The Baseline    
23 May 2022, 03:27PM
Five analyst stock picks this week
  1. State Bank of India: LKP Securities maintains a ‘Buy’ rating on this public sector bank’s stock with a target price of Rs 565, indicating an upside of 22.7%. Analyst Ajit Kumar Kabi believes the bank delivered stable results led by a rise in operational revenue and improved asset quality. Kabi believes that profit growth in Q4FY22 was led by a 15.3% YoY growth in NII (net interest income), along with steady operating expenses. Kabi says “the bank witnessed better than expected advance growth (11.6% YoY & 6% QoQ) led by wholesale credit growth, and stable deposit growth (10% YoY & 5.3% QoQ) sequentially.”

The bank’s asset quality will continue to improve in the coming quarters on the back of higher upgrades and recoveries, Kabi said Furthermore, he expects the bank’s profitability to improve in the coming quarters on the back of credit growth, normalisation of credit costs, and improving operational performance.

  1. Kajaria Ceramics: HDFC Securities maintains a ‘Buy’ call on this tile maker’s stock but reduced its target price by Rs 30 to Rs 1,420, indicating an upside of 35.6%. “We continue to like Kajaria Ceramics for its market share gain and superior margin in the tiles segment (function of its robust distribution and cost controls) and its fast expansion in the bath ware and ply businesses,” say analysts Rajesh Ravi and Keshav Lahoti. In Q4FY22, the company’s consolidated revenue grew 15.7% YoY to Rs 1,101.8 crore but profit and EBITDA fell by 24.7% YoY and 13% YoY to Rs 95.8 crore and Rs 165.9 crore, respectively. The analysts believe that the fall in EBITDA was due to higher gas prices.

According to the analysts, the company expects volume and revenue to increase by 15-20% and 20-25% YoY respectively for FY23. The analysts also expect India’s tiles export to increase by 35% YoY as sharp spikes in gas and electricity prices in European countries have increased the competitiveness of Indian tile makers. The company “has expanded its tiles capacity by 17% in April-May 2022, bolstering its volume growth and market share gain,” the analysts said.

  1. Vinati Organics: Edelweiss reaffirmed its ‘Buy’ rating on this specialty chemical maker’s stock and increased its target price to Rs 2,300 from Rs 2,250. This indicates an upside of 11.6%. “Vinati Organics’ Q4FY22 earnings beat our expectation, with strong growth in top line primarily on account of increased volume in key products aided by market share gains for some products,” says analyst Anshul Verdia. In Q4FY22, the company’s profit grew 43% YoY to Rs 101 crore and revenue grew 74% YoY to Rs 486 crore. 

Verdia believes that “a strong capex pipeline over the next two years indicates significant revenue generation opportunity for Vinati Organics, underpinning its aim to achieve Rs 3,000 crore in top line over the next two to three years.” He expects the company to achieve a 26% CAGR in revenue over FY22–24 on the back of increased penetration of the butyl-phenol market, robust volume growth in Acrylamide tertiary-butyl sulfonic acid and the Isobutyl Benzene business, and strong demand.

  1. Abbott India: Axis Securities maintains a ‘Buy’ call on this pharmaceutical company’s stock with a target price of Rs 20,000. This indicates an upside of 12.6%. “Abbott India reported revenue growth of 14.9% (YoY) in Q4FY22, outpacing the IPM (Indian pharma market) growth of 3.9%,” says analyst Ankush Mahajan. He adds that the revenue growth, “was majorly driven by sales improvement in key therapies such as gastrointestinal (+18.3% YoY) and hormones(+5.0% YoY).” 

The company reported a profit of Rs 212 crore, up 38.7% YoY, and EBITDA margins improved by 465 bps YoY to 23.4%. Mahajan expects stable sales of the Duphaston brand and an increase in volume in the Thyronorm brand to help deliver revenue and profit CAGR of 11.1% and 1.3% over FY21-24. The analyst believes that revenue growth in the branded business will improve overall profitability.

