My Newsfeed

1. Tata Technologies:

ICICI Securities reiterates its ‘Buy’ rating on this software and services company with a target price of Rs 1,290, implying an upside of 22.1%. Tata Technologies has recently expanded its capabilities in internal combustion engine (ICE) to EV conversions, validated by its work in converting the Tata Tigor and Tiago models. Analysts Ruchi Mukhija, Seema Nayak, and Aditi Patil are upbeat about the company’s growth prospects, supported by its partnerships with OEMs like Agratas in the evolving EV market.

The company is shifting from a hardware-focused portfolio to one centered on software, which aims to improve the car user experience. It has formed a joint venture with BMW to set up a center in India, with a software team of 4,000-5,000 people. Mukhija, Nayak, and Patil said, “The company’s focus on AI-driven solutions should boost the productivity of its engineers and planners across product design, digital modelling, and sales processes.”

Tata Technologies has also started developing battery solutions for 2-3 wheelers, giving it a competitive edge as batteries make up about 50% of EV costs. The analyst expects revenue and net profit CAGR of 13.7% and 16% respectively over FY25-27.

2. Nippon Life India Asset Management:

Sharekhan maintains a ‘Buy’ rating on this asset management company with a target price of Rs 840, indicating an upside of 22.2%. The company saw strong growth across all its segments, with equity asset under management (AUM) now contributing 50% of total AUM compared to 45% in FY24. Nippon Life Asset Management (NAM) is working on growing its market share and boosting SIP flows. Its SIP market share has risen to 11% from 8% in FY24. Recently, the company launched a new fund offer (NFO) for the Nifty 500 Equal Weight Index Fund, which is gaining attention.

Analysts are positive about NAM’s prospects, expecting AUM growth of 22-24% over FY25-27. In Q1FY25, the company’s revenue grew 35% YoY to Rs 635.8 crore, surpassing the Trendlyne Forecaster estimates by 23.5%. The firm has managed the expected drop in revenue from SEBI’s pricing changes by growing its AUM and increasing its market share. It is focused on improving the efficiency of existing branches rather than opening new branches. 

Analysts are confident that strong retail flows and innovative passive schemes will drive NAM India's growth. They also highlighted that NAM India’s equity funds have consistently outperformed those of its peers, leading to stronger net inflows and market share gains.

3. L&T Technological Services:

Motilal Oswal maintains a ‘Buy’ rating on this IT consulting & software firm with a target price of Rs 6,300, indicating a 10.8% upside. L&T Technology Services (LTTS) has updated its go-to-market approach by focusing on fast-growing areas like mobility, sustainability, and tech, aiming to take advantage of new opportunities in these sectors.

Mobility margins increased from 14.7% in FY21 to 19.6% in FY24, while sustainability margins rose by 400 basis points, reaching 28.2% over the same period. Analysts Abhishek Pathak and Keval Bhagat said, “Margins may stay steady in the short term, but growth in mobility and sustainability could push them to the higher end of the target range over the next three years”. The company also highlighted increased  growth in the oil and energy markets, with the shift from engineering, procurement, and construction (EPC) to EPC management (EPCM) to boost industrial growth.

Pathak and Bhagat are optimistic about LTTS’s expansion into AI and embedded systems, which are expected to drive future growth and enhance innovation across its business. They project a 10.6% revenue CAGR and 12.6% PAT CAGR over FY25-26.

4. Arvind Fashions:

Anand Rathi maintains a ‘Buy’ rating on this apparels and accessories company with a target price of Rs 689, indicating a potential upside of 18.7%. Arvind Fashions reported a net profit rise of 119.7% to Rs 80 crore in FY24 while its revenue fell 4% YoY to Rs 4,472.6 crore during the year.

Analysts Vaishnavi Mandhaniya and Shreya Baheti indicate that for FY25, the company will prioritize increasing brand value through product innovation and strategic advertising. They will also focus on expanding and updating their retail network, while improving profitability by maximizing full-price sales and optimizing costs. Additionally, the company aims to become debt-free by leveraging surplus cash generated from enhanced operational efficiencies.

Mandhaniya and Baheti are optimistic about the company's prospects, anticipating 12% and 22% CAGR in sales and EBITDA, respectively, over FY25-26. They expect the RoCE to increase to 20.2% by FY26. Reflecting these improved operations, they have raised the target multiple to 13 times FY26 EV/EBITDA, up from 12 times.

5. Emami:

Khambatta Securities maintains a ‘Buy’ rating on Emami with a target price of Rs 943, suggesting a 14.4% upside. This personal products company reported a net profit rise of 10.8% YoY to Rs 152.6 crore in Q1FY25. Operating revenue increased 9.7% YoY to Rs 906.1 crore during the quarter. Analysts noted that the 8.7% YoY domestic volume growth, contributing 85% of sales, was a key driver of overall growth. Emami’s personal care brands Navratna & Dermicool saw a  27% YoY increase, while the Healthcare range grew 11% YoY due to new products and strong digital sales. However, hair care brand Kesh King experienced a 15% YoY decline.

The analysts note that despite geopolitical challenges and currency depreciation in key markets, the international business grew 10.2% YoY in Q1FY25. The strong international performance was primarily driven by double-digit growth in the MENA and South Asian Association for Regional Cooperation (SAARC) regions. 

