Trendlyne Blog: The Baseline, Latest on stock market and finance in India and the world.

25 Oct 2024

Five Interesting Stocks Today - October 25, 2024

1. Sona BLW Precision Forgings:

This auto parts and equipment company surged 13.3% to Rs 730 per share on Thursday, following its strong second-quarter results. The company has also signed an agreement to acquire the Railway Equipment Division (RED) of Escorts Kubota (EKL) for Rs 1,600 crore in cash. RED is a key supplier of essential components for railways, such as brakes and suspension systems for rolling stock.

For the quarter ending September 30, 2024 (Q2FY25), Sona BLW (Sona Comstar) posted a 16.2% YoY rise in net profit, to Rs 143.9 crore. Revenue from operations increased by 18.7% to Rs 946.1 crore, up from Rs 796.9 crore in Q2FY24. Both revenue and net profit exceeded Trendlyne’s Forecaster estimates by 4.5% and 2.4%, respectively. At the operating level, EBITDA rose by 14.2% YoY to Rs 254.9 crore, while the EBITDA margin narrowed slightly by 33 basis points YoY to 28%.

Battery electric vehicles (BEVs) contributed 36% of the company’s revenue, with BEV revenue increasing by 53% YoY in the July-September period. The company also reported a net order book of Rs 23,100 crore as of September 30, 2024. Vivek Vikram Singh, the MD & Group CEO commented, "We are cautiously optimistic about our growth prospects, especially in the EV sector, even though there are slowdowns in specific markets like Europe and Indian two-wheelers." The company has intensified its focus on the electric vehicle (EV) market, with significant order wins including a driveline program for a class-5 electric truck and an in-cabin sensing product, signalling expansion and diversification of its product portfolio.

Following the two developments, the Hong Kong-based brokerage CLSA upgraded Sona BLW to ‘Outperform,’ raising the target price to Rs 712 from Rs 690. The company’s operating performance met expectations, and its acquisition of EKL’s railway component business is seen as a key driver for future profitable growth.

However, CLSA highlighted a potential slowdown in Sona BLW’s core business, and the importance of exploring inorganic growth opportunities. Revenue from the newly acquired railway division is expected to start contributing from FY26.

2. Persistent Systems:

This IT software company surged 10.9% on October 23, reaching an all-time high of Rs 5,798.7 after announcing its Q2FY25 results. The company’s net profit grew by 6.1% QoQ to Rs 325 crore in Q2FY25, while its revenue increased by 5.8% to Rs 2,897.2 crore, driven by strong growth in the BFSI (which constitutes ~32% of total revenue) and healthcare & life sciences (28% of the revenue) segments. However, the software, hi-tech & emerging industries segment (which constitutes 40% of the revenue) saw a muted growth of 1.4% during the quarter. Both net profit and revenue beat estimates by 4% and 1.2% respectively.

In terms of geographies, North Americas and Europe revenue grew by 6.4% and 6% QoQ, respectively, while India revenue grew by 1%. During the quarter, Persistent's total contract value (TCV) stood at Rs 4,400 crore ($529 mn), with Rs 2,574 crore from new deal wins.

The company has outperformed its larger IT peers in profit growth. For instance, TCS reported a 1.1% QoQ decline in net profit during the quarter, while Infosys saw a 2.2%increase. Persistent has also outperformed its industry price change by 15.8% during the quarter.

The company plans to acquire Arrka Solutions, a data privacy management firm, to enhance its offerings in data privacy, AI governance and cybersecurity. In FY24, Arrka reported Rs 2.9 crore in revenue.

Persistent Systems maintained a flat EBIT margin of 14% from the previous quarter. CEO Sandeep Kalra said, “With the growth and cost-saving programs at Persistent, we are sticking to our target of expanding margins by 200-300 basis points over the next two years, and expect all three verticals to contribute as growth enablers.”

Post-results, Axis Direct assigns a ‘Buy’ rating to Persistent, citing strong long-term growth potential due to multiple contracts with leading brands and improved revenue visibility. However, the brokerage also mentions worries about global growth, and supply issues that could affect the company's short-term prospects.

3. Havells India:

This electrical equipment maker has declined by 6.1% in the past week following the announcement of its Q2FY25 results on October 17. During the quarter, net profit missed Trendlyne’s Forecaster estimates by 15.2% despite growing by 7.7% YoY to Rs 268.2 crore. The company’s EBITDA margins contracted by 131bps to 8.3% mainly due to a sharp increase in ad-spends, and volatility in raw material prices.

The management expects margins to normalize in the upcoming quarters, reaching 13-14%, excluding Lloyd in Q3 and Q4. Anil Rai Gupta, the CMD said, “As the festival season is slightly earlier this year, we witnessed higher advertising spends, moderating margins across categories. We expect normalization over subsequent quarters”. EBITDA margins have witnessed a sequential decline, and stood at 9.9% in Q1, and 11.7% in Q4FY24, lower than analysts' estimates. Gupta highlighted that the company has experienced lower margins due to fluctuating raw material prices.

Meanwhile, revenue increased by 16.4% YoY to Rs 4,539.3 crore, driven by the cables & wires (C&W), switchgear, and electrical consumer durables segments. The cables and switchgear segments (constituting over half of the revenue) witnessed healthy growth led by a pick-up in demand ahead of the festive season.

During the quarter, revenue in the Llyod Consumer segment (~13% of the revenue) also saw healthy growth, led by the non-RAC segment, which includes LED panels, refrigerators, and washing machines. The management aims for the Lloyd segment to contribute around 20% to Havells’ India revenue.

Going forward, the management expects revenue growth to be driven by residential demand and festive demand. The CMD highlighted that channel expansion and product addition by the company are also likely to contribute to revenue growth. In Q2, Havells India commissioned a new cable plant in Tumkur for the production of higher-sized cable. Due to the higher demand for the product, the company has committed an additional capex of Rs 450 crore to expand the facility. The capex planned for H2FY25 is Rs1,000 crore.

ICICI Securities remains positive on Havells due to its established competitive advantages and growth opportunities in white goods and durables. The brokerage maintains its ‘Buy’ rating with a target price of Rs 2,120.

4. Dalmia Bharat:

This cement & cement products company rose by over 3% on 24th October, as its wholly owned subsidiary Dalmia Cement (Bharat) (DCBL) signed a Share Purchase & Shareholders Agreement (“SPSA”), to acquire a 5.4% stake in Atria Wind Power (Basavana Begawadi, Karnataka) to source wind power as a captive consumer for its capacity of 6 MW located in Karnataka.

The company declared its Q2FY25 results on 21st October. Its net profit declined by 61% YoY to Rs 46 crore due to lower realization, along with plant maintenance & shutdowns, while its revenue declined by 2.3%. The firm missed Trendlyne’s Forecaster estimates for revenue by 1.4% and the net profit estimate by 41.2%. Despite the weak result, the stock appears in a screener for stocks showing relative outperformance versus industry over 1 month period.

In Q2FY25, the company was impacted by a 9% YoY decline in realization, down to Rs 4,607/tonne, which negatively affected its EBITDA margin, which at 14.1%, was the lowest in several years. The company’s cost/tonne decreased by 4% YoY to Rs 3,960, driven by lower freight and inventory adjustments. Its volume growth was 8%, which was better than expected owing to a lower base last year and the commissioning of new capacity in H1FY25.

Analysts remain optimistic about the company despite these speedbumps, noting that the market share of major cement players has risen from 46% in 2013 to 55% in 2024, with projections suggesting it could reach 60% by FY26-27. As top companies continue to consolidate and expand their capacities, their overall market share is expected to grow, positively impacting cement pricing, economies of scale, and supply chain efficiency. Being among the top five players in the country, the company is well-positioned to capitalize on this consolidation in the medium to long term. But the competition in the sector is intense.

The company’s CEO and Managing Director Puneet Dalmia guides a 9% volume growth, with EBITDA/tonne in the range of Rs 900-950 in H2FY25. He projects cement prices to trend slightly higher, while expecting operating efficiency to contribute Rs 150-200 in cost savings over the next three years. The company management plans to improve EBITDA margins to 18.5% by enhancing operating efficiency and clinker capacity from the current 22.4 mtpa to 27.1 mtpa, which is expected to be commissioned in FY26.

Axis Securities has retained a ‘Buy’ rating on Dalmia Bharat with a target price of Rs 2,040. The brokerage projects the company will grow its Volume/Revenue/EBITDA at a CAGR of 9%, 7%, 9% respectively over FY25-FY26. It adds that with the current capacity utilisation at 58%, there is substantial scope for the company to increase its utilisation levels.