  1. Century Plyboards (India): BOB Capital Markets upgrades its rating on this plywood manufacturer’s stock to ‘Buy’ from ‘Hold’ with a target price of Rs 735, indicating an upside of 37.8%. Analyst Ruchitaa Maheshwari says the company’s “long-term growth story remains intact given its strong fundamentals, impressive return ratios and healthy balance sheet”. She upgraded her rating to an attractive valuation after a 30% correction.

The company’s growth momentum will sustain over the near-to-medium term, supported by the plywood and laminates segments, Maheshwari said she expects these segments to grow due to a pick-up in the housing sector alongside a gradual demand shift from unorganised to organised players. Maheshwari also expects better margins in the medium-density fibreboard (MDF) segment amid buoyant demand for ready-made furniture and exports. Overall, she believes the company’s EBITDA margin will expand backed by a higher MDF contribution, superior product mix, operating leverage and cost rationalisation. 

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

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The Baseline    
20 May 2022
Five Interesting Stocks Today
  1. Chennai Petroleum Corporation:This refinery companyoutperformed the Nifty 50 index by a whopping 88% in the past month, and by 22% in the past week. Moreover, last month, Superstar investor Dolly Khanna bought 10 lakh shares or 0.7% stake in this company worth Rs 26.3 crore. Even FIIs steadily increased their holdings in the company to 3.37% in Q4FY22 from 1.33% in Q2FY22. So, what exactly fueled the recent rally for this oil refining company?

Chennai Petroleum Corp saw a 4.3X jump in its Q4 net profits at Rs 994.4 crore driven by an 88% YoY rise in its revenues at Rs 16,427 crore. This company is a pure-play crude oil refining company and is not involved in marketing of downstream petroleum products. While its refining throughput rose by 10% YoY to 2.91 million metric tonne in Q4FY22, a 2.2X jump in gross refining margins (GRMs) played the real magic. Average GRMs rose to $14.18/bbl from $6.4/bbl in Q4FY21. Notably, Singapore GRMs were trading at $7.8/bbl levels in Q4FY22. In fact, it rose to $17/bbl levels in April backed by robust demand for refined petroleum products and supply constraints. According to Moody’s, global sanctions on Russia led to higher offtake of Asian fuels as European countries sought other alternatives. Additionally, supply fell owing to lower exports from China and due to significant refinery closures. According to the International Energy Agency, crude oil throughput in April 2022 fell by 1.4 metric barrels/day to 78 metric barrels/day, lowest since May 2021.

Interestingly, every dollar of GRM expansion can potentially add Rs 700-800 crore to the topline of an oil refining company. Hence, amid a tight supply situation, GRMs will stay buoyant and lead to oil refineries earning windfall gains at least in Q1FY23.

  1. Lupin: This pharmaceutical company’s stock fell over 7% on Thursday after it announced its Q4FY22 results. Lupin posted a loss of Rs 518 crore in Q4FY22 against a profit of Rs 460 crore in the same quarter previous year. However, revenues increased 2.8% YoY to Rs 3,864.5 crore in Q4FY22.

As the company is not consistent in posting profits, it shows up in the screener that lists stocks that are seeing big swings between profit and loss in quarterly results.

The drug-maker posted losses in Q4FY22 as its EBITDA margin fell by 13.1 percentage points YoY to 7.3% mainly due to an increase in raw material costs and manufacturing expenses. Raw material costs rose 23.9% YoY to Rs 1,317.6 crore and manufacturing expenses increased by 18.2% to Rs 1,117.8 crore. Also, an impairment expense on its acquisition of Gavis IP of Rs 130 crore and a rise in deferred taxes contributed to losses in Q4FY22.

High raw material and manufacturing costs come at a time when the US markets are already under pricing pressure amid intense competition. This is putting further pressure on margins. Lupin was affected more by this as it derives a majority (over 37%) of its revenues from the US markets. The company’s revenue from US markets fell 5.3% YoY to Rs 14,162. However, its revenue from India increased 5% YoY to Rs 13,511. But this seems lower when compared to its peers. Cipla’s and Dr Reddy’s revenue from the Indian market grew 25% and 15% YoY respectively in Q4FY22. In fact, Cipla outperforms Lupin in YoY and QoQ profit growth, price to earnings ratio, and foreign institutional investors or FII holding.