The analysts anticipate that the company’s ongoing investment in its brands will position it favorably for the mid-to-long term. They project EBITDA margins to reach 26.7% in FY25 and 27.2% in FY26, with PAT margins expected to be 20.6% and 21.4% for the same periods, respectively.

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

(You can find all analyst picks here)

I don’t want to sound like that building uncle (I haven’t reached the ‘uncle’ age yet) who complains about the modern world and “kids these days”.

But I have to say, life was a lot simpler for Indian consumers a few years ago. At least, it felt that way. Let's take this cup of tea, simmering by my side while I type. A cup of tea was black tea powder, milk and sugar. Dessert meant a sizzling brownie or gajar halwa. “Skincare? What’s that?”men would ask. But in the last few years, and especially after Covid, things have changed.

Now, tea can be green, fifty kinds of herbal, black, iced. Milk can be low-fat, lactose-free, A2, or oat and nut-based varieties. In addition to the usual Indian desserts, we have to resist gelato, baklava, tiramisu, parfait. And skincare? It’s a full-blown daily routine with people casually dropping names like paraben, niacinamide, and hyaluronic as if they are talking about apples, mangoes and bananas. Every decision feels complicated.

The market is all about wellness, quality and experimentation. Whether it’s food, clothes, cars, or home décor, we’re seeking premium and niche products and services.

Remember when Uber offered its ill-fated Mercedes taxi rides in India, via Uber Black? It didn’t appeal to enough customers, and Uber discontinued it in 2014. Earlier this year, Dara Khosrowshahi, the company’s CEO said, 'Indians are extremely demanding, but are not willing to pay for anything'.

But now, Uber’s premium service is growing at a much faster rate than its budget rides. That has prompted the company to bring Uber Black back. So perhaps enough Indians are willing to pay.

As India gets wealthier, a significant number of people are upgrading their lifestyle,  and firms are getting on board fast to cater to them.

In this week's Analyticks:

Going premium: The rise of the 'discerning' Indian customer

Screener: Rising stocks where Forecaster expects a high target price upside in the next 12 months

Indian pockets are getting deeper

Goldman Sachs recently noted that India’s affluent class–people earning above $10,000 (equivalent to Rs. 8.3 lakhs) per annum–rose in the last couple of decades. It jumped from 20 million in 2011 to 60 million in 2023, and accounts for 4.1% of the total population. GS expects this to reach 100 million by 2027.

People Research on India’s Consumer Economy (PRICE) expects the middle-class to increase to 61% of the total population by 2047, from 31% in 2021. The combo of upward income mobility, more choices, better tech and economic growth has already upgraded the lives of many Indians. It's visible across different pockets of the country, including smaller towns and villages. 

Plus, we have access to global trends, thanks to the internet. We are not just comparing our house to the people next door. Instead we are discussing the viral kitchen renovation we saw online.

Food brands react to premiumisation and rising health awareness

A positive fallout from Covid, if any, has been rising health awareness. It started with at-home workouts and better food habits. Consumers are now spending more on healthier options, and companies have noticed. 

Parag Milk Foods which owns a popular dairy products brand, Govardhan, also operates a premium brand called ‘Pride of Cows’, known for single-source and organic dairy products. In 2020, it forayed into premium curd and ghee. 

Tata Consumer acquired Soulfull, a health-focused millet cereals company, in 2021, and Organic India, Fabindia’s herbal tea brand, in 2024. Amul has launched a high-protein segment selling milk at Rs. 396 a litre, which is seven times the price of the Amul Taaza pouch. 

Hindustan Unilever (HUL) has launched over 70% of its new products in the premium segment in the last two years while Parle has shifted 60-65% of its new launches to the premium segment, up from 40% pre-Covid. Premium products now account for 25% of total sales for HUL, up by 300 basis points (bps) in the last three years and 12% for Nestle, up by 150 bps over last five years.

Tapping high-end consumers in fashion

“Premiumisation gives us better realisation,” Shailesh Chaturvedi, Arvind Fashions’ MD & CEO says. That’s how the company managed to improve its gross margins by 80 bps last quarter. In the previous quarter, sales of Aditya Birla Fashion & Retail (ABFRL)’s luxury segment and AjioLuxe, Reliance Retail’s online luxury shopping platform, jumped 18% and 39% YoY, respectively. Shoppers Stop’s premium brands now account for 57% of total sales, up from 54% last year.

People are becoming picky about the labels they wear, thanks to influencer marketing, global exposure and rising aspirations. Google Trends shows folks getting increasingly curious about premium products – checking out reviews, buying something because their friends or colleagues have it.

Brands are figuring out how to market high-end products to mid-premium customers. This is especially crucial in a weak season, as these consumers are less sensitive to downturns, and companies can offset lower sales in the budget segment with higher margins on premium items. India’s luxury fashion revenue is projected to cross $1.5 billion in 2024, compared to $11 billion in China and $28 billion in the US.

'Premium' is becoming a whole lifestyle

Once we have fancier clothes, taking care of them means more spending. We switch from semi-automatic machines to fully automatic, from powder soap to liquids, and fabric conditioner. This has benefited the likes of P&G and HUL. India's Electronic stores are complaining that semi-automatic washing machines have become a slow-moving inventory.

