1. Bharat Electronics:
This defence stock rose by 1.2% in the past week outperforming the Nifty 50, as it won orders worth Rs 1,940.4 crore from the Indian Navy. The first order for the supply of communication and electronic warfare sensors is worth Rs 847.7 crore, while the second order for the supply of line-replaceable units is worth Rs 1,092.7 crore. The company also announced a second interim dividend worth Rs 0.7 per equity share for FY24.
The company’s YTD FY24 order inflow stands at Rs 32,716.3 crore (compared to Rs 20,000 crore in FY23). The total current order book is to be around Rs 73,500 crore. According to the management, execution for most projects will occur between three to four years.
Bharat Electronics manufactures specialised electronics for the Indian defence industry. It is engaged in the development of new products, technology modules, subsystems and components. It is well-positioned to capture growth opportunities in Indian defence and space electronics, as analysts expect this space to grow at 13-14% CAGR over FY24-27. Trendlyne’s Forecaster estimates profit to grow by 8% YoY in Q4FY24 while revenue improves by 28% YoY.
Bharat Electronics currently generates around 90% of its revenue from the defence sector, supplying products to the Indian Government, while the non-defence segment contributes only around 9%. However, ICICI Direct recommends a ‘Buy’ call as it believes that the company’s strategy to diversify into the non-defence segment and increase exports & services will aid growth and de-risk its business. The brokerage also expects revenue and profit to grow at a CAGR of 14.3% & 17.6% respectively over FY24-26. The company appears in a screener for stocks with price or recommendation upgrades by brokers in the past month.
2. Swan Energy:
This realty stock has had a topsy-turvy week. It plunged by 23.8% in the two weeks ending March 15 after IFFCO (Indian Farmers Fertiliser Cooperative Limited - A government-owned fertilizer producer) moved the National Company Law Tribunal (NCLT) against the company and their joint venture (JV), Triumph Offshore. It asked the tribunal to restrain their JV firm from passing any resolution without its approval and issuing any shares to lenders against loans.
IFFCO owns 49% of the JV (Triumph Offshore), while Swan Energy is the majority stakeholder with a 51% stake. The JV’s board consists of three nominees from Swan, two from IFFCO and two independent directors. IFFCO alleges that the JV signed an agreement with a consortium of banks to secure a term loan of Rs 1,604 crore by mortgaging the entire share capital of IFFCO.
However, the stock recovered to rise by 27.7% over the past week after the NCLT denied interim relief to IFFCO and directed the JV to hold a board meeting before April 4 to discuss issues raised by the minority shareholder. The minority holder also alleged that the JV is pre-paying debt which could result in dilution of IFFCO’s shareholding in Triumph.
On March 1, the company raised Rs. 3,000 crore through a qualified institutional placement (QIP). The issue price of the QIP was set at Rs. 670 per share. The funds raised through the QIP will be used for the modernisation of the recently acquired Reliance Naval and Engineering shipyard at Pipavav. Additionally, a portion of the funds will be allocated for project expansion and debt reduction.
After securing these funds, the company’s subsidiary, Swan LNG, prepaid a loan of Rs 2,206 crore along with interest to a consortium of banks on March 2. The company’s subsidiary Veritas also won an order worth Rs 155.9 crore in a consortium with Genesys International Corp from the Brihanmumbai Municipal Corporation (BMC).
3. Sun Pharmaceuticals:
This pharmaceutical company is nearing its all-time highs following approval from the Australian Therapeutic Goods Administration for Winlevi, which is used to treat acne in people aged 12 and above. With approval from the Australian health authority, Sun Pharma will have the exclusive rights to sell the product in the country starting Q1FY25.
Sun Pharma’s global specialty segment sales, constituting 19.2% of overall sales, will get a boost from the recent additional marketing approval for Winlevi. According to Statista, the skin treatment market in Australia and Oceania is expected to grow at 6.0% CAGR during FY24-28, reaching USD 610 million.
However, due to deviations in manufacturing practices norms, the drug manufacturer had to recall 55,000 bottles of generic medication for treating gout from the American market. The US FDA stated that microbial contamination was reported in stagnant water in the duct of the manufacturing equipment. The affected lot was produced at Sun Pharma's Dadra-based plant.