  1. Kotak Mahindra Bank: This bank’s stock outperformed the Nifty 500 index this week after it announced its Q4FY22 results. According to reports, Kotak Mahindra Bank recently made it to the top 10 most valuable companies, replacing Adani Green Energy at the tenth position. It is the fourth bank to enter the elite club after HDFC Bank, ICICI Bank, and State Bank of India. However, thanks to the bearish market, the stock fell more than 3% on the bourses on Thursday. The bank posted robust growth in net profit and maintained stable asset quality.

Net profit was up 64.5% YoY to Rs 2,767 crore with net interest income rising by 17.7% YoY to Rs 4,521 crore. Total advances for the bank also grew 21% YoY to Rs 2.7 lakh crore as businesses picked up pace after the third wave of Covid. Among the loan segments, the corporate loan demand is expected to increase. The management also plans to increase capex in this segment to meet rising demand. Also, the management thinks that an increase in repo rates by the Reserve Bank of India will not hamper credit growth.

Operating expenses increased 26.1% YoY to Rs 3,007.8 crore keeping the operating profit growth flat at 1.2% YoY to Rs 3,340 crore. The increase in expenses is because of the rise in spending on digital and promotional expenses. The management plans to  continue its growth plans even if costs run high in the near term.

  1. Aditya Birla Capital: This Aditya Birla Group’s holding company’s stock tanked 5% on Monday because of reports of a whistleblower accusing the former CEO of the Aditya Birla Group Ajay Srinivasan of insider trading. This shook investors confidence as it is similar to allegations made for fund managers who were sacked at Axis Mutual Fund. The company, however, denied the allegations against Srinivasan of insider trading and frontrunning in stocks at Aditya Birla Sun Life AMC (mutual fund arm of Aditya Birla). The management asked Srinivasan to step down as the CEO, according to the BSE filing dated April 23, 2022, as the company says that it is looking to settle him into a new role. The management explicitly maintains its stance that this is in no way related to the allegations made against him, according to reports. Vishakha Muley will replace him as the CEO of Aditya Birla Capital starting from June 1, 2022.

According to reports, the Securities and Exchange Board of India (SEBI) is investigating both Aditya Birla Capital and Aditya Birla Sun Life AMC for the alleged wrongdoings.

  1. Indraprastha Gas: This city gas distributor’s stock plunged 6% in trade on Thursday, despite its Q4FY22 net profit rising 14.9% YoY to Rs 430.9 crore to beat Trendlyne’s Forecaster estimates by 8.4%. The company also showed up on this screener which lists companies that saw their net profit rising QoQ and YoY in Q4FY22. However, it looks like the company’s robust performance led by rise in sales volume and price hikes were not enough to escape the bearish sentiment in the market.

In the last 6 months the price of CNG for automobiles has been hiked 40.6% to Rs 73.61 per kg in the Delhi-NCR region, with the latest price hike coming in on Monday. The Managing Director of Indraprastha Gas expects gas prices to remain high for the coming quarters due to geopolitical tensions and supply constraints.

Furthermore, the government’s amendment to its gas allocation policy to city gas distributors (CGD), which makes GAIL (Gas Authority of India) responsible for providing gas to CGDs and gas prices will be uniform for all CGDs. With the amendment in place, domestic gas supply to CGDs will increase every quarter instead of every six months. The management expects this amendment to improve domestic gas supply and decrease raw material costs for the company. It will also lead to a reduction in sourcing of gas from the international spot market. This amendment took effect from May 16, 2022.

The management expects the volumes of CNG to rise 20%, driven by robust demand for CNG vehicles in FY23. It also expects to keep its margins stable through price hikes in the coming quarters.

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

The Baseline    
18 May 2022
Warning in key indicator as India's equity market cap soars past GDP

In Shakespeare's Romeo and Juliet, a character warns the hero, "These violent delights have violent ends." Go slow, he tells Romeo.

Like Romeo, the stock market may have moved too fast, especially when we compare it to India's real GDP growth. For the first time, India's total stock market capitalization (BSE) is at a record 165% of India's estimated real GDP for FY22. Pre-Covid, it was 108% of real GDP.