It doesn’t stop here. We need everything a notch up: accessories, skincare, shoes, phones, homes, cars and so on. Surveys shows that more Indians especially prefer buying premium in 'visible luxury' categories like smartphones, clothes, shoes, and laptops.

Banks vie for affluent customers

Recently, SBI announced it would hire 2000 executives to revive its wealth management arm and attract wealthy clients. Similarly, Axis Bank has expanded its wealth management business Burgundy Private, to Tier II and III cities.

HDFC Bank has launched the BizBlack Metal Edition Credit Card this year to tap self-employed and business people. Such premium metal credit cards have become a status symbol. A few years ago, only a few big banks offered them. But in the last few years, IndusInd Bank, IDFC First Bank, Yes Bank and AU Small Finance Bank have entered this segment.

Credit cards in general are gaining popularity as more Indians indulge in high-end shopping and air travel. The allure of loyalty points, deep discounts, and lounge access is driving growth. As of July 2024, Indians hold around 10.5 crore credit cards. In the last one year, the number of outstanding cards have increased by 16%, the transaction value has jumped 19% while the number of transactions have spiked by 38%. 

Impact on industrial goods

The rise of luxury products has also affected other sectors, boosting the demand for better-quality raw materials and intermediary products. For example, rising sales of sports utility vehicles (SUVs), electric vehicles (EVs) and luxury cars have benefitted the auto components industry. 

Strong demand for 3BHK, 4BHK and luxury homes means better quality cement and construction materials. Cement companies data reinforce this trend. Star Cement registered its highest-ever sales of premium cement in Q1 FY25 (9% of total sales). Dalmia Bharat continues to improve its premium share from 11% in FY19 to 21% in FY24 while that of Nuvoco Vistas from 34% in FY22 to 37% in FY24.

Take Apar Industries, the world’s largest aluminium and alloy conductor manufacturer. The company leads in premium quality conductors and cables used in various sectors like renewables, power, railways, EVs, etc. In the last three years, the volume of those conductors has grown by 37% CAGR while that of cables by 48%. That’s because its clients are shifting to better quality products. 

At the end, consumers are better taken care of

While I may complain about having to take so many decisions about the smallest things, it's clear that premiumization helps both businesses and consumers. But going back into 'uncle' mode - the trend also highlights the widening gap between the rich and the poor. The premium segment is still very small, even if it's fast growing.

There is an expectation however, that India's GDP growth, combined with more effective social programs, will bring more Indians into this aspirational demographic. As India continues to grow, we can expect this trend to gain ground across industries.

Screener: Rising stocks where Forecaster expects a high target price upside in the next 12 months

Fashion & lifestyle stocks see high target price upside by Forecaster

The Indian markets have been trading flat over the past week, with the Nifty 50 index rising by just 0.5%. In this environment, we look at FMCG, consumer durables, food and fashion & lifestyle stocks which have risen over the past month with a high target price upside by Trendlyne’s Forecaster. This screener shows rising stocks where Forecaster expects stock prices to gain in the next 12 months.

Notable stocks that appear in the screener are Sai Silks (Kalamandir), Raymond, Electronics Mart India, Eureka Forbes, La Opala RG, Pitti Engineering, EID Parry (India), and Arvind. 

Raymond features in the screener due to its 53.3% target price upside expected by Trendlyne’s Forecaster in the next 12 months. Analysts like Motilal Oswal believe that the textile company’s de-merger of its real estate and engineering businesses will help carve out individual growth strategies for both businesses. According to the broker, the company has created strong value by selling its FMCG business, demerging the lifestyle business, and setting up an engineering unit ‘Newco’ after the MPPL acquisition. The demerger of the lifestyle business has also helped the company’s stock price to rise by 7.9% over the past month.

Electronics Mart India comes next with a Forecaster estimated target price upside of 25% in the next 12 months. According to Anand Rathi, this specialty retail company’s revenue will grow on the back of volume growth. It expects the company to increase its profitability, driven by optimising store operations and improving inventory management.

You can find some popular screeners here.

For the first time in six quarters, India’s quarterly GDP growth on a YoY basis came in below estimates at 6.7% for Q1FY25. This was primarily due to subdued government spending and a decline in manufacturing activity. Despite this slight moderation in short-term growth, the World Bank remains optimistic about India’s long-term growth outlook. They revised their growth projection for the current fiscal upward to 7%, from the previous estimate of 6.6%.

If we look at the equity markets, India’s influence in the MSCI Global Standard Index, also known as the World Index, has been growing rapidly. India currently holds a weightage of around 18%, second only to China, which has a weightage of approximately 25%. This marks a significant increase from levels below 10% at the end of 2020.

In this week’s Chart of the Week, we take a look at Trendlyne’s Sector Dashboard to identify the top-performing sectors over the past quarter. We focus on the top eight sectors that have delivered maximum gains, highlighting the stocks and underlying factors that have contributed the most.

Early signs of growth propel the fertilizers and software & services sectors

The fertilizers sector emerged as the best-performing sector, posting 34.1% gains over the past quarter. Average net profit growth more than doubled on a YoY basis in Q1FY25. This growth was driven by a good monsoon and initiatives taken by the government to boost the sector. For instance, the government is developing a national policy to boost local fertilizer manufacturing. The Fertilisers and Chemicals Travancore, Coromandel International and Chambal Fertilisers & Chemicals were the highest contributing stocks as they rose 41.8%, 36.6% and 28.6% respectively over the past quarter.

