1. NMDC:
This iron ore producer rose by 15.9% in the past week and hit its 52-week high of Rs 145.6 on Friday. The spike follows the announcement of a 37.5% YoY increase in its August 2023 production to 3.4 million tonnes (MT). Its sales has also improved by 25.1% YoY to 3.5 MT. In Q1FY24, NMDC reported a 14.6% YoY rise in net profit to Rs 1,652.2 crore, beating Trendlyne Forecaster’s estimate by 7.4%. Its revenue grew by 15.8% YoY.
In August, NMDC had to decrease the price of lump ore and fines by Rs 300 per tonne to Rs 4,650 per tonne and Rs 3,910 per tonne, respectively, due to pricing pressure. China’s iron ore prices also dropped by 29.4% YoY from April 2023 to July 2023. Chairman and Managing Director Amitava Mukherjee says, “Prices have bottomed out and are expected to go up.” He believes that the rising volumes will compensate for the loss of pricing leverage.
NMDC expects to clock higher production and sales on a YoY basis in Q2, and due to lingering inventory on its book, it also expects dispatches to surpass production. The management has guided iron ore production to be around 49 MT in FY24 and 50 MT in FY25.
The company has planned a capex of Rs 2,000 crore in FY24, with Rs 610 crore already incurred. It also plans to incur incremental capex to increase the total capacity to 100 MT. Achieving this would require an annual capex of Rs 5,000 crore. NMDC is also poised to start gold mining in Australia by next month, subject to approval.
Sharekhan maintains a ‘Buy’ call on NMDC on the back of strong domestic demand and rising volumes. The brokerage says these would be the key growth drivers over FY24-25. The company also appears in a screener for stocks with target price upgrades by brokers.
2. Nazara Technologies
This gaming & esports company has risen by 12.8% over the past week till Friday, as its board approved raising nearly Rs 510 crore through a preferential allotment of equity shares.
On September 4, the firm announced a plan to raise Rs 100 crore by issuing just over 14 lakh shares to Kamath Associates and NKSquared, at a share price of Rs 714. These two entities are represented by the co-founders of Zerodha, Nikhil and Nithin Kamath. Then on September 7, it announced that its board approved raising Rs 410 crore from SBI Mutual Fund by issuing 57.2 lakh shares, again at a price of Rs 714 per share. The stock shows up in a screener for companies in the PE ‘Buy’ zone with high durability and rising momentum scores.
The management has stated that these funds will be utilised towards capital requirements and growth objectives, which will include acquisitions and investments in other companies. The fresh capital will largely be used for the company’s inorganic expansion plans.
The street seems to be largely optimistic about the firm’s prospects, despite a mixed performance in Q1FY24. Its revenue fell by 12.1% QoQ to Rs 254.4 crore due to a sharp drop in the gaming segment. However, its net profit rose by nearly 7.5X QoQ, led by a drop in web-server expenses.
ICICI Securities believes the company will recover from Q2FY24 onwards, driven by healthy growth in the esports and gaming segments, led by subscriber additions and price increases. According to Trendlyne’s Forecaster, the consensus recommendation on the stock from 10 analysts is ‘Buy’.
3. Bharat Heavy Electricals
This heavy electrical equipment manufacturer has risen by 19.8% over the past week till Friday, driven by expectations of healthy growth. This positive outlook comes on the back of a robust inflow of orders across segments such as transmission, power, defence and railways. On September 4, the company won an order to design and commission the electro-mechanical package for the 2,880 MW hydropower Dibang Multipurpose Project in Arunachal Pradesh. It won three major power projects in August, two from NTPC (one of them valued at Rs 2,241.9 crore) and another contract from Mahan Energen worth Rs 4,000 crore.
Along with the strong order inflows, BHEL’s diversification efforts are starting to bear fruit. In a consortium with Titagarh Wagons, it won a project worth Rs 24,000 crore to build, supply and maintain 80 Vande Bharat train sets by 2029 and service them for 35 years. The company’s share in the order is estimated at Rs 15,000 crore. It also expects defence order inflows to rise in the coming quarters.