This value (total market cap to GDP) is commonly known as the Buffett indicator - Warren Buffett once said that it is “probably the best single measure of where valuations stand at any given moment.” This helps us compare stock market sentiment against actual economic output - telling us when there is a mismatch in investor expectation and reality. 

The high level of this indicator right now is a signal to investors to be very cautious about adding more money to equities, especially in the riskier smallcap and midcap stocks, and overvalued stocks. Especially with CEOs across industries talking about rising costs impacting their margins in earnings calls. Achal Bakeri of Symphony puts this well:

"We cannot keep on repeating price increases over and over again. We have not been able to keep passing this. Even in the month of April, there were cost increases - commodity cost increases or basic raw material increases. You cannot just keep on changing your prices frequently in business like ours which is a consumer business. So we have absorbed quite a bit of cost increases."

As the RBI raises interest rates and liquidity shrinks, companies will have to battle both costs as well as the rising price of debt. This is likely to impact valuations further. 


Plenty of Nifty500 stocks in the PE Sell Zone

Investors can check which stocks are in the PE Sell Zone (stocks that usually trade below their current PE most of the time). Even after the recent correction, 115 stocks in the Nifty500 are still in the PE Sell Zone, including Infosys, Adani Enterprises, Asian Paints and Bandhan Bank. 


Results show some sectors turning wobbly

The Results Dashboard tracks results as they come in, and the Q4 results are illuminating. Some sectors beaten down by the pandemic are finally delivering strong results - Hotels are seeing profit margins jump by double digits, Specialty Retail including PVR and Inox are seeing net profit recovery.

Agrochemicals has so far also delivered a good quarter, although rising costs have put margins under pressure - this sector has limited capability of passing on costs to farmers, especially in India's price-sensitive rural market. 

But over 50% of results declared so far have shown negative profit growth. 

Sectors that have been weak include auto as well as the tyre industry, which are reeling under both demand and cost pressures. 


Interesting reads

HDFC Life, despite the challenges of FY22 has closed the year on a high, showing rising premiums and improving metrics.

UPL delivered a strong set of results. But price hikes played a big part in this, as the company deals with rising costs.   

FMCG bellweather HUL managed a difficult quarter well. But like others it has been hit by cost pressures. Does this threaten margins?

The Baseline    
16 May 2022
Five analyst stock picks this week
  1. Dalmia Bharat: Motilal Oswal maintains a ‘Buy’ rating on this cement company but cut its target price to Rs 1,915 from Rs 2,000, indicating an upside of 34.6%. Analysts Sanjeev Kumar Singh and Mudit Agarwal cut their target price as they expect high energy costs and freight costs to persist. However, the analysts “like the company owing to its growth plans, a locational advantage in East India and cost reduction measures”. Revenue rose 7% YoY to Rs 3,380 crore driven by improvements in realisations and sales volume and realisation improved 4% YoY to Rs 5,121 per tonne, as cement prices increased during Q4FY22. 

The analysts expect demand for cement to grow at 8-9% over the next few years, driven by higher Infrastructure spending, low-cost housing and rural demand. They believe the company is well-placed to benefit from the rise in demand given its focus on capacity expansion and cost-efficiency measures. They expect the company’s operating revenue to grow at a 10.9% CAGR over FY22-24.

  1. Polycab India: BOB Capital Markets maintains a ‘Buy’ rating on this cable and fast moving electrical goods maker with a target price of Rs 3,000, indicating an upside of 16.5%. Analysts Vinod Chari, Someel Shah, and Tanay Rasal remain positive about the company’s prospects given its robust Q4FY22 results, market leadership in cables and wires, and distribution presence. The company’s Q4FY22 net profit rose 20% YoY to Rs 320 crore and revenue rose 35% YoY to Rs 3,943.7 crore led by growth across the cables and wires segments.

The analysts say that “being the market leader in cables and wires, we expect Polycab to not only pass on the higher raw material cost but also to gain market share given its superior product quality”. The company commands 22-24% market share in the organised market and 15-16% share in the fragmented market in India The brokerage take is that the ongoing revival in infrastructure and construction activities to benefit the cable and wire industry, especially organised market leaders like Polycab. The analysts expect the company’s revenue to grow at a 15.1% CAGR over FY22-24.