The software and services sector also saw significant growth, soaring 30.8% over the past quarter, driven by early signs of recovery in the IT industry. This was buoyed by demand for emerging technologies like Generative AI, machine learning and cloud transformation. Tata Consultancy Services (TCS) rose 19.7% over the past quarter driven by positive sequential growth among all verticals except media and communication. Q1FY25 marked the first positive revenue growth on a QoQ basis after four quarters of sequential decline.

IT consulting & software company Infosys saw a 34% uptick in its share price over the past quarter, accounting for 20% of the sector’s overall gain during the period. The company’s financial services segment, which contributes around 27% to the overall revenue, reported positive growth on a YoY basis after six quarters.

Retailing & consumer durables companies witness growth driven by rising demand for their products

The retailing sector has risen 29.5% over the past quarter, with Trent alone contributing 67.3% to the sector’s gains, as it surged 53.2%. Avenue Supermarts contributed 16% to the overall sector gains.

Trent posted revenue growth of 54.8% YoY to Rs 4,150 crore in Q1FY25, with net profit rising 126.3% YoY to Rs 393 crore. The company’s strategy to focus on its affordable, trend-led fashion retail store, Zudio, has been a key driver of revenue growth as consumers gravitate toward value products amid high inflation.

The consumer durables sector also recorded a 20% gain over the past quarter, supported by the “Make in India” initiative amid growing demand for electronics goods. The industry saw an average net profit growth of 45% YoY in Q1FY25. Electronics manufacturer, Dixon Technologies (India), contributed 18.4% to the overall sectoral gains after rising 42.6% over the past quarter. Similarly, Voltas, an air conditioner (AC) manufacturer gained 26.8% over the past quarter, contributing 8.5% to sectoral gains. This rise came on the back of high demand for ACs in the peak summer months from April to June.

Uptick in exports drives the pharmaceuticals & chemicals sector higher

The pharmaceuticals & biotechnology sector gained 26.7% over the past quarter. Pharmaceutical firms like Sun Pharmaceutical Industries and Lupin were the major contributors as they gained 23% and 40% respectively over the past quarter. Growth in Sun Pharma was led by global specialty sales and emerging market segments. Lupin, on the other hand, witnessed its net profit rise by 77% on a YoY basis to Rs 801 crore in Q1, driven by new product launches and improved product mix.

The chemicals and petrochemicals sector surged by 24.3% over the past quarter, as India strengthened its position in the global chemicals market. This growth was driven by increasing interest from global companies looking to source from India in a bid to de-risk their supply chains.

Leading carbon black producer, PCBL saw its stock price double over the past quarter, contributing 8% of the overall sectoral gains. This rise followed the company’s announcement to increase its global presence with capacity additions via brownfield and greenfield expansions, taking the total capacity to 10 lakh tonnes (currently, 7.7 lakh tonnes). Similarly, agrochemicals company PI Industries and specialty chemicals firm BASF India also contributed 7.7% and 6.4% to the sectoral gains over the past quarter.

Food, beverages & tobacco and FMCG companies capitalise on shifting consumption trends

The food, beverages and tobacco sector gained 21.6% over the past quarter. Cigarettes and tobacco manufacturers like ITC and Godfrey Phillips India accounted for around 50% of the sector’s gains. This growth was driven by stable cigarette taxes and enforcement against illegal trade, which helped the legal cigarette industry recover volumes. Breweries & distilleries company United Spirits also gained 25% over the past quarter driven by its premium products, and contributed over 10% to the overall sectoral gains.

Likewise, the FMCG sector gained 20.3% over the past quarter, led by moderation in raw material prices and an uptick in rural consumption. Personal products companies Hindustan Unilever and Colgate-Palmolive (India) gained significantly over the past quarter contributing over 40% to the sectoral gains.

1. Honasa Consumer:

This personal products company has risen by 7% over the past week. This comes after the NCLT (National Company Law Tribunal) approved its amalgamation with two of its subsidiary companies, Just4Kids and Fusion Cosmeceutics. This amalgamation is expected to help prevent cost duplication and enhance financial efficiencies, making the combined operations more cost-effective.

Just4Kids Services is a platform that gives access to information about playschools and schools, sports classes, and similar events for kids across Delhi, Gurgaon, Noida, Faridabad, and Ghaziabad. Meanwhile, Fusion Cosmeceutics is engaged in the formulation and trading of skin care products.

Over the past three months, Mamaearth’s parent company has risen by over 18.1%. During Q1FY25, the firm’s net profit grew by 40.3% YoY to Rs 40.3 crore, beating Trendlyne’s Forecaster estimates by 11.3%. Revenue was up 19.3% YoY at Rs 554.1 crore,  led by faster growth in emerging brands, market share gains (in face wash and shampoo), and aggressive distribution expansion (30% YoY).

Honasa Consumer is currently focusing on expanding its offline distribution, under a project called ‘Neev’. During Q1, the company’s offline distribution increased by 30% YoY, reaching 2 lakh retail outlets. Commenting on this, Ghazal Alaghh, the Co-founder said, “Our target is to double the offline distribution to 4 lakh retail outlets by FY27”.