5. Kajaria Ceramics:

Thisfurnishing company fell 5% on October 22 after announcing itsQ2FY25 results. The company’s net profit declined 22.8% YoY to Rs 85.5 crore, missingTrendlyne’s Forecaster estimates by 20.2%. However, revenue rose by 5.1% to Rs 1,179.3 crore. Demand for tiles was subdued in Q2FY25 due to excessive rainfall in August and September across India. Despite the weak demand environment, Kajaria's tile volumegrew by 8.5% to 28.7 million square meters (MSM).

Kajaria Ceramics generates most of its revenue from tiles, which accounts for 88% to 93% of total revenue. In Q2FY25, tiles accounted for approximately 88% of the total revenue. The remaining revenue comes from non-tiles segments, which include bathware (Rs 90.1 crore, 8% of total revenue), adhesives (Rs 18.2 crore), and plywood (Rs 17.5 crore).

Ashok Kajaria, Chairman and Managing Director of the companysaid, “The second half will be better than quarter one and quarter two. So we are looking at a 9-10% volume growth for the full year (FY25) and margin guidance would be 15-17% this year.” Over the longer term, management believes they can achieve a CAGR of 11.5% for tile volumes from FY25 to FY27, leading to a total volume of 150 MSM. As part of their three-year vision, Kajaria Ceramics aims to expand its reach to over 2,000 towns across India, up from the current presence in 1,000 towns.

Post results, ICICI Directmaintains its ‘Buy’ rating with a target price of Rs 1,500. The brokerage expects the company’s tile volume and revenue to grow at around 10% annually between FY25 and FY27. EBITDA margins are projected to be 15% in FY25, and 15.8% in FY26.

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

The Baseline

24 Oct 2024

Chart of the Week: Japan’s debt-to-GDP soars to 254.6%, while India shows minimal growth

By Aditi Priya

Most governments have some level of debt spending, which is often necessary for economies to invest in their people, finance critical expenditures, and fund infrastructure. However, when public debt rises too quickly or by too much, it becomes a burden. Today, as global debt levels climb to record highs, analysts are sounding the alarm. The debt to GDP ratio is a key indicator of a country's fiscal health, with higher ratios signaling more money spent on interest payments on debt. .

Global public debt is projected to cross $100 trillion by 2025. After a brief decline in 2021-22, it rose again in 2023 and is expected to reach nearly 100% of global GDP by 2030, led primarily by China and the US.

In this edition of Chart of the Week, we take a look at the government debt-to-GDP ratios of various countries.

India’s debt to GDP improves from its pandemic peak

India's debt to GDP ratio surged to nearly 88% in 2020-21 from around 74% in 2019-20, due to the economic fallout from the COVID-19 pandemic. The nationwide lockdowns led to a recession, with two consecutive quarters of negative growth. However, debt levels have since declined to 82% in 2024. Finance Minister Nirmala Sitharaman emphasized that India’s debt-to-GDP ratio is now below that of many other emerging markets.

The United States, in January 2023, exceeded its debt limit of $31 trillion, with the debt to GDP ratio reaching 122.3%, up from 108.1% in March 2020. The pandemic played a major role in this increase, with the ratio peaking at 133.8% in March 2021 due to extensive government spending on stimulus packages and addressing the public health crisis.

US debt exceeded $31 trillion in January 2023, raising concerns about breaching the $31.4 trillion ceiling. However, a new debt limit bill passed in June 2023, raised the ceiling and prevented a default. The debt ceiling is the maximum amount of debt the US government can borrow. Since 1960, the US government has increased the ceiling seventy-nine times, most recently in 2023. Forty-nine of these increases were implemented under Republican presidents, and twenty-nine under Democratic presidents. Both political parties in the US, the Democrats and the Republicans, have got into the habit of promising heavy spending and more tax cuts to win elections. This may please voters, but it has resulted in the US being increasingly unable to have a balanced budget. In the current presidential election race, Harris has made commitments that would add $3.5 trillion to the US debt, while Trump’s promises would increase it by $7.5 trillion.

Japan, US and UK see soaring debt levels

The United Kingdom recently rejoined the unfortunate “100% debt to GDP ratio club” after 60 years, with a ratio of 100.1% as of August 2024. The UK’s debt has been increasing since the pandemic due to rising costs post-Brexit, energy subsidy schemes, inflation-linked benefit payments and interest payments on debt.

In contrast, France has experienced a downward trend in debt since the pandemic, despite rising social security costs and an aging population. However, public debt approached 112% of GDP between April and June, leading to a credit downgrade from S&P earlier this year. This rise in debt is due to lower-than-expected tax revenues and delayed hiring and investment by companies, along with local and regional administrations exceeding their spending plans.

Moving on to Asian countries. Japan has the highest debt in the world at over 250% of GDP, especially worrying considering its slow growth and a declining population. However, Japan’s situation is less dire than it appears because the public sector holds substantial assets. The Bank of Japan owns domestic government bonds amounting to about 100% of GDP, effectively reducing the country’s net liabilities. This internal borrowing makes the debt more stable, as Japan doesn’t rely as heavily on foreign creditors. By early 2024, Japan's net debt excluding its internal debt, was around 119% of GDP, making it comparable to US debt levels when considering this asset ownership.

China's debt to GDP ratio among the lowest

China’s yearly debt to GDP ratio is at 83.6%, one of the lowest among the countries in focus. However, the debt to GDP ratio has been rising since the pandemic, as local authorities have borrowed heavily to boost a slowing economy. As a result, the economy's debt to GDP ratio has increased steadily over the last four years.

Turning to countries with lower debt to GDP ratios, Brazil's ratio reached 78.5% in August 2024, surpassing the threshold limit of 77%. This increase could lead to a 1.7 basis point decline in annual real growth for each percentage point of debt. However, Brazil has decreased its debt to GDP ratio by about 12.2 percentage points since the pandemic, thanks to stronger-than-expected economic growth (2.9%) in 2023, the appreciation of the Brazilian currency against the U.S. dollar, and net debt redemption.

As of March 2024, Germany's debt to GDP ratio stands at 63.6%, having remained stable over the years. However, the pandemic led to a sudden increase of 9 percentage points. The finance ministry anticipates a slight rise this year, with the ratio projected to reach 64% by the end of this year, before gradually declining until 2028. This increase is attributed to the planned Generational Capital, a new pension scheme aimed at maintaining pensions in line with wage trends.

While many governments rely on debt for development, rising debt levels pose significant challenges. Countries like the US and Japan are facing high debt-to-GDP ratios, raising concerns about fiscal sustainability. As global public debt is projected to exceed $100 trillion by 2025, monitoring these trends is crucial for the stability of the global economy.

The Baseline

24 Oct 2024

Five stocks to buy from analysts this week - October 24, 2024

By Divyansh Pokharna

1. Gopal Snacks:

Emkay initiates a ‘Buy’ rating on this packaged food manufacturer with a target price of Rs 600. This indicates an upside of 28.6%. Analysts Nitin Gupta and Pinky Mahato note that the company is exploring mergers and acquisitions (M&A) in eastern and southern India to expand its capacity and drive growth in new markets.

During Q2FY25, Gopal Snacks’ sales grew 12.5% YoY to Rs 402.6 crore, driven by a rise in wafers (up 47%) and other snack products (up 20%) segments. However, the EBITDA margin contracted by 110 bps to 11.6%, due to higher advertising and promotional spending – this jumped to Rs 5.5 crore from Rs 2 crore. The company’s business in Gujarat increased by 6%. Gupta and Mahato said, “We expect double-digit growth in the second half, as the 6% growth in Gujarat during Q2 indicates that business pressures are beginning to ease.”

Gopal Snacks has expanded its distributor network to 828, up from 667 in March 2024, and aims to reach 1,100 distributors by March 2025. It also plans to add one distributor per day in FY26. The analysts expect a revenue CAGR of 16.3% and a net profit CAGR of 34.4% over FY25-27.

2. Mastek:

Sharekhan maintains a ‘Buy’ call on this IT software firm with a target price of Rs 3,610, indicating a potential upside of Rs 27.8%. Mastek reported a revenue growth of 13.2% YoY to Rs 867.4 crore in Q2FY25, beating the analysts’ estimates by 2.1%. This growth is primarily driven by strong performance in the health and lifesciences, retail, and manufacturing & financial services verticals.