  1. Federal Bank: Axis Securities maintains a ‘Buy’ rating on this bank stock but reduced its target price to Rs 115 from Rs 125. The new target price indicates an upside of 35.2%. “Federal Bank reported a muted Q4FY22 with operational performance below our expectations,” says analyst Dnyanada Vaidya. In Q4FY22, Net Interest Income grew by 7% YoY to Rs 1,525 crore which was below the brokerage’s estimate of Rs 1,595 crore, he added  Vaidya says that lower than expected provisions for NPAs supported profit growth. Provisions were down 69% YoY to Rs 75 crore which led to profit rising 13% YoY to Rs 541 crore, he said. 

Vaidya adds that the bank “has been taking a cautious approach in building the loan mix toward high-rated corporates and retail loans. The bank’s liability franchise remains strong with CASA plus Retail TD of 92% and the bank looking to improve its CASA deposits gradually over the medium term.” He expects that the bank’s focus on high-margin businesses such as microfinance institutions and credit cards will gradually aid in margin improvement.

  1. SRF: Edelweiss maintains its ‘Buy’ call on this chemical company’s stock and increased its target price to Rs 2,800 from Rs 2,700, indicating an upside of 24.9%. “SRF Ltd posted a strong beat on the top line and bottom line, underpinned by highest ever operating performance in Chemicals Business,” says analyst Anshul Verdia. In Q4FY22 the company’s consolidated revenue grew 36% YoY to Rs 3,549 crore, higher than the brokerage’s estimate. According to Verdia, the positive growth in the chemicals business was driven by the strong demand across the markets and new capacity addition in Hungary and Thailand.

Verdia expects refrigerant gas prices to remain firm. He also expects the demand for specialty chemicals to continue to remain strong and packaging segment volumes to be driven by upcoming biaxially oriented polypropylene and aluminum foil capacity. Lastly, the brokerage remains positive as the company has also planned capex of about Rs 2,600 crore for FY23.

  1. Hindalco Industries: ICICI Securities maintains its ‘Buy’ rating on this aluminium miner's stock with a target price of Rs 700, indicating an upside of 78.8%. Analysts Abhijit Mitra, Mohit Lohia, and Pritish Urumkar say that “progressively higher contract prices across product segments are also leading to an improved margin outlook in the medium term”. They expect the demand for beverage cans and automobiles to grow 5% YoY and 10% YoY in CY22, respectively. They believe the company is well-placed to benefit from the rise in demand given its capacity expansion and healthy balance sheet.

The analysts expect the $2.5-billion greenfield investment in Alabama to improve EBITDA margins and reduce manpower costs by 30% through automation in the coming years. Furthermore, they see limited earning tailwinds from Novelis and expect its earnings to continue to benefit from cyclicality in FY23. The key risks for the company are lower aluminium prices, lower profitability at Novelis, and a reduction in LME spreads, according to the analysts.

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

3 Comments
anil963 Besides top picks also data be given for the last picks how many of them have clicked
16 May 2022
16 May 2022
The Baseline    
13 May 2022
Five Interesting Stocks Today
  1. Cipla: This pharmaceutical company’s stock rose 3% intra-day after it announced its Q4FY22 results on Wednesday despite its net profit declining 12.4% YoY to Rs 362.1 crore. This stock also shows up on the screener identifying companies that announced results in the past week with declining net profit YoY or QoQ. The screener includes 37 more companies from the Nifty 500 index.

The net profit fell due to a one-time write-off of Covid-19 drugs inventory worth Rs 200 crore. Revenue grew 14.1% YoY to Rs 5,324.4, led by the One India and US business growing at 21% YoY and 17% YoY, respectively. The One India business growth is led by improved traction across segments, trade generics, and consumer health business. The US business posted its highest ever sales of $160 million (Rs 1,239.1 crore) while continuing to gain market share, driven by its respiratory portfolio and peptide assets. It continued its market-beating growth rate in large branded generic franchises in India & South Africa.