According to reports, orders from non-power sectors are expected to make up 30% of the firm’s order book by FY26. The stock also shows up in a screener for companies with improving cash flows and high durability scores.
Overall, BHEL seems to be well-positioned to capitalise on India’s growing energy needs and the Centre’s increased focus on railways, defence indigenisation, and infrastructure. According to Trendlyne’s Forecaster, the company’s annual revenue and net profit are projected to rise by 13.6% YoY and 50.7% YoY, respectively, in FY24.
4. Coal India
This coal producer has risen by 22.6% over the past week till Friday, outperforming the Nifty 50 by 19.7%. This comes after it reported healthy production and sales figures in August. Over the past quarter, the company’s share price rose by 22.3%, outperforming the index by 16.5%. Due to the sharp rise in price, it features in a screener of stocks with strong momentum.
Coal India’s production increased by 13.2% YoY to 52.3 million tonnes (MT) in August. The company’s total coal supplies to all consuming sectors (which include the power, cement, and steel sectors) increased by 15.3% to 59 MT. Its supplies to the power sector (1.5 MT per day) also exceeded the committed quantity of 1.4 MT per day.
In addition to the healthy business update, a positive outlook from analysts helped the rise in share price. Analysts anticipate an increase in thermal coal demand in the future, as thermal power generation picks up to meet increasing power demand. In the coming months, power demand, which has been on the rise since July due to unseasonal rains, is expected to remain elevated.
Following the company’s encouraging business update, ICICI Securities maintains its ‘Buy’ rating with an unchanged target price of Rs 285. The brokerage believes that its FY24E sales volume estimate of 741mt (up 6.5% YoY) will likely be achieved, as the company has already delivered 7.5% YoY growth in offtake YTD in August.
5. Persistent Systems:
This IT consulting & software company has risen by 22.3% in the past month, driven by its initiatives in the Generative AI segment. The firmannounced a partnership with Google Cloud to launch the Generative AI suite. This partnership is expected to enhance Persistent Systems' capabilities in data modernization and facilitate the expansion of its business operations for clients. It has also joined hands with Amazon Web Services (Code Whisperer) to train more than 16,000 employees in developing AI technology for clients. Persistent Systems expects the AI segment to contribute significantly to the revenue stream in the next three quarters.
The firm's Q1FY24 revenue improved by 23.6% YoY to Rs 2,321 crore on the back of strong deal wins and growth in the Hi-Tech (product engineering) segment. However, healthcare clients are cutting down on discretionary spending. The firm currently has a total contract value (TCV) of $380 million and an annual contract value (ACV) of $272 million. The stock shows up in a screener for companies with net profits increasing sequentially for the past four quarters.
The firm’s EBIT margin has declined by 162 bps YoY to 16.13% due to higher H1-B visa filing costs and wage hikes. Meanwhile, its attrition rates dropped to a two-year low of 15.5%, while the utilisation rate increased by 103 bps QoQ to 78.3%. The firm plans to add another 800 employees in the next two quarters. During the recent quarter, the company opened four new offices in Tier 1 cities like Ahmedabad, Gurugram, Jaipur and Noida.
The management has given a revenue guidance of 4% QoQ growth. However, the expected wage hike in Q2FY24 is likely to impact margins by 200 bps, which will be partly offset by higher utilisation, improvement in the offshore-onshore mix and a lower attrition rate.
According to KR Choksey, the company’s book-to-bill ratio of 1.3 and its healthy order wins provide good visibility for revenue growth. The company's diversification into new verticals like cyber security, artificial intelligence, and consumer technology will also help revenue growth. The brokerage maintains a ‘Buy’ rating on the firm.
Trendlyne's analysts identify stocks that are seeing interesting price movements, analyst calls, or new developments. These are not buy recommendations.