The company says that it is confident it can fully absorb the impact of wage hikes in Q3, ensuring strong performance in Q3 and Q4. Its EBITDA margin improved by 125 bps QoQ to 16.5%, with a target of reaching 17% or higher in the upcoming quarters. Analysts believe Mastek is on track for industry-leading growth, supported by a strong start to FY25. The firm saw strong momentum in North America's healthcare sector. Additionally, its expansion in the UK is benefiting from the new government's support for digital transformation initiatives.

Mastek added 14 new clients in Q2FY25, bringing the total number of active clients to 380. The 12-month order backlog reached Rs 2,194.7 crore, reflecting a 17.9% increase in rupee terms and 10.9% in constant currency. The analysts highlight that the strong and stable order backlog offers solid revenue visibility for the company.

3. State Bank of India:

ICICI Securities maintains a ‘Buy’ rating on the bank with a target price of Rs 1,000, indicating an upside of 27.2%. In FY24, SBI reported an improvement in its domestic loan-to-deposit ratio (LDR) to 69%, up from below 65% in FY23. The bank's gross non-performing assets (GNPA) stand at 2.21% in FY24, down from 4% in FY22. It has gained market share in retail and SME segments, outperforming other public sector banks, with a 16% YoY growth in corporate loans in FY24.

Analysts Jai Prakash Mundhra, Chintan Shah and Hardik Shah are optimistic about SBI's potential to gain credit market share, estimating a 15% CAGR in loans over FY25-26. They believe the bank’s leadership in retail products and improved loan offerings, particularly in the SME segment, positions it favorably despite heavy competition. SBI has maintained a credit market share of 22-23%, with expectations of sustaining this range in the coming years.

The analysts believe that SBI’s focus on enhancing digital banking services and investing in technology will strengthen its competitive position. The improvements in customer experience and operational efficiency could potentially attract more customers over the long term.

4. Newgen Software Technologies:

ICICI Direct assigns a ‘Buy’ rating to this IT software company, with a target price of Rs 1,465, indicating an upside potential of 18.7%. In Q2FY25 its net profit surged by 47.2% YoY to Rs 70.3 crore. Revenue grew by 25.5% to Rs 379.7 crore, driven by improvements in the Indian, Europe, the Middle East and Africa (EMEA), Asia-Pacific (APAC), and US markets.

Analysts Bhupendra Tiwary, Anjini Sharma, and Deep Thosani note that the company's focus on larger deals and scaling down of smaller accounts, with an aim to increase the average deal size from $700K to $2 million, has contributed to this growth. Analysts highlighted that the management plans to aggressively invest in achieving its goal of $500 million in revenue over the next 3-4 years, implying a CAGR of 36%. The order book of the company grew by 22% YoY in H1FY25.

Tiwary, Sharma, and Thosani expect revenue to grow at a CAGR of 23.8% between FY25-27, and EBITDA margin of 24.7%, 24.2%, and 24.2% for FY25, FY26, and FY27, respectively.

5. HDFC Life Insurance Company:

KRChoksey maintains its ‘Buy’ rating on HDFC Life Insurance, with a target price of Rs 845, with a potential upside of 16.8%. This life insurance company reported a net profit growth of 14.8% YoY to Rs 433 crore in Q2FY25. Revenue increased by 23.8% to Rs 28,489.3 crore, owing to improvements in annual premium equivalent (APE) and new business premium.

Analyst Dipak Saha highlights that the company expects annualized equivalent premium (APE) growth between 18-20%, and value of new business (VNB) growth in the 15-17% range for FY25. He notes that the company focuses on product innovation and expanding distribution channels, especially in tier 2 and 3 cities, while strengthening its partnership with HDFC Bank to enhance geographic reach.

Saha believes the company is well-positioned for sustainable growth in the coming quarters, supported by the management's strategic flexibility in addressing regulatory changes, disciplined pricing, and a strong solvency ratio. The brokerage expects a CAGR of 16.6% in net premiums, 15.8% in VNB, 24.4% in net profit and 19% in embedded value (EV) over FY 25-26.

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

(You can find all analyst picks here)

The Baseline

18 Oct 2024

Five Interesting Stocks Today - October 18, 2024

1. HDFC Asset Management Company:

Thisasset management company rose 6.8% over the past week after announcing itsQ2FY25 results on October 15. The company’s net profit surged by 31.8% YoY to Rs 576.8 crore, while revenue improved by 38% to Rs 887.2 crore, led by a strong growth in assets under management (AUM). Its quarterly average AUM was 75.8K crore, representing a 44.6% growth. The company appears in ascreener of stocks with book value per share improving over the past two years.

HDFC AMC's market share in quarterly AUM increased by 30 basis points YoY, reaching 11.5%. With a 49.4% rise in unique customers, the firm now has 11.8 million unique customers and 20.7 million live accounts. HDFC AMC saw faster growth in smaller cities (B-30) compared to larger cities (T-30), driven by 24 new branches and stronger distribution. B-30 locations constituted 19.5% of the average AUM in September.

Over the past 3-4 years, HDFC AMC has introduced nearly 100 new products. The management has indicated that there may be fewer product launches in the next couple of quarters but aims to increase its market share across key categories, including equity MFs, debt funds, liquid funds, and SIPs. MD and CEO Navneet Munotsaid, "We are looking to attract funds from NRIs in our existing products. We have established a wholly owned subsidiary in GIFT City, HDFC AMC International IFSC, where one of our products will launch soon, followed by three more, all supporting domestic mutual funds."

Munot mentioned that HDFC AMC has made significant investments over the past 25 years, resulting in a diverse product range. He expects continued growth as the company aims to increase its market share (11.5% currently) and expand its participation in the industry.

Post results, KR Choksey hasmaintained a ‘Buy’ rating with a target price of Rs 5,388, indicating a potential upside of 14.4%. The brokerage highlights that the company is well-positioned to benefit from the growing trend of systematic investments and increasing financial literacy among retail investors.

2. HCL Technologies:

This IT consulting firm surged to a new 52-week high of 1,885 on Wednesday after rising 2.7% over the past week, as it announced Q2 results. HCL reported revenue growth of 8.4% YoY at Rs 28,376 crore, with net profit up 10.5% at Rs 4,235 crore. Both revenue and profit exceeded Forecaster estimates by 1.7% and 5.7%, respectively.

If we look at the revenue mix, the IT & Business services segment, accounting over 75% of the total revenue, witnessed growth of 8.3% on a YoY basis in Q2. Meanwhile, HCL Software, which made up over 10% of total revenue, outperformed other segments with 14.5% growth. With growth across all verticals, the company has raised the lower end of its FY25 revenue guidance from 3% to 3.5%, and is now targeting YoY growth between 3.5% to 5%.

HCL won 20 deals in Q2 – 12 from services and 8 from HCL Software – with a total contract value of $2.2 billion (Rs 18,500 crore). Commenting on orders in the GenAI segment, MD & CEO, C. Vijayakumar, said, “We had strong order wins in GenAI-related programs. Most of the deals are now getting embedded with AI capabilities.” He also highlighted the wide adoption of HCLTech's GenAI platform, AI Force, for the transformation of services with AI capabilities.

Motilal Oswal has named HCL Tech as its top pick among large-cap IT firms, based on its IMPACT framework. This framework evaluates companies on factors like industry exposure, margin expansion, partnership, automation threat, client strategies and next-gen readiness. They believe the firm is well positioned to benefit from the GenAI revolution. With a target price of Rs 2,300, this IT firm has a potential upside of 23.8%.

3. Nestle India:

This packaged foods company declined by 3.4% after its result declaration on 17th October. The company’s net profit rose by 6.9% YoY to Rs 746.6 crore in Q2FY25, while its revenue rose by 3.6% on the back of rising domestic sales. The results were a disappointment, and missed Trendlyne’s Forecaster estimates for revenue by 9.7% and the net profit estimate by 16.5% due to declining export sales. The stock appears in a screener for stocks with PE higher than the industry PE.

In Q2FY25, the company’s EBITDA margin shrunk by 130 basis points to 22.9%, falling short of the analyst poll expectation of 24.2%. HDFC Securities highlighted that the demand environment for the FMCG sector remains challenging due to subdued macro indicators, inventory corrections by some companies and adverse weather conditions affecting cold beverage consumption. However, they anticipate a sector recovery in H2FY25, driven by healthy reservoir levels that should enhance rabi season crop output.