Goldman Sachs recently initiated coverage on the stock with a ‘Buy’ rating and a target price of Rs 570. The brokerage highlights that the transformation of India's beauty industry presents a multi-year growth opportunity. Goldman Sachs also notes the significant growth opportunity as Honasa plans to double its offline distribution, driving growth in urban and rural markets.

2. One97 Communications (PayTM):

This digital payment player saw its parent company, One97 Communications’ share price rise 12.2% on Friday as it got approval from the Ministry of Finance for foreign direct investment (FDI) into its payment arm. With this approval, the company can re-apply for its payment aggregator license, which was rejected about two years ago due to compliance issues.

The company aims to refocus on its core business as it sells its ticketing arm to Zomato for Rs 2,048 crore. This move will enable PayTM to strengthen its core payments and financial services distribution business. The decision follows a more than 30% drop in PayTM's share price after the RBI cracked down on its payments bank arm due to irregularities in KYC (know your customer) norms and compliance issues. Currently, more than two years after listing at an issue price of Rs 2,150, the company is trading at a discount of about 70%.

As of July 2024, the company’s UPI market share was 7.8% by volume and 6% by value, according to the data released by the National Payments Corporation of India (NPCI). The RBI's action against Paytm Payments Bank has reignited discussions about capping UPI app market share at 30% to prevent any single platform from becoming too dominant. However, the NPCI postponed this proposal until December 31, 2024. If implemented in the end-of-year review, this proposal could significantly boost PayTM's market share.

Founder and CEO Vijay Shekhar Sharma, said, “The company aims to deliver at least one profitable quarter this financial year.” He emphasises that the company’s focus is returning to payments and cross-selling of financial services as its core business. Sharma also notes that the migration (from Paytm Payments Bank to payment service provider banks - Yes Bank, Axis Bank, HDFC Bank and SBI) of its technology and customers is nearing completion, after which the company can request NPCI’s permission to add new and incremental customers.

Motilal Oswal maintains a ‘Neutral’ rating on PayTM as it expects the sale of its entertainment business to strengthen its balance sheet. This transaction is expected to generate significant profits for PayTM, allowing it to reinvest in other high-potential areas. The firm forecasts that the company's EBITDA will turn positive by FY27.

3. Zee Entertainment Enterprises: 

This broadcasting & cable TV company rose 11.6% on August 27 as it resolved disputes related to the scrapped $10 billion merger with Culver Max Entertainment (CMEPL) operating  as  Sony Pictures Networks India (SPNI). ZEE Entertainment Enterprises (ZEEL) and SPNI, along with Bangla Entertainment, agreed to a non-cash settlement, withdrawing all claims, including the $90 million termination fee for the merger.

The merger failed due to disagreements over valuation, control, and governance. ZEEL and SPNI had differing valuations for their companies, leading to conflicts over merger terms. Disputes also rose over how control would be divided in the merged entity, including decision-making authority and board composition. Questions over Zee’s corporate governance practices further complicated the merger.

This resolution ends the Singapore International Arbitration Centre arbitration and legal proceedings at the National Company Law Tribunal (NCLT). ZEEL’s management stated that the settlement allows both companies to independently pursue future growth in the evolving media and entertainment sector.

In Q1FY25 the company reported a net profit of Rs 118.1 crore compared to a loss of Rs 53.4 crore in Q1FY24, surpassing Trendlyne's Forecaster estimates by 24.3%. The surge in profit was driven by lower finance cost and employee benefit expenses. Revenue grew 7.6% YoY to Rs 2,149.5 crore during the quarter, driven by higher sales from subscription and movie releases. However, the company only released 13 titles, a 60% YoY fall.

ZEEL's total ad revenue decreased by 17.9% QoQ and 3.1% YoY to Rs 910 crore. Post results, MD and CEO Punit Goenka noted Q1FY25 ad revenue was low due to cricket and elections. He expects ad revenue to improve in H2FY25 driven by rural demand recovery, supported by a good monsoon and festive season.

ICICI Securities had retained its 'Buy' rating despite persistent concerns about financial weakness, governance challenges, and unresolved litigation. The brokerage is optimistic due to the improving balance sheet, which is a potential boost to investor confidence.

4. Sonata Software: 

This IT solutions provider rose over 5% on Thursday after it won a multi-million-dollar IT outsourcing deal with a US-based healthcare provider. The AI-powered deal is to upgrade the client’s technology through better IT budget management, and the use of automation and cloud services. Commenting on this, MD & CEO Samir Dhir said, “The deal will impact short-term margins for the next two to four quarters due to the upfront AI investment, but won’t dilute long-term profitability. We expect AI services to account for 20% of our revenue over the next three years.”

Sonata Software won two more large deals in Q1FY25. The company was chosen as a partner to modernize outdated systems to the latest Microsoft technology for a client in Australia. The other cloud deal is with a major US financial firm.

In Q1FY25, the company reported a net profit decline of 12.1% YoY to Rs 105.6 crore due to higher raw material costs. Revenue grew 24.6% YoY to Rs 2,527 crore, surpassing Forecaster estimates by 56.1%. The company generated 27% of its revenue from overseas markets, with 7.5% YoY revenue growth in the International business.