The management expects complex product launches to drive EBITDA margin growth in the coming quarters and has guided for an EBITDA margin of 21-22% in FY23. The company also reduced its debt by 53% YoY to Rs 824 crore in Q4FY22 to maintain a strong balance sheet and drive free cash flow generation. 

Brokerages like Axis Securities, ICICI Direct, and Prabhudas Lilladhar maintain a ‘Buy’ rating on the company. They remain positive about its prospects given its strong traction in the branded generic segment and respiratory portfolio, rich US business order pipeline, and healthy free cash flow generation. Motilal Oswal maintains a ‘Neutral’ rating on the company due to concerns regarding higher procurement and logistic costs.

  1. PVR: This multiplex company’s stock is falling since April 2022. It recovered slightly after it declared its Q4FY22 results on May 09, 2022, but that did not enthuse investors. Net loss narrowed to Rs 105.4 crore from Rs 289.1 crore YoY. However, the losses sequentially increased by 9.4X. This company also shows up in the screener including stocks that announced results in the past week with declining net profit YoY or QoQ. 

Losses increased because of the third wave of Covid-19 as the government imposed capacity restrictions. Also, the lack of new content and a rise in movie releases on OTT platforms affected the multiplex industry in Q4FY22. However, March saw gradual improvement in occupancies and the release of strong content. This bodes well for growth in FY23.

The management believes the business will recover in FY23. Motilal Oswal also expects business to normalize with a 57% growth in EBITDA next year. This is because of PVR’s plans to add 126 more screens in FY23. Its expansion plans extend to increasing the number of screens in Tier-2 and Tier-3 cities. However, the brokerage continues to maintain a ‘Neutral’ rating on the stock as it is cautious about the projected growth in the cinema space as subscribers on OTT platforms increase. ICICI Securities is more positive about the company’s prospects, expecting the average ticket price (ATP) to reset to pre-Covid levels by H2FY23. Although the brokerage believes that EBITDA loss is large because of lower advertising, the management is positive about stabilizing its advertising revenue by Q1FY23. March 2022 saw advertising revenue reach nearly 40% of pre-Covid levels. With the INOX-PVR merger likely to happen in the coming quarters, the company might see better growth and earnings over FY23-24.

  1. Voltas: This consumer electronics company’s stock fell over 22% in the past week post its Q4FY22 results. Its net profit fell 23.2% YoY to Rs 182.7 crore, missing Trendlyne’s Forecaster estimates by 17.6%. Lower revenues from electro-mechanical projects (EMPS) and a sharp decline in profitability of unitary cooling products (UCP) affected Voltas’ Q4FY22 results. While revenue from EMPS fell 21% YoY to Rs 691.5 crore, revenue from UCP rose 9.9% YoY to Rs 1,818 crore on the back of strong demand. But EBIT margin of unitary products fell 5.2 percentage points to 10.6% due to high raw material costs. 

Voltas earns around 69% of its revenues from the UCP segment, and is a market leader in room air conditioning (RAC) category. However, the company’s market share fell 200 bps to 23% in FY22. This is due to lower sales in South India, despite strong demand in the RAC segment due to early onset of summer in 2022. Its 9.9% growth in UCP revenues seems low when compared to its peers. Blue Star’s UCP revenue grew 32% YoY in Q4FY22 to Rs 1,034 crore whereas Havell’s Lloyd’s segment rose 62% to Rs 959.6 crore. 

The management said that it took price hikes in the range of 12-15% in FY22 and would consider further price hikes if the commodity prices stay elevated. However, with the company losing market share due to pricing pressure, increasing prices may reduce demand in its UCP segment. 

  1. Navin Fluorine International:This chemical company’s stock rose 4.1% since Monday after it announced itsQ4FY22 results on Saturday, despite its net profit marginally rising 0.5% YoY to Rs 75.2 crore. Its net profit missed Trendlyne’s Forecaster estimates by 8.7%. EBITDA margin declined by 238 bps YoY to 23% due to rising raw material prices, employee costs and logistics costs. However, its revenue rose 17.1% YoY to Rs 421.3 crore driven by an expanding order pipeline, price hikes, and new customer additions across all its business verticals. According to the management, growth was largely driven by the high-value business segment which is made up of specialty chemicals and CRAM (contract research and manufacturing services) segments, which grew 21% YoY and 16% YoY, respectively. The high-value business segment contributed 62% of the total revenue in Q4FY22. Furthermore, the management expects to pass on high input costs to customers over the next couple of quarters in the specialty chemicals segment.