The company’s e-commerce business saw a 38% growth, the highest in seven quarters.It contributed 8.3% to domestic sales, largely due to quick commerce. Organized trade also grew, fueled by demand for noodles, beverages, and premium products. The company emphasised that its ‘Rurban’ strategy helped penetration and distribution in rural markets, adding over 800 new touchpoints, including cash distributors and wholesale hubs.

Nestle India Chairman and Managing Director Suresh Narayanan said that some key brands like ‘nescafe’ coffee saw pressure due to softer consumer demand and high commodity prices, especially for coffee and cocoa. In the last nine months, he said that 65% of their top 12 brands, including ‘Maggi’ noodles, ‘Milkmaid’ and ‘Munch’ chocolate have shown positive double digit volume growth. He said: “Despite a challenging external environment with muted consumer demand, we remained resilient in our pursuit to deliver growth.”

In April, the company faced controversy over sugar in its infant product, ‘Cerelac.’ In response MD, Sunil Narayanan announced the launch of 14 variants with no refined sugar.

HDFC Securities has given a ‘Accumulate’ rating to Nestle with a target price of Rs 2,700. The brokerage projects the company’s revenue/PAT/EBITDA to grow at a 9%, 14%, 12% CAGR respectively from FY25 to FY27, driven by increased competitive intensity in infant nutrition, undoing of price laddering in bundle packs of Maggi, and downtrading in coffee business to weigh on revenue growth.

4. KEI Industries:

This electrical equipment maker has declined by over 14% in the past three days since the announcement of its Q2FY25 results on October 15. During the quarter, net profit missed Trendlyne’s Forecaster estimates by 6.4% despite growing by 10.4% YoY to Rs 154.8 crore. The company’s EBITDA margins contracted by 70 bps to 9.7% due to higher raw material costs, finance costs, and employee expense benefits. The volatility in copper and aluminum prices also impacted margins. The company hiked prices by 10% to offset this. However, the management believes this will average out over six months.

Revenue for KEI increased by 17.5% YoY to Rs 2,296.6 crore, driven by the cables & wires (C&W). During the quarter, the cables segment (which constitutes 93% of the revenue) grew by 21% YoY. The engineering, procurement & construction (EPC) projects segment (which contributes ~6% to the revenue) declined 58% YoY, mainly due to delays in the execution of projects. As of September 2024, KEI Industries’ pending order book stands at Rs 3,847 crore.

The wire maker has announced a Rs 2,000 crore QIP (qualified institutional placement) to support the Sanand project. The project requires a capex of Rs 1,800-1,900 crore. The QIP will help the company avoid additional borrowing as it aims to become debt-free. Commercial production at the plant is set to begin in Q1FY26 and has a revenue potential of Rs 5,000 crore.

Going forward, KEI Industries anticipates strong demand from the solar renewable energy and transmission sectors. Thermal power projects, pump storage projects, data centers, and highway tunnelling projects are also expected to drive demand. CMD Amit Gupta said, "We expect recovery due to strong demand from the energy sector as well as capacity additions. For FY25, we expect revenue growth of ~17% and margins at 10.5-11%. Over the longer term, we aim to grow our revenues by 15-16% CAGR".

Anand Rathi highlights that KEI is seeing strong demand from data centres, solar and wind renewable energy. The brokerage believes the company will benefit from the structural demand for cables and wires. It maintains its ‘Hold’ rating, with a target price of Rs 4,796.

5. PNC Infratech:

This roads & highways company rose 4.4% on October 16, and touched its one-month high after securing two engineering, procurement and construction (EPC) orders worth Rs 4,630 crore from Maharashtra State Road Development Corp (MSRDC). The first project involves the construction of the Pune Ring Road, spanning 13.8 km from Indori to Chimbali, valued at Rs 2,268 crore. The second project includes building a 28.9 km expressway connector from Jalna to Nanded, valued at Rs 2,362 crore.

The company also rose 2.3% on October 14 after receiving a Rs 2,039.6 crore order from the City & Industrial Development Corporation of Maharashtra (CIDCO). This contract includes integrated infrastructure development of roads, construction of major and minor structures such as flyovers, minor bridges, vehicular underpasses (VUPS), pedestrian underpasses (PUPS), and allied electrical works, including street lighting.

T. R. Rao, Director (Infra) of PNC Infratech, said that the company has revised its revenue guidance for FY25, and is now expecting a 10% YoY decline instead of 10% YoY growth. However, they anticipate revenue to grow 15% YoY in FY26. As of June 30, the company’s unexecuted order book stands at Rs 19,098 crore, which is 2.5 times of FY24 revenue. PNC Infratech aims to secure new orders worth Rs 13,000 - 15,000 crore in FY25.

In Q1FY25, the company reported a net profit growth of over 2X YoY to Rs 575.2 crore, driven by a 29.7% decline in material costs, while revenue grew 4.1% YoY to Rs 2,197.8 crore. This company is currently in a strong PE buy zone.

Geojit BNP Paribas upgraded its rating for PNC Infratech from “Hold” to “Accumulate,” with a target price of Rs 526. The brokerage anticipates sales growth of approximately 17.2% and an EBITDA margin of around 13.4% in FY26.

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

The Baseline

17 Oct 2024

Is India's growth engine slowing down? Screener: Upcoming results of profit growth stocks

By Swapnil Karkare

In the last week of September, I visited Kochi. Uusally it's bustling, but this time, the city felt low on energy. The Marine Drive crowd had thinned, the spice sellers looked bored, and the malls were mostly filled with window shoppers and college students playing hooky from class. I thought it might be because of the rains or the Pitrupaksha season, when Indians avoid new purchases.

A week later, the RBI announced its monetary policy, and commentary on the Indian economy flooded my news feed. From slowing car sales to subdued production, slowdown became the talk of the town. Headlines from The Economist and Bloomberg suggested that India's growth may be running out of steam. Perhaps what I saw in Kochi meant something more.

Despite our hopes for India as a ‘China+1’ economic destination, the world's fastest growing nation may be on a bumpy road. Is India reverting to the mean after the post-pandemic boom? Will growth bounce back?

In this week's Analyticks:

Is the world's major growth engine right now - India - slowing down?
Screener: Upcoming results for Nifty500 companies with previous quarter profit growth greater than 10% both YoY and QoQ

Let's do a health check.

GDP matters for stock markets

Stock markets often draw ire for not reflecting the real economy. But contrary to popular belief, markets do tend to reflect reality in the longer run. Our analysis of quarterly GDP growth rates and Nifty returns shows that over the past two decades, the broader market index has closely tracked economic growth. So if GDP growth stumbles, the markets will feel the brunt.

In the first quarter of this financial year, India’s GDP growth slowed to 6.7% YoY from 7.8% YoY the previous quarter. Many analysts have forecast a further decline in the growth rate in the second quarter. For example, Motilal Oswal estimates 6-6.5% growth in 2QFY25 (RBI is more optimistic than most, and forecasts 7% growth).

Can this year's festive season cheer up consumers?

As we entered the September quarter, rising raw material costs, a drop in car sales, a high unemployment rate and a decline in tax collections together put the brakes on the Indian economy.

Amnish Aggarwal, Head of Research at Prabhudas Lilladher, expressed caution about the FMCG sector owing to higher raw material costs. Similarly, Garima Kapoor, an economist at Elara Securities, pointed out that consumer spending has taken a hit, especially in cities due to dwindling savings and slow hiring in sectors like technology and retail.

The rural areas are seeing some upside. Thanks to normal monsoons, farmers are cultivating more land. The drop in demand for jobs under the MNREGA scheme is another good sign. This scheme usually sees an uptick in employment when the rural economy is struggling, and a decline in demand suggests things are looking better.

Titan, Mamaearth, Himalaya, Dabur, Denver, Bata, and several D2C brands have joined Meesho Mall ahead of the festive season to tap into the tier-2+ market, where the e-commerce platform is popular. The platform has reportedly seen a 40% rise in orders during its recent Mega Blockbuster Sale.

Online marketplaces have overall registered a 26% increase in just one week of festive sales, selling almost Rs. 55,000 crore worth of goods. ET reported that tier-2 and tier-3 cities accounted for a larger chunk of demand. We need to watch whether this demand holds steady through the next year and spreads across all sectors.

A long wait for the capex cycle

Last week, the statistical ministry released production data for August 2024, which had production contracting by 0.1% over last year. RBI’s Industrial Outlook Survey for Q2FY25 showed manufacturers less optimistic due to slowing demand, lower production, and low-capacity utilisation. However, companies expect marginal improvements in Q3FY25.