Trendlyne’s Forecaster estimates that the company’s annual net profit growth will be 9% in FY24 compared to FY23. It estimates revenues in FY24 to grow by 9.9%.
Managing Director Dilip Shanghvi plans to increase the company's R&D spending to USD 1 billion in the next three to five years. The company aims to raise its R&D spend from the current 7% of revenues, to 9%. The company spends 40% of its overall R&D budget to develop new products. Shanghvi noted that while the R&D amount will increase, the percentage spent on new products will continue to be the same.
KR Choksey maintains a 'Buy' rating on Sun Pharma, and expects that global specialty sales will receive a lift from the addition of Australian marketing rights. Consequently, they have raised the company's sales and net income estimates to a CAGR of 10.9% and 16.0%, respectively, up from the previous estimates of 10.6% and 15.3%. With a target price of Rs 1,827, the stock has a potential upside of 13.6%.
4. Cochin Shipyard:
This marine ports & services company has risen by 12.2% in the past week. The company recently launched its first indigenously developed hydrogen fuel cell ferry, and has also started work on its Sea Shuttle zero emission container project, which is being built for Samskip, a Netherlands logistics firm.
Trendlyne’s Forecaster estimates profits to decline by 13.5% YoY due to high working capital requirements in Q4FY24, while revenue is expected to improve by 49% YoY. The firm beat Trendlyne Forecaster estimates for Q3FY24 for net profit by 86.1% and for revenue by 11.8% thanks to growth in its ship building and ship repair segments.
Cochin Shipyard’s current orderbook stands at Rs 21,500 crore in ship-building, with above Rs 800 crore worth of contracts in the ship-repair segment. The company's capabilities have improved after the establishment of its new dry dock facility and International Ship Repair Facility (ISRF). It plans to add four more workstations, which are expected to be completed by mid-2024.
Cochin Shipyard’s total export orders stand at around Rs 2,688 crore and it is also seeing strong demand from various types of vessels plying within Europe, as an estimated 2,500 vessels are scheduled to be replaced with green vessels.
Madhu S Nair, Chairman and MD of the firm, said, “We would exceed our all-time best gross revenue turnover targets. And for FY25, we will try to raise it by 12-15% on top of that. EBITDA margin would be around 18-19% for FY25.”
ICICI Direct recommends a ‘Buy’ on Cochin Shipyard with a target price of Rs 1,055. They say “We expect CSL to witness significant YoY growth in revenues & profitability over FY24-26E, led by execution pick-up in both segments and increasing share of the margin accretive ship-repair segment. We estimate revenue and PAT to grow at around 23% & 36% CAGR respectively over FY23-26E as against the de-growth seen over FY20-23.”
5. Avenue Supermarts (DMart):
This billionaire-owned discount hypermarket chain touched a fresh 52 week high today, and rose 6.9% over the past week. On Thursday, CLSA initiated a buy call on the Damani-owned company with a target price of Rs. 5,107, implying an upside of 18.8%. This is the highest target in the consensus – the average target from analysts on DMart according to Trendlyne Forecaster is Rs. 4,108.
DMart opened 17 new stores in 9MFY24 and 90 stores in the last two years to hit a total of 341, and its management has highlighted a focus on rural areas and new states in its ongoing expansion. CLSA expects these new store additions to ramp up considerably and triple in the next ten years (by FY34), as the chain builds up its network to a store to population density ratio like Walmart in the US.
With only 5% of DMart’s addressable Indian market in the organized sector, the half a billion dollar opportunity here is a large pie. Analysts argue that D-Mart has a better than even chance of winning a significant market share here, since it offers the lowest prices on its range of food, FMCG, general merchandise and apparel products.
The company also recently appointed former SEBI chief Chandrashekhar Bhave as chairman of the company's board. Bhave, who has previously been on the boards of Tejas Networks and M&M Financial Services, will take over on April 1.
For investors, DMart may be in a sweet spot currently in its valuation – it is in the PE Buy/Neutral Zone. The stock had seen consecutive monthly declines between July and October 2023, pulling it into a more affordable PE range compared to its historical trend. However even at this lower level, its PE stands at 107, which is above the industry average.
Trendlyne's analysts identify stocks that are seeing interesting price movements, analyst calls, or new developments. These are not buy recommendations.