Navin Fluorine Advanced Sciences, a wholly-owned subsidiary of the company, entered into a multi-year contract with a multinational company (MNC) to manufacture and supply a fluoro-specialty chemical. Management noted that this deal has a peak potential revenue of Rs 600 crore per annum and requires a capex of Rs 540 crore. The plant is expected to start operation by the end of CY23.  

This company also comes up on a screener which shows stocks that received broker price or recommendation upgrades in the past month. 77 Nifty 500 companies saw an upgrade in broker price or recommendation.

  1. Gujarat Gas: This natural gas distribution company’s stock rose by nearly 9% on Thursday after it declared its Q4FY22 earnings. This company shows up in the screener that includes stocks that outperformed the Nifty 500 index over the past week. The screener shows 204 stocks in the Nifty 500 index. Its net profit rose 27.5% YoY to Rs 444.4 crore with total revenue increasing 12.6% to Rs 4,773.4 crore. The company even declared a dividend of Rs 2 per share. Total volumes rose 14% YoY to 42.7 million metric standard cubic metres per day (mmscmd) with CNG volumes surging 52% YoY to 7.9 mmscmd.

The management continues its expansion plans as it adds a total of 155 new CNG (compressed natural gas) stations, taking the total to 711 stations. This is the highest number of CNG stations installed by any City Gas Distribution company in India. 

However, the high price of LNG is hampering volume growth for Gujarat Gas. Industrial demand is falling, due to high spot LNG (liquefied natural gas) prices. LNG price in March was US $35.4 million British thermal unit (MMBtu), which fell to US $24.5 MMBtu in April 2022. Further cooling of these prices should aid in volume recovery. 

Brokerage HDFC Securities believes that the company’s margins were protected because of weak demand for high-cost LNG and strong growth and high margin in low-cost CNG and domestic PNG (piped natural gas). EBITDA margin fell 120 bps YoY to 14.9% in Q4FY22. Resolution of the ongoing geopolitical tensions may help ease gas prices further and improve margins. The company’s recent successful bids for six geographical areas to set up city gas distribution centres should aid long-term growth. 

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

The Baseline    
13 May 2022
Bad Day for Britannia? And some sectors see earnings jump in Q4

Dear Firstname,

While western India reels under a heat wave, the eastern coast saw a storm. It's dark clouds for the stock markets as well, as the US indices experienced "carnage" and Indian stocks fell sharply. Outside stock markets, bad weather has also ravaged a key agri crop, adding to the woes of a major FMCG company.

In this week’s Analyticks:

  • India’s wheat harvest wilts in the heat wave, could add to Britannia’s pain in H1FY23

  • Top scorers in a bad season: Companies, sectors which delivered growth in a difficult economic environment

 Let’s get into it.


Global wheat shortage, damage to India’s wheat crop add to Britannia’s woes in upcoming quarters

Amid the intensifying Russia-Ukraine conflict, India in April was hoping to ‘feed the world’ with a record wheat output. Cut to May 2022, and wheat production is set to fall for the first time in eight years

The hottest March in 122 years has played a part in this, as it has affected both the quality of the wheat crop as well as the output per hectare (yield). What could be the impact of this for biscuit makers like Britannia

Britannia beats volume growth expectations in Q4  and sustains margins

Analysts like Motilal Oswal originally expected flat sales volume growth for Britannia in Q4FY22. Aggressive price hikes and resulting impact on rural demand were the underlying causes of flat volume growth.

The company increased the prices of its products by nearly 13% in 9MFY22 and by 10% in Q4FY22. Britannia undertook these price hikes primarily by reducing the grammage of its products.

This definitely impacted the price sensitive rural consumer. But Britannia reported a 4-5% sales volume growth in the quarter, despite sluggish rural demand. Expansion of its distribution channels, higher demand for biscuit brands like Tiger Krunch and Milk Bikis, drove volume growth. 