Mayank Jha, an economist at HDFC Bank, discussed in a LinkedIn post, emerging weakness in investment growth. Although we have seen a capital expenditure surge in a few sectors, there hasn’t been a broad-based recovery. Firms often announce large capex plans but fail to implement them due to lower capacity utilization. For instance, capex plans in electronics, food processing and textiles have largely remained on paper.

On one hand, we're still waiting for the long-promised surge in private capex. On the other hand, government capex seems to have hit its limit. The elections stalled both central and state government capex, causing a loss of momentum. Dwindling tax revenues have made it even more challenging to meet the budgeted capex levels while keeping the fiscal math in check.

Although the finance minister has assured a pickup in government capex after the subdued first quarter, this will be tough to deliver. The government faces the dual challenge of dwindling tax revenues and the need to keep the fiscal deficit in check. A war in the Middle East and rising oil prices for India could constrain government finances even more.

Outlook

I wish we had a (working) crystal ball to predict what the FY25 growth rate would be. Forecasts for FY25 have swung wildly, between 6.5% and 8%. Basically, no one knows.

One way to look at these numbers is that the 8% GDP growth mark achieved in FY24 is now the highest estimate for FY25, and may be out of reach. India's economic engine for now, may have shifted to a lower gear.

Screener: Upcoming results for Nifty500 companies with previous quarter net profit growth greater than 10% YoY and QoQ

Banking stocks among those with the highest net profit growth in Q1FY25

As we enter the result season for Q2FY25, we look at stocks that delivered the highest net profit growth in the previous quarter. This screener shows companies whose results are upcoming, whose net profits YoY and QoQ showed growth greater than 10% in Q1FY25.

The screener is dominated by stocks from the banking & finance, software & services, chemicals & petrochemicals, food beverages & tobacco, and FMCG sectors. The most notable stocks in the screener are Zee Entertainment Enterprises, Max Financial Services, Biocon, Star Health and Allied Insurance, United Breweries, Go Digit General Insurance, Pidilite Industries, and Petronet LNG.

Zee Entertainment Enterprises witnessed the highest QoQ and YoY net profit growth of 784.6% and 321.1%, respectively in its Q1FY25. This broadcasting & cable TV stock’s net profit surged due to the company’s efforts to optimize costs, helping to reduce manpower and marketing expenses. The company is scheduled to announce its results on Friday. Analysts at Keynote Capital believe that while concerns around ZEEL’s weak financials, governance, and litigation outcomes continue to persist, the initial signs of improving business are positive. But this company's last few quarters have been bumpy.

Star Health and Allied Insurance’s net profit grew by 216.9% QoQ and 56.7% YoY in Q1FY25, helped by strong investment performance and a Rs 25 crore tax return during the quarter. With its results to be announced on October 29, ICICI Securities believes that this general insurance company will grow in FY25, owing to price hikes, higher growth in new channels, recovery of new business growth, and better investment performance.

You can find some popular screeners here.

The Baseline

17 Oct 2024

Five stocks to buy from analysts this week - October 17, 2024

By Ruchir Sankhla

1. Escorts Kubota:

Emkay upgrades its rating to ‘Buy’ for this commercial vehicles manufacturer, setting a target price of Rs 4,700, an upside potential of 21.2%. Analysts Chirag Jain, Jaimin Desai, Nandan Pradhan and Omkar Rane highlight that tractors are likely entering an upcycle from the second half of the fiscal year due to healthy monsoons and an increase in Kharif acreage, which is at the highest in four years. The recent monsoon brought about 8% more rainfall than the long-term average, supporting farm incomes.

Analysts note that while industry volumes declined by 8% YoY in FY24, prospects for a cyclical recovery appear strong. Global tractor manufacturers are also increasingly sourcing components from India, creating a potential opportunity of around $500 million for the company as it expands exports and develops new products.

Jain, Desai, Pradhan, and Rane note that the company is pursuing several initiatives across products, channels, and capacity to capture growth opportunities in both Indian and export markets. As a result, they project a revenue CAGR of 23.7% and an EBITDA CAGR of 26% over FY25-27.

2. Blue Dart Express:

Motilal Oswal reiterates a ‘Buy’ rating on Blue Dart Express with a target price of Rs 9,900, indicating an upside of 16.6%. Analysts Alok Deora and Saurabh Dugar cite the strong growth potential of this transportation logistics company, which has seen improved demand and network expansion.

Blue Dart Express has announced a price hike of 9-12%, effective January 2025, to offset inflationary costs and protect margins. Analysts mention that with the festive season approaching, the company expects higher capacity utilization for its new aircraft, leading to improved efficiency and margins. New routes like Guwahati are gaining momentum. Additionally, the company’s surface express segment, which contributes 30% of its revenues, is expected to grow faster than its air segment, supporting overall growth.

Deora and Dugar highlight that Blue Dart Express’ standalone EBITDA margin is expanding, driven by improved capacity utilization and the shift of volumes from third-party cargo to its own aircraft. They project a CAGR of 18% in net sales and 33.8% in EBITDA over FY 25-27.

3. Tata Consultancy Services:

Sharekhan maintains a ‘Buy’ rating on this IT consulting and software company with a target price of Rs 5,230 indicating a potential upside of 27.7%. Tata Consultancy Services' net profit fell by 1.1% QoQ to Rs 11,909 crore in Q2FY25 due to higher employee benefits and equipment & software license expenses. However, revenue grew by 2.2% QoQ to Rs 64,988 crore, supported by improvements in the banking, financial services & insurance (BFSI), manufacturing, consumer, and life sciences & healthcare segments.

Analysts note that, energy & utilities grew 7%, while manufacturing rose 5.3% YoY. However, communication & media fell by 10.3% and technology by 1.9%. Analysts highlight that the order book stood at $8.6 billion, with North America contributing $4.2 billion. Growth markets like India surged by 95.2%, while North America saw a 2.1% decline.

Analysts mention that the easing cycle of US Federal Reserve rate cuts and stable macro data, supports a strong growth recovery outlook for the IT sector and TCS. They project a CAGR of 8.2% in sales and 10.3% in profit after tax over FY 25-27.

4. Narayana Hrudayalaya:

ICICI Direct maintains a ‘Buy’ rating on this hospitals player with a target price of Rs 1,485, indicating a potential upside of 15.3%. Despite a slowdown in recent quarters, the company showed signs of recovery in India during Q1FY25, with revenue improving by 8% YoY to Rs 1,341 crore, driven by a 10% growth in India, reaching Rs 1,086 crore. However, growth in the Cayman Islands (a UK overseas territory) was limited, with revenue rising by 5% to Rs 267 crore. The average revenue per occupied bed (ARPOB) for Indian hospitals reached Rs 41,370 during the quarter, reflecting an 11% YoY increase.

Analysts Siddhant Khandekar and Shubh Mehta are upbeat about Narayana Hrudayalaya’s plans for capital expenditure of Rs 3,000 crore over the next 2-3 years, focusing on cities like Bengaluru and Kolkata where it has established strong brand loyalty. They said, "We believe the company is well-positioned to handle the impact on its balance sheet, despite negative free cash flow in FY25-26, as its margins and return ratios are strong."

The company has seen a significant reduction in losses from its new hospitals, which has positively impacted margins. Additionally, a new hospital in the Cayman Islands is set to commence operations in H2FY25. Khandekar and Mehta project a revenue CAGR of 10.2% and a net profit CAGR of 7.6% for FY25-26.

5. Eureka Forbes:

ICICI Securities initiates a ‘Buy’ rating on this consumer electronics company with a target price of Rs 660, indicating an upside of 6.9%. Analysts Aniruddha Joshi and Manoj Menon highlight that Eureka Forbes’ planned phase-1 transformation, focused on expanding its distribution network, is progressing as expected. The company’s investments in this area have started delivering positive results and are expected to drive growth in FY 25-26. Its service network has expanded to 19.5K pin codes in FY24 from 10.5K in FY22, growing at a CAGR of 36.3%.

Joshi and Menon are optimistic about the phase-2 transformation, which is set to revolve around improving the service business. Eureka plans to improve customer service experience through better technology and higher service quality. Its digital-based complaint resolution system has enabled the company to achieve a 33% reduction in quality-related complaints during FY24.