Sonata’s share price has risen by 30.9% over the past year. The company has pushed its $1.5 billion revenue target for its international business to FY27, extending the timeline by two to four quarters due to the macro-economic slowdown. Dhir highlights that the company is “focused on modernization”, noting that cloud and data segments now make up 52% of Sonata's pipeline, up from 15% two years ago. The company also experienced growth in its partnership with Microsoft Fabric, which generated a pipeline of 385 crore across 80 clients.

Post results, KR Choksey downgraded its rating to ‘Accumulate’ as the stock surged 23% since the last rating, limiting further upside. However, it raised the target price to Rs 694, highlighting the company's focus on large deals and AI investments. The brokerage expects long-term growth to be driven by progress with Microsoft Fabric and effective client management.

5. Aether Industries:

This specialty chemicals company rose by 1.2% today and announced its results on July 19th. For Q1FY25, the company’s net profit increased by 0.4% YoY to Rs 29.9 crore, while its revenue rose by 17.5% YoY on the back of a 16.2% YoY rise in revenue in the large scale manufacturing vertical. The firm beat Trendlyne’s forecaster estimates for revenue by 14.7%. It appears in a screener for stocks with improving net cash flow for the last 2 years.

The firm has recently entered into an Exclusive Manufacturing Agreement with Chemoxy International, a subsidiary of the SEQENS group from France, which specializes in Health, Personal Care, and Specialty Ingredients. This three-year contract involves Aether supplying raw materials to Chemoxy, with production starting in 10 months and a volume of over 100 MT per year. Last month, Aether also commissioned site 4 for a strategic supply agreement with Baker Hughes (an energy technology firm). This deal includes six products to be manufactured in India for the first time and supplied globally, with a notable portion allocated for the Indian domestic oil and gas sector.

The company holds an estimated market share of 8-10% in the speciality chemicals space in India.Faiz Nagariya, CFO of the firm, guides the capex run rate of around Rs 300-350 crore for both FY25 and FY26.  

Rohan Desai, whole time Director of the firm said: “During the quarter under review, we witnessed growth in overall volumes, but the prices have been impacted due to China's dumping. We feel the prices have already bottomed out and we are optimistic for an upswing in the business scenario. “ 

He added,  With respect to Aether's business model, we have seen 66% contribution of the total top line coming from large scale manufacturing, 18% coming from contract/exclusive manufacturing, and 14% coming from contract research and manufacturing services business model during Q1FY25. Our export revenues stood at 42% of the total revenue and domestic sales stood at 58%.”

HDFC Securities has maintained a “Buy” rating on Aether Industries, with a target price of Rs 1,117. The brokerage notes that the company’s strategic capital investments are being fuelled by internal accruals and money raised (Rs 750 crore) through QIP. It expects a revenue CAGR of ~43% and an earnings CAGR of ~58% over FY25-27E.

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

Imports falling. IBM's research team shutting shop. China's most popular consumer companies like Temu seeing revenue misses. Nepal asking China to wipe out a $216 million loan. 

In 2004, it felt like China was doing everything right. It was rising fast as a manufacturing powerhouse, and seeing GDP growth rates of 10-12%. In 2024 however, it feels like everything is going wrong. China's growth has slowed down quite dramatically, and it is facing multiple global crises - chip sanctions from the US, new tariffs and taxes from the EU and other trading partners. 

China's real estate is struggling while unemployment is up. The country's two-decade long strategy of spending heavily on infrastructure and real estate to boost growth, has hit a wall. This kind of spending has a natural limit: what do you do when you have built all the revenue generating airports and flyovers you need? China's local governments have now started building highways and airports in small towns and villages - such as one in Zhangbei, a rural town of 65,000 people. This infrastructure spending, unlike in the past, is not generating growth.  

China's slowdown may feel like an opportunity for other countries like India to step in. In reality though, there is both promise and danger. China has been so closely tied into India's and the world's supply chains, that bad news for China is impacting countries worldwide. Especially in the short term. 

In this week's Analyticks:

A weaker China changes calculations: India and other countries are rethinking policies as China struggles

Screener: Stocks where FIIs are increasing their shareholding, with high future estimates for revenue growth  

As China's own market weakens, it has turned to exports. Not everyone is happy

Even as China overtook the US to become India's top trading partner in FY24, India has also passed the maximum number of anti-dumping orders against China, across sectors like steel, plastic and chemicals. India's anti-dumping orders have also become highly targeted - on items like include printed circuit boards, industrial machinery, and even niche products like telescopic drawer sliders. 

China's worsening domestic market has forced Chinese companies to shift their focus to exports. And thanks to heavy subsidies, Chinese companies are often able to manufacture below cost and export to international markets.

Consider steel. China is easily the world's biggest steel producer, producing more than 1 billion tons a year, over half the world’s output.The decline of China's massive real estate sector however, has resulted in a lot of steel inventory with no buyers.

Domestic demand in China has fallen over 10%, but exports are ballooning as China's producers look desperately for other markets. Chinese steel exports have jumped 20% YoY and are at the highest level since 2016. 

This problem of excess is not just in the steel sector. Consider the beleaguered European auto sector, where Volkswagen, Mercedes etc are facing imports of high numbers of low-cost, high quality Chinese electric vehicles. EU has responded with heavy tariffs on Chinese EVs - MG maker SAIC, and BYD face additional duties of 36.3% and 17% on their exports to the EU.