However, will Britannia will be able to sustain volume growth in H1FY23? Varun Berry, Managing Director of the company, said that even if commodity prices stay at current levels in the near-term, Britannia will have to take additional price hikes of 10% in Q1FY23 to protect its gross margins. It might be challenging to maintain meaningful sales volume growth in coming quarters. 

Britannia’s gross margins fell nearly 250 bps YoY to 38% due to steep cost inflation in inputs like palm oil, wheat, sugar, cashew and milk, which rose 17% QoQ on an average in Q4FY22. Still, the company managed to protect its margins on a QoQ basis aided by its long-term commodity contracts.

Britannia to encounter high inflationary pressures in H1FY23

Global wheat prices jumped 35%+ ever since the Russia-Ukraine war broke out. Russia banned wheat exports to protect its domestic supplies, while Ukraine’s wheat harvests have stalled. Another key reason is the disruption of wheat shipments in the Black Sea region due to the war - ports have closed along this route, and ships have been blocked.

Interestingly, prices in India didn’t rise rapidly, since it is a wheat-surplus nation.

The severe heat wave starting mid-March have killed India's hopes of being the world's saviour in wheat supplies. The Indian government's initial forecasts were of a record wheat output of 111.3 million tonnes in 2021-22. But wheat is extremely sensitive to high temperatures, especially when it is ripening in the month of March. As March 2022 witnessed a hot spell, the wheat kernels shrivelled i.e., reduced in size. 

In fact, according to Bloomberg, the crop yield could fall anywhere between 10%-20% in 2021-22 (Crop yield basically means the amount of agricultural production harvested per unit of land area).

Now, farmers are staring at a crop damage of at least 10-20% of their harvest in 2021-22, according to the Food and Agriculture Organization, a United Nations agency. They are trying to make up for the loss by seeking better prices for their produce. There are reports of farmers withholding their produce to sell their output to private traders or export it at a better price, in line with global market rates. This is why the government's wheat procurement may also fall by half to 19.5 million tonnes.

With India expecting a fall in production and wheat supplies constrained globally, prices will head further north. And with Indonesia restricting palm oil exports, there is more pain in store for food companies like Britannia and Nestle. Even though analysts forecast a 14% YoY profit growth for Britannia in FY23, the real impact of spiralling commodity costs may become apparent in the coming months.   


Screener:Companies seeing a big jump in net profit growth, operating margin improvement and revenue growth in Q4FY22

As we are halfway into the current result season, some companies showed good earnings growth, while others didn’t. This screener throws-up a set of 60 stocks in total who are beating the averages, out which 31 are part of the Nifty 500.

Notably, around 10 stocks are from the banking and financial services sector. Banking heavyweights like ICICI Bank and Kotak Mahindra Bank saw their net profits rise 50%+ on a YoY basis in Q4FY22. However, their revenues rose 11.7% YoY on average. Reversal of Covid-related provisions played a bigger part in the earnings growth here. Provisions also fell on account of better loan recoveries and lower bad loans in the quarter.

Meanwhile home loans, personal loans, loans against property and credit card loans drove the overall net interest income growth for most banks. Financial performance of leading NBFCs like Bajaj Finance and SBI Cards also stood out in Q4FY22.

Agrochemical and fertilizer companies like Astec Lifesciences and Gujarat Narmada Valley Fertilizers witnessed over 80% YoY growth in their Q4 net profits. Higher sales realizations and volume growth in the exports segment worked in favour of this sector. 

The hotels and realty sector put forth a commendable performance in Q4FY22. Hotels like Indian Hotels Company, EIH and Mahindra Holidays witnessed nearly 3X YoY rise in their net profits on an average driven by robust demand in the leisure travel segment. Operating revenues for Godrej Properties and Mahindra Lifespace Developers skyrocketed 3X YoY backed by robust sales bookings in value terms.

The other major sector which saw profit growth in Q4FY22 was electric utilities. Favourable merchant power prices on higher electricity demand worked to the advantage of power generation companies like JSW Energy and Adani Power.

You can find some popular screeners here.

Signing off this week,

The Trendlyne Team