Eureka is also investing heavily to improve its market penetration in India's water purifier industry (currently 6%) by launching affordable products, increasing media campaigns, and expanding its distribution network to attract first-time buyers. The analysts also believe that the company’s investment in the distribution network will drive growth in FY25-26.

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

(You can find all analyst picks here)

The Baseline

15 Oct 2024

Chart of the week: The most volatile stocks in a jittery market

By Aditi Priya

The Indian stock market has been highly volatile over the past month, with the Nifty 50 slipping approximately 1% while struggling to stay above the 25,000 mark. This was mainly due to the geopolitical tensions in the Middle East, uncertainty around US interest rate cuts and expensive valuations. Additionally, the recent stimulus measures in China have drawn global investor attention, leading to a shift in focus from Indian equities to Chinese markets, further contributing to the pressure on Indian stocks.

Many high-beta stocks, known for their greater volatility, saw negative returns over the past month. Beta is a measure of a stock's volatility in relation to a benchmark index like the Nifty50 or the BSE Sensex. A beta of 1 means the stock moves with the market, while a beta higher than 1 indicates greater volatility, implying higher risk. Stocks with a beta lower than 1 are less volatile than the market. High beta stocks can be good investments for traders who don’t mind risk and a little bit of worry with their breakfast, since these can deliver higher returns.

In this edition of Chart of the Week, we analyze the top eight companies with the highest beta within the Nifty500 universe, over the past month and past year. These stocks have been impacted by a variety of factors, ranging from market expansion to financial performance.

Kaynes Technology leads high-beta stocks with 20% monthly gains

Kaynes Technology has the highest beta value of 2.8 over the past month and 1.4 over the past year with its stock posting 20% gains in the past month. The major reason behind this is that the company is expanding into new markets, including automotive, industrial, and medical electronics. Kaynes recently opened a manufacturing facility in Hyderabad to enhance its global competitiveness. Additionally, the company secured approval to build an Outsourced Semiconductor Assembly and Test (OSAT) facility in Sanand, Gujarat, which will produce 6.3 million chips per day for various applications. On a YoY basis, Kaynes has posted impressive gains of 110.9%.

The next highest beta stock is engineering consultancy company, Engineers India Ltd. with a beta value of 2.5 over the past month and 2 over the past year. The stock has fallen almost 3% over the past month. The share price of the company has been falling after it posted weak results in Q1FY25 with falling net profit on YoY and QoQ basis on August 9, 2024. On a YoY basis, Engineers India has posted gains of 44.8% with the beta value of 2.

HFCL, a leading player in the telecommunication equipment industry, also makes the list, posting 9.1% losses over the past month with the beta value of 2.4. Despite this, the stock is still performing well over the past year, posting gains of over 93% with the one year beta value of 2.

Construction stocks see short-term decline, but long-term growth looks strong

Construction and engineering companiesSterling and Wilson Renewable Energy and Rites Ltd. have also witnessed volatility in the past month with beta values at 2.2 and 2.3, respectively. Both companies have seen a fall in their share price over the past month. However, one-year returns of these companies have increased by a significant amount.

Housing and Urban Development Corp (HUDCO), a housing finance company, has also been very volatile in the past month with the one month beta value of 2.3 and one year beta value of nearly 2. Weak Q1FY25 results with a 27.4% fall in net profit has caused the share price to fall. However, the stock has performed well over the past year, posting gains of over 158%.

Electric utilities company Inox Wind has been one of the top performers among high-beta stocks, delivering remarkable gains of 321.6% over the past year with the beta value of the stock being nearly 1.5. However, in the past month, the stock has experienced notable volatility, with a beta value rising to 2.2, and its price declined by 6.2%. This drop followed a significant block trade in which approximately 2.75 crore shares, or 5% of the company's total equity, were traded on the exchanges. The trade occurred as Inox Wind's promoter, Inox Wind Energy Ltd. (IWEL), planned to sell up to 5% of the company's equity in a block deal.

In summary, while these stocks have high-risk profiles, they also offer the potential for significant returns, attracting investors willing to brave the volatility. High-beta stocks remain a popular choice for traders seeking opportunities to capitalize on short-term price fluctuations in a volatile market. This data reveals that while some high-beta stocks have managed to outperform, others have succumbed to the market’s turbulence, underscoring the dual nature of high-risk investments.

The Baseline

11 Oct 2024

Five Interesting Stocks Today - October 11, 2024

1. Transformers & Rectifiers (India):

Thistransformer manufacturer hassurged 15.6% over the past week, hitting its upper circuit of 5% for four consecutive days after announcing its Q2 FY25 results on Tuesday. The firm reported revenuegrowth of 83% YoY at Rs 473 crore, with a net profit of Rs 45 crore, which is 28X higher compared to the same period last year.

The surge in net profit and revenue is from the high demand for its transformers, thanks to India’s aim to become energy-independent by 2047 and achieve net-zero emissions by 2070. As of September 30, the company’s order book stood at Rs 3,500 crore, with nearly 50% of those orders secured in the past two quarters. In their investor presentation, the company also revealed that they are in negotiations for inquiries worth Rs 18,500 crore.

Currently, 10% of the order book consists of export orders, and the company plans to increase this to 25% by 2026. To meet this goal, the firm is exploring opportunities in international markets such as Europe, Africa and the Americas. Speaking on the margins and pricing of these transformers, Chairman, Jitendra Mamtora said, “Price of transformers is not a concern for buyers, early delivery is what is of main importance, even if it comes at a higher cost.” CFO Chanchal Rajora added that the company faces no competition within India in its segment, and its international competitors have their hands full for the next 2-3 years.

Mamtora also projects that due to the transition of the Indian Railways to high-speed trains, the demand for new, more robust transformers will be huge which will in turn open a new revenue stream for the company. He highlights that the company has already received orders as they got their prototype transformer tested and approved and expects production to start in the coming quarters.

In light of this strong demand, the company aims to achieve an annual revenue of $1 billion (Rs 8,400 crore) by the end of FY26, effectively doubling its revenue each year. To support this growth, they plan to start production at a new facility with a capacity of 15,000 MVA in January 2025, adding to their existing capacity of 40,000 MVA (megavolt-amperes). They also aim to achieve 100% backward integration by Q1 FY26 to reduce production bottlenecks and improve profit margins.

2. Bharat Electronics:

This defence stock rose by 4.8% on October 8 after it secured multiple orders worth Rs 500 crore. The orders include the supply of electromagnetic interference (EMI) shelters, air mobility command (AMC) systems for integrated air command and control, gun system spares, and communication systems.

The company's YTD FY25 order inflow stands at Rs 7,689 crore, contributing to a total order book of ~Rs 79,000 crore. Chairman and MD, Manoj Jain, said, "We expect an order inflow of Rs 25,000 crore for FY25 as well as FY26, excluding the quick reaction surface-to-air missile (QRSAM). If QRSAM orders come in, it will definitely contribute an additional Rs 20,000 to Rs 25,000 crore."

Bharat Electronics (BEL) generates about 84% of its revenue from the defence sector, supplying products to the Indian government, while the non-defence segment contributes around 14% and exports account for 2%. On September 27, BEL and Israel Aerospace Industries (IAI) announced the formation of a joint venture called BEL IAI AeroSystems. This joint venture will be the main point of contact for providing long-term support for the medium-range surface-to-air Missile (MRSAM) systems used by India's defence forces. The company has also signed a teaming agreement with Reliasat Inc. of Canada to explore opportunities in space products.

Over the past quarter, BEL has declined by 14.4%, but it has outperformed its industry by 2%.

BEL currently holds a 37% market share in India's defence electronics. Analysts expect the share of defence electronics in total defence production will increase from 25% to ~35% in the coming years. The company is well-positioned to benefit from the government's increasing investment in domestic defence systems. Trendlyne’s Forecaster estimates profit to increase 10.3% YoY in Q2FY25 while revenue growth of 16.6% YoY.

Geojit BNP Paribas maintains a 'Hold' rating on BEL, citing a positive outlook driven by the government's focus on domestic manufacturing, and a healthy order backlog that provides strong visibility for the next 3–4 years. The brokerage expects revenue and net profit CAGR of 16.6% and 16.4% respectively over FY25-26.

3. Godrej Properties:

This realty company rose by 3.4% on October 8, following the announcement of its business update. Godrej Properties’ booking value increased by 3% YoY to Rs 5,200 crore in Q2FY25. This marks the company’s highest-ever Q2 booking value. Its cash collections were up 68% YoY to 4,000 crore during the quarter.