But for European auto manufacturers, that was not enough. So EU has also now imposed a 9% duty on Chinese-made Teslas. Turkey is also planning tariffs on Chinese EVs, while Indonesia is set to impose import duties of up to 200% on textile products, which are mainly from China.

Countries exporting China's domestic market struggle

Over the past decade, many countries started to export heavily to China's massive domestic market, which welcomed them with open arms. Chinese consumers wanted Audis, BMWs, Prada bags. Now Chinese purses, Prada or otherwise, are zipping shut, and trading partners are feeling the pain. China's imports are declining and are at a four month low. Germany's exports to China fell by nearly 10% last year, and its economy shrunk. 

American companies like Apple, Nike, and Starbucks are all similarly losing steam in China. India's gems and jewellery industry had dismal results in the most recent quarter - China accounts for a third of India's cut and polished diamond exports, and demand has weakened. 

Another factor with falling imports is cultural. Under Xi Jinping, China is increasingly, turning inward. Consider the movies that the Chinese are watching. China is typically a major market for US studios, but this summer, ticket sales fell by 50% year on year. More than 80% of box office revenues this year was instead, from local releases. Hollywood movie Deadpool & Wolverine opened at No. 1 in most countries, but in China it opened at No. 2, behind a Chinese comedy, Successor. 

Now, China wants its money back

The diminishing of China is visible in one other area - lending. China was the world's biggest bilateral lender in 2017. Now as its economy has slowed, it trying to get its money back.

Developing countries around the world owe China around $1.5 trillion. Thanks to projects like the $3.7 billion hydropower station that China funded in Angola, the country's debt to China is nearly 4% of the country's GDP.

One of the countries that is on the hook for billions of dollars in Chinese loans, is Pakistan. Pakistan has laid off an estimated seven million textile workers as it struggles with debt. The government says it cannot afford to keep the textile factories running as it tries to deal with soaring interest payments.  

Many of these economies who borrowed from China are now in financial distress: Chinese government loans have a 2% interest rate compared with the 1.54% norm from the World Bank. On top of this, Chinese lenders also have a penalty interest rate of 8.7% for late payments. The World Bank says that the total value of interest payments of the 75 poorest countries in the world has jumped 4X, and will exceed their combined annual spending on health, education and infrastructure.

From 2008-2021, China accounted for over 40% of global GDP growth. The way China now handles its trade and lending relationships as it slows down, is going to be key, so that it doesn't drag the world economy down with it.  

Screener: Stocks where FIIs are increasing their shareholding with high Trendlyne Forecaster estimates for YoY revenue growth

FIIs increase stake in the banking and software sectors

As Q1FY25 results season has ended, we take a look at the stocks that were the top picks for foreign institutional investors (FIIs), which also have strong YoY growth estimates for revenue in Q2FY25. This screener shows companies increasing FII holding QoQ in Q1FY25 and high Trendlyne Forecaster estimates for revenue YoY growth in Q2FY25.

The screener is dominated by stocks from the banking & finance, software & services, pharmaceuticals & biotechnology, consumer durables, and automobiles & auto components sectors. Major stocks that appear in the screener are Indus Towers, Coforge, KFIN Technologies, Yes Bank, MphasiS, RBL Bank, Gland Pharma, and Craftsman Automation.

Coforge shows up in the screener with its FII holding increasing by 6.4 percentage points QoQ in Q1FY25. Major funds which bought stake in the company are New World Fund (bought a 1.5% stake), and Smallcap World Fund (bought a 0.4% stake). The company also has a Forecaster estimated revenue growth of 24.9% YoY for Q2FY25. Dolat Capital believes that the IT company is well positioned for revenue growth owing to its multiple contract wins in the breadth-first search algorithm (BFS) and insurance segments, and increased contribution from its acquisitions of Cigniti and OptML.

KFIN Technologies’ FII holding grew by 6.1 percentage points QoQ in the past quarter. The most notable buyers of the company’s stock were Employees Provident Fund Board (bought 1.5% stake), The India Fund (bought 1.2% stake), and Aberdeen New India Investment Trust (bought 1.1% stake). Trendlyne’s Forecaster expects the company’s revenue to grow by 27% YoY in Q2FY25. ICICI Securities expects the company’s revenue to grow on the back of improving equity mix in mutual funds assets under management (AUM), market share expansion, a strong new listing pipeline in the issuer solutions business, and client wins in its international business. The issuer solutions business provides banking solutions to corporates like banks, mutual funds, and PSUs.

You can find some popular screeners here.

1. Karur Vysya Bank:

Asit C Mehta initiates a ‘Buy’ rating on this bank with a target price of Rs 265 implying a 18.6% upside. The bank reported net profit growth of 18.9% YoY to Rs 458.7 crore in Q1FY25 while its operating revenue grew 21.3% YoY to Rs 2,284.5 crore. Analyst Akshay Tiwari and Shweta Upadhyay highlight that the gross non-performing assets (GNPA) and net non-performing assets (NNPA) declined from 8.7% and 3.9% in FY20 to 1.3% and 0.4% respectively in Q1FY25.

