Morgan Chase Bank, Nomura Singapore, Deutsche Bank AG, etc. Additionally, the promoter entity also gave an undertaking not to sell its balance unencumbered shareholding, or create any encumbrances contrary to the lending facility agreement signed between. This comes after the promoter entity sold nearly 9.27% stake in two bulk deals on September 29, 2021. Part of this stake sale was picked up by HDFC Mutual Fund, SBI Mutual Fund and Veritas Funds. For now, investors should know that there is no more stake sales coming from Kayak Investments.