During H1FY25, the company’s booking value surged by 89% YoY to Rs 13,800 crore, driven by strong demand for new projects, including Godrej Vrikshya in Delhi NCR and Godrej Woodside Estate in the Mumbai Metropolitan Region. With this, Godrej Properties has already achieved 51% of its annual booking value guidance for FY25 of Rs 27,000 crore. Gaurav Pandey, the MD & CEO said, “Sales growth was on the back of both an improving project mix as well as strong volume growth’.

The real estate developer has added 8 new projects YTD in FY25 with a total estimated saleable area of approximately 11 million square feet (msf), and a booking value potential of around Rs 12,650 crore. The management highlighted that the new projects during the quarter have built a solid pipeline of launches for the current year as well as the coming years. According to Trendlyne’s Forecaster, the company’s revenue is expected to grow by 49.5% YoY in Q2FY25. Godrej Properties is set to declare its Q2 results on October 23.

Nuvama Institutional Equities remains bullish on Godrej Properties and upgraded its rating to 'Buy' with a target price of Rs 3,415 per share. The brokerage believes that with the housing cycle turning, sales momentum will remain strong. It highlights that the increasing market share in key city markets and the shift in customer preference toward organised developers bode well for Godrej.

4. Amber Enterprises:

This consumer electronics company rose by over 12% in the past month. The company signed a Business Transfer Agreement (BTA) with its wholly owned subsidiary, AmberPR Technoplast India for the purchase of its business via a slump sale at book value. The agreement is effective from the start of its month, and management expects this restructuring to provide greater flexibility for B2B expansion.

For Q1FY25, the company’s net profit had risen by 58.6% YoY to Rs 72.4 crore, while its revenue rose by 40.7% YoY, driven by a 45.6% YoY rise in the consumer durables segment. The firm beat Trendlyne’s Forecaster estimates for revenue by 8.2%, but missed the net profit estimate by 4.2% as QoQ its net profit declined by 8.9%. The stock appears in a screener for stocks giving consistent high returns over the past five years in Nifty500.

India’s room air-conditioners (RAC) market is projected to grow at a robust CAGR of 12% and reach $ 5.6 billion (Rs 50,000 crore) by FY28-29. The company has maintained its market share of 25-26% in the RAC market and expects a similar trend in future. Analysts note that although the company can cater to Indoor Unit (IDU) and Outdoor Unit (ODU), it has got better margins in RAC components than in finished products in the past. There is potential for further indigenization in the RAC industry, as import dependence remains high for certain components.

The electronics market in India is expected to reach $ 300 billion (Rs 25.2 lakh crore) by FY30. Printed Circuit Boards (PCBs) constitute nearly 3-4% of the finished electronic component cost. The company currently holds 20% of total market share in PCB manufacturing. For PCB assembly, the company is looking to move up the value chain to manufacture Flex and Semiconductor substrate PCBs through its MoU with Korea Circuit. Until FY22, the company's electronics segment accounted for 99% of consumer durables and just 1% of automotive components. By FY24, it diversified into margin-accretive businesses like smartwatches and IT & Telecom components, which now make up 19% and 4% of its electronics segment, respectively.

Analysts see the company as well-positioned to meet rising demand from indigenization of fully built-up units and a components ecosystem. It is expected to benefit from PLI schemes for air conditioners and is expanding capacity with two greenfield projects in Supa, Pune, and Chennai. Management is optimistic about export opportunities for fully built-up units and components over the next 3-4 years, despite short-term challenges like slow volume growth in FY24 and margin pressures.

Motilal Oswal maintains a ‘Buy’ rating on Amber Enterprises with a target price of Rs 5,500. The brokerage projects the company’s revenue to grow at a 21% CAGR from FY24 to FY27, driven by 17% in consumer durables, 36% in electronics, and 26% in mobility. It forecasts operating cash flow (OCF) of Rs 220 crore, Rs 640 crore, and Rs 790 crore for FY25, FY26, and FY27, respectively.

5. Tata Motors:

Thiscars & utility vehicles manufacturer fell 4.1% on October 3 as its totalsales in the domestic & international market for Q2FY25 declined 11.5% YoY to 2,15,034 vehicles, compared to 2,43,024 units in Q2FY24.

Total domestic sales fell 15% YoY to 69,694 units in September while it declined 11% YoY to 2.1 lakh units in Q2FY25. Commercial vehicles sales dropped 19% YoY in Q2FY25 and 23% YoY in September, due to a slowdown in infrastructure projects, mining activity and drop in fleet utilization caused by heavy rains.

Passenger vehicle sales, including electric vehicles, decreased 6% YoY in Q2FY25 and 9% YoY in September as it saw more than 5% YoY decline in retails (vahan registrations) due to slow consumer demand and seasonal factors. Additionally, Tata Motors readjusted their wholesales to lower-than-expected retails to keep channel inventory under control, contributing to the overall decline in sales.

Shailesh Chandra, Managing Director of Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility,said, "Registrations picked up pace towards the end of the September month, which augurs well for the festive period ahead." He also highlighted the strong response to the newly launched SUV coupe, Curvv and higher-range Nexon.ev.

Global wholesales for Jaguar Land Rover (JLR) was lower by 10% compared to Q2FY24, mainly due to supply disruptions from high-grade aluminum suppliers. A temporary hold was placed on 6500 vehicles at the end of September, primarily in the UK and Europe, for additional quality control checks. The company has alsotargeted an EBIT margin of at least 8.5% for FY25 and aims to go net debt free? by FY25 for JLR.

Motilal Oswalreiterates its 'Neutral' rating on Tata Motors, with a target price of Rs 990. The brokerage expects JLR margins to remain under pressure over FY 25-26 due to rising costs and EV investments. They project a net sales CAGR of 7.5% and an EBITDA CAGR of 8% over FY25-26, with flat margins anticipated for Tata Motors' Indian business during this period.

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

The Baseline

10 Oct 2024

Rubber prices puncture margins for tyre companies | Screener: auto parts stocks with rising profit margins

By Swapnil Karkare

Once upon a time (meaning, when I was a teenager) talking about the weather used to be considered a boring conversation. Not anymore. We live in an age where wildfires are destroying entire towns in Greece, California and Australia. A 250 km/hour storm is hitting Florida's biggest cities as I type this.

Extreme weather has hit sugar crops in Brazil and rubber crops in Thailand. Thailand, the world's largest rubber producer, saw its production fall by 1-2% due to incessant rains and a fungal disease. This year, the situation got worse with Typhoon Yagi, which killed over 800 people across South East Asia, and caused flooding in Thailand just as the peak rubber tapping season started in September.

The typhoon also wiped out farms across China, the Philippines, Laos, Vietnam, and Myanmar - a crucial region accounting for 80-90% of the world’s output.

Even as supply is under threat, demand is up. Strong auto purchases globally and a stable US economy have driven rubber prices higher, by over 70% in international markets and 50% in India, in one year.

The tyre industry consumes 70% of all rubber, and has been reeling under these price increases. The industry is struggling with margins and profitability.

In this week's Analyticks:

A nail in the tyre: Soaring rubber prices hit margins for tyre companies
Screener: Auto parts players with rising operating profit margins

Rubber prices jump, as supply tightens

Tyre companies can't seem to catch a break right now. Even as rubber prices surged, crude oil prices jumped past $80 per barrel as well as Israel went on a war footing in the Middle East. Crude oil is the key raw material for synthetic rubber, an alternative to natural rubber.

The stimulus package in China, the world’s largest rubber consumer, is expected to drive demand up, pushing prices of rubber even higher. In India, domestic prices are at a 13 year high due to weak tapping activity in Kerala due to floods, and labour shortages.

Kotak Institutional Equities in a recent report, noted, “Overall, the stockpile of global natural rubber is expected to decline to 2.1 million tons in CY2024E from 2.8 million tons in CY2023, which may increase rubber prices unless the demand trend weakens.”

For tyre companies, margins are at risk

The margins of tyre manufacturers negatively correlate with the prices of natural rubber. Crisil estimates tyre raw material costs might increase by 4-6% in FY25, keeping margins subdued beyond FY25.

Demand is also not in full swing. The Indian auto sector is a mixed bag, despite the many new launches, with passenger car demand slowing down while two-wheelers register double-digit growth.