The analysts expect the bank to see growth in its retail and MSME loan portfolios, while corporate lending growth may remain subdued. The bank's initiatives to attract retail customers should lead to an increase in retail deposits, thereby improving its CASA ratio and driving higher net interest margins. Asset quality continues to improve, supported by healthy recoveries and lower loan defaults.

Tiwari and Upadhyay project the bank's loan book will grow at a CAGR of 16.3% over FY 25-27 (CAGR of 19.7% excluding corporate loans). Margins are expected to improve to 4.4% by FY27. Additionally, they anticipate the bank's net interest income (NII) and PAT to increase at CAGRs of 18% and 25%, respectively, over the same period.

2. Royal Orchid Hotels:

Edelweiss maintains its ‘Buy’ rating on this hotels company with a target price of Rs 477. This indicates a potential upside of 29.4%. Royal Orchid’s revenue grew 6% YoY to Rs 73 crore in Q1FY25, driven by strong room additions (up 13.7% YoY). However, the EBITDA margin declined by 347 bps YoY to 22.8%. Analysts Amit Agarwal and Rishith Shah predict, “Margins will face pressure in FY25, declining to 23.8% due to higher fixed costs to aid its property expansion.”

The analysts are still bullish, due to the company’s expansion plans. The company plans to add 1,900 rooms across 26 hotels in FY25, expanding its total inventory to nearly 7,826 rooms. It aims to drive growth through new management contracts and revenue-sharing agreements. The company also recently opened a new five-star hotel in Mumbai with 300 rooms, expecting an average room rate (ARR) of Rs 9,000–11,000 and approximately Rs 120 crore in revenue at an 80% occupancy rate.

Agarwal and Shah expect a 16.3% revenue CAGR over FY25-26, driven by a 5% ARR growth from improved occupancy, over 1,200 new rooms, increased food & beverages income, and higher in-resort spending.

3. Kalpataru Projects International:

Emkay reiterates its ‘Buy’ rating on Kalpataru Projects International (KPIL), setting a target price of Rs 1,550, indicating a potential upside of 15.9%. This construction and engineering company reported a 19.1% YoY decline in net profit to Rs 93 crore in Q1FY25, while revenue grew by 8.2% YoY to Rs 4,609 crore.

Analysts Ashwani Sharma and Chinmay Kabra noted that KPIL’s order inflow for the year stands at Rs 7,000 crore, down 5% YoY due to a higher base, despite strong growth in the power transmission & distribution (T&D) and water segments. The company has a robust order backlog of Rs 57,100 crore, with FY25 order inflow guidance set at Rs 23,000 crore.

A key positive for KPIL is its recent arbitration win against the National Highways Authority of India (NHAI) for two road projects. The company is also progressing with the divestment of Vindhyachal Expressway and Indore Real Estate, and expects to  generate Rs 550 crore  in cash flow from these two assets by FY25.

Sharma and Kabra project a 20% CAGR in revenue, 27% in EBITDA, and 38% in PAT over FY 25-27. The company’s strong order book and favorable industry conditions support a one-year forward PE ratio of 20 times.

4. Mankind Pharma:

Motilal Oswal maintains a ‘Buy’ rating on this pharmaceutical company with a target price of Rs 2,760, indicating a 13.7% upside. Analyst Tushar Manudhane notes that Mankind is focused on launching innovative products in the high-barrier chronic and consumer segments. The recent launch of Nimulid, a consumer wellness product, generated Rs 13.3 crore in revenue for FY24. Additionally, the company is expanding its presence in Tier I and metro cities through hospital partnerships.

Mankind’s acquisition of Bharat Serums and Vaccines (BSV) has enhanced its R&D, manufacturing, and institutional capabilities while gaining access to a specialty portfolio and a new distribution channel. BSV’s strong presence in women’s healthcare includes unique drugs with no direct competitors.

Manudhane is upbeat about Mankind’s expansion into new sectors such as pet food, agritech, and ayurveda (following the acquisition of Upakarma). He anticipates a 14% CAGR in earnings and a 180 bps margin expansion over FY25-26, driven by increased footprint in metro and Tier-I cities and expanding the number of brands in the Rs 50-100 crore range.

5. EFC:

Khambatta Securities gives a ‘Buy’ rating to small cap company EFC, setting a target price of Rs 863, which suggests a potential upside of 72.3%.This realty firm reported a net profit increase of 190.5% YoY to Rs 15.1 crore in Q1FY25 and its revenue grew 84.6% YoY to Rs 105.3 crore during the quarter. The company is in a PE buy zone.

The analyst notes that flexible office spaces have transformed India's commercial real estate sector, doubling from 29.3 million sq ft (MSF) in 2019 to 61 MSF in 2023, making it the fastest-growing market.The sector is projected to reach 126 MSF by 2028, absorbing over 40 MSF annually as companies return to office. EFC has established a strong market presence, delivering projects for major clients including Conneqt and Tech Mahindra, and securing its largest contract with Coforge to develop 100,000 square feet of commercial space.

The analyst expects revenue to grow at an annualized average rate of 77% over the next few years while forecasting a PAT CAGR of 105%, driven by profitability gains and adds that at a FY26 forward PE of 11.2 times, the EFC stock looks attractive.

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

(You can find all analyst picks here)