But the industry earns around 70% of its revenue from the replacement segment, which seems promising. Here’s what companies said recently:

“We expect FY25 volume growth in replacement segment to remain healthy.” – CEAT management

“Passenger car replacement should be doing well because overall replacement cycle is getting shortened.” - JK Tyre management

“So, the replacement demand overall should be at high single digits, so we will recover some of the lost ground.” – Apollo Tyre management

Tyre producers have increased prices by 2-3.5% this fiscal, offsetting some of the impact of raw material prices. Kotak highlights the need for 5% more in price hikes to reach Q4FY24 margins. That's not easy given the slowing demand in some segments and MRF’s aggressive pricing strategy in TBR (Truck, Bus and Radial), TBB (Truck Bus Bias) and two-wheeler segments. These account for 70% of industry revenue. So margins will likely stay under pressure.

A silver lining for tyre companies

A bit of good news for tyre company CEOs is that the link between company profitability and rubber prices is not as strong as it used to be. Price-indexed gross margins for tyre companies are now 4-5% higher compared to two years ago.

MRF's falling market share, better managed capex plans across competitors, premiumisation, rising import duties for boosting domestic production and better export opportunities have helped tyre margins hold up despite rising raw material costs.

Almost all major tyre companies right now have strong fundamentals and mid-valuation levels. Still, due to falling margins, brokers estimate a decline in FY25 profits, despite strong revenue growth.

The trees grow slowly, limiting supply

Rubber trees require 5-7 years to mature enough for tapping, which limits the supply in the short term. Even with some delinking of rubber prices from tyre margins, the high prices will take a toll.

While a big drop in global tyre demand could ease raw material costs, this is hardly the solution tyre companies want. Margins will remain under pressure for now, likely dragging on the bottom line for several quarters.

Screener: Tyre stocks lag the auto parts industry in operating profit margin growth

Auto tyres stocks lag the auto parts industry in operating profit margin growth

This week, we look at the impact of rising rubber prices on the operating profit margins of auto tyres & rubber products stocks and compare them to that of auto parts & equipment stocks. This screener shows stocks from the auto parts and tyres industries with the highest QoQ growth in operating profit margins in the latest quarter.

Of the total number of 36 stocks in the screener, only three stocks belong to the auto tyres & rubber products industry. The most notable stocks in the screener are Greaves Cotton, Banco Products (India), Sharda Motor Industries, Subros, SJS Enterprises, Pix Transmissions, JK Tyre & Industries, and Balkrishna Industries.

Greaves Cotton saw the highest growth of 6.6% QoQ in its operating profit margins in Q1FY25. This auto parts & equipment company’s operating profit margin improved on the back of lower raw material costs, employee benefits, and depreciation expenses. However, the company’s revenue declined by 4.3% QoQ to Rs 656.7 crore during the quarter due to a reduction in the engines and cables & levers segments.

Auto tyres & rubber products stocks, however, witnessed a slower growth in operating margins due to a sharp rise of 11.9% in rubber prices from April 1 to June 7. JK Tyre & Industries’ operating profit margin grew marginally by 1.4% QoQ in Q1FY25, helped by the company’s effort to offset the rise in rubber costs by reducing the cost of sales and product premiumisation.

You can find some popular screeners here.

The Baseline

09 Oct 2024

Five stocks to buy from analysts this week - October 09, 2024

By Divyansh Pokharna

1. Polycab India:

Hem Securities initiates a ‘Buy’ rating on this consumer durables company with a target price of Rs 8,427, indicating a potential upside of 13.9%. In Q1FY25, Polycab had reported a revenue growth of 20.8% YoY to Rs 4,698 crore. The company’s fast-moving electrical goods (FMEG) segment grew 21% YoY, driven by increased demand for fans following a heatwave across several parts of the country. However, EBITDA margins decreased by 171 bps YoY to 12.4%, due to a decline in international business growth.

Analyst Mudit Jain said, “We expect the company to deliver strong numbers in the upcoming quarters, driven by rising demand from real estate and infrastructure activities.” He projects the share of organized players in the wires and cable business will increase from 78% in FY24 to 85% by FY28, fueled by premiumization. Polycab currently holds a 25% market share in the domestic organized sector. The company also aims to increase its international business share to 10% of total revenue by FY26 and is launching a distribution-based model in the US.

Jain anticipates the company’s revenue and PAT CAGR to grow at 16.5% and 15% respectively over FY25-26. He believes this growth will be driven by rising electricity demand in urban areas, fueled by industry, business, and housing.

2. Nazara Technologies:

Prabhudas Lilladher upgrades a ‘Buy’ rating on gaming company Nazara Technologies, with a target price of Rs 1,185, suggesting a 21.1% upside. Analysts Jinesh Joshi, Stuti Beria and Dhvanit Shah highlight the company’s strategic investment in Moonshine Technology (MTPL), which operates the online poker platform PokerBaazi, holding a 50-55% market share. Nazara acquired a 47.7% stake in MTPL for Rs 9.8 billion, paying Rs 5.9 billion in cash and issuing 2.5 million shares.

The analysts point out that MTPL reported a revenue of Rs 4.1 billion in FY24, with a 10% EBITDA margin. This acquisition is expected to strengthen Nazara’s presence in the growing real-money gaming market, with MTPL’s revenues projected to grow at a 30% CAGR over the next three years.

Joshi, Beria and Shah note that they incorporated MTPL's projections into their estimates, since Nazara holds a 47.7% non-controlling stake. Consolidation is expected once the conversion of compulsorily convertible preference shares (CCPS) occurs. They project a revenue CAGR of 23%, along with EBITDA and PAT CAGRs of 41% and 47.6%, respectively, over FY 25-27.

3. Petronet LNG:

Emkay initiates a ‘Buy’ rating on this oil distribution company with a target price of Rs 425, indicating an upside of 20.7%. Analysts Sabri Hazarik, Harsh Maru and Arya Patel highlight that the company’s Dahej terminal saw 110% utilization in Q1FY25, largely driven by the power sector, which has now cooled off. They expect Q2 to be seasonally weaker but project that utilization will approach 100%, suggesting a full-year run rate exceeding 100%.

Petronet LNG is facing concerns about possible changes in tariffs for its buyers, known as offtakers. However, the company’s management says that any tariff changes will be minor and won't affect the interests of minority shareholders, as “offtakers are also company stakeholders”.

Hazarika, Maru and Patel note that Exxon’s second contract for 1.2 million tonnes per annum (mmtpa) will begin in FY26-27, along with a 5 mmtpa expansion of Dahej terminal. This is expected to drive volume growth for Petronet, benefiting from higher Kochi terminal tariffs.

4. V2 Retail:

Edelweiss maintains a ‘Buy’ rating on this department stores chain with a target price of Rs 1,754. This indicates an upside of 24.8%. V2 Retail added 12 new stores during Q2FY25, bringing the total store count to 139. The management plans to add 60 new stores in FY25 while maintaining double-digit same-store sales growth (SSSG) for the rest of the year. Analyst Palash Kawale expects 50 store additions and 20% SSSG for FY25.

The company aims for a 30-40% sales CAGR over the next three to four years, which is expected to drive margin expansion and improve store performance. V2 Retail also aims to maintain a 20% return on equity (RoE) and achieve Rs 1,800 crore in sales by FY25.

The company is focused on improving revenue per square foot, which grew by 30% YoY during Q2FY25. Kawale notes that value retailing in India is changing as consumers become more selective and aim for higher-quality products. This shift highlights the need for better shopping experiences, fashionable products, affordability, and larger wardrobes, with organized retail replacing unorganized formats.

5. Jindal Steel & Power:

Motilal Oswal maintains a ‘Buy’ rating on this iron and steel products company with a target price of Rs 1,200, indicating an upside potential of 20.1%. Analysts Alok Deora and Sonu Upadhyay highlight the company’s Rs 310 billion capital expenditure plan, which will increase steel production capacity to 15.9 million tons (mt) annually. A significant portion of this investment (75%) will be directed towards the expansion of the steel production plant in Angul, Odisha, with the remainder allocated to coal mines and other projects.

The analysts note that the company has already spent Rs 150 billion and plans to invest the remaining amount funds over the next three years. Post completion of these new projects, flat steel products will represent 55% of the total output, up from the current 35%.

Deora and Upadhyay are optimistic about the company’s financial health as the company has deleveraged its balance sheet from Rs 391 billion of net debt in FY19 to approximately Rs 104 billion as of Q1FY25. They expect steel production volumes of 9 mt in FY25 (an 18% YoY increase) and 11 mt in FY26 (a 25% YoY increase).

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

(You can find all analyst picks here)