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

03 Dec 2024

Chart of the Week: Financial firms grow in Q2FY25, while the cement sector struggles

The RBI's monetary policy review meeting, scheduled for December 4-6, comes at a time when markets have turned volatile, with foreign fund outflows, sticky food inflation, and global uncertainty. India's GDP growth number for Q2FY25 also landed with a thud, slowing to 5.4% in Q2FY25, far below estimates and the lowest in two years.

Gaura Sen, chief economist at IDFC Bank, lowered India’s overall FY25 GDP growth forecast to 6.3% from 6.6%. She noted that much of the weakness in the first half has come from, “a slowdown in urban demand and decline in government capital expenditure.” Brokerages like Nomura and ICICI Securities also lowered their FY25 GDP growth estimates. While Nomura and HSBC expect a rate cut in December from the RBI, consensus still remains that RBI might start rate cuts only in February 2025.

Indian Inc’s results season was pretty muted, with many companies missing earnings expectations. This triggered an equity selloff. JM Financial analyzed 227 companies under its coverage and found that 45% missed earnings estimates, highlighting a challenging quarter.

In this week's Chart of the Week, we explore the Trendlyne's Results Dashboard to analyze which industries excelled and which ones underperformed.

Exchanges & capital markets firms continue to outperform in Q2FY25

India’s capital markets have steadily grown in recent years, with the trend continuing in the last quarter. Despite the recent volatility, markets hit new highs, with Nifty50 near its all-time high of 26,179 after rising 20.5% over the past year. As per Trendlyne's Results Dashboard, the exchange industry reported a remarkable 94.8% YoY revenue growth in Q2FY25, with operating profit margins soaring 71.3% in the same period due to increased activity in the equity derivatives segment and higher daily premium turnover.

BSE posted a threefold jump in net profit, reaching Rs 346.8 crore for the September quarter. The average daily premium turnover in the equity derivatives segment soared to Rs 8,203 crore in Q2FY25, compared to Rs 768 crore in the same quarter last year. Similarly, MCX India's revenue jumped 68.8% YoY, rising to Rs 310.8 crore.

The capital markets industry saw overall revenue and operating profit margin growth of 44.7% and 12% respectively, in Q2. Firms like Motilal Oswal Financial Services, ICICI Securities and Angel One contributed to this surge.

Consumer electronics see growth, realty sector shows mixed performance

The consumer electronics industry saw average revenue growth of 61.3% YoY, while net profit jumped 170.7%. Once considered a luxury, room air-conditioners (AC) have become popular as summers have become hotter. AC manufacturers like Voltas and Blue Star reported net profit growth of 265.3% and 36.1% respectively in Q2FY25, driven by high demand. The operating profit margin for Voltas surged by nearly 102% and by 1.1% for Blue Star as it is significantly increasing its production and capacity to prepare better for the upcoming summer.

Voltas' unitary cooling products segment, which includes split and window AC, maintained strong growth momentum. The segment outperformed the market with a 56% surge in volumes. The company retained its leadership position in the AC segment, achieving a 21% market share as of September 2024. The AC segment revenue rose by an impressive 45% to Rs 5,384 crores, compared to Rs 3,723 crores in the same period last year.

Another consumer electronics front-runner, Dixon Technologies posted better-than-expected Q2FY25 results. This was led by a 235% YoY revenue increase in the mobile segment. Acquisition of Ismartu in August 2024, boosted mobile production and volumes from brands like Itel, Infinix, and Tecno. The company’s net profit jumped by nearly 263% to Rs 390 crore in Q2 from Rs 107.3 crore last year. Operating profit margin also increased marginally. The company’s booming mobile phone manufacturing segment contributed 73% to the operating profit and 82% to the total revenue.

Meanwhile, the realty industry had a mixed performance in Q2FY25, with both winners and losers. Average revenue growth stood at 26.3%, with operating profit margins rising by 68.3%. Companies like Godrej Properties, Sobha, and DLF played a key role, growing due to new project launches and higher retail demand in Q2. However, the sector's net profit fell by 17.7% in the September quarter. Prestige Estates reported a 77.4% drop due to a Rs 106 crore deferred tax impact, mainly from tax code changes, including the removal of indexation benefits on capital gains.

Gems & jewellery industry report strong growth, while movies & entertainment faces a decline

The gems & jewellery industry witnessed a 54.8% revenue growth and 76% operating profit margin growth, on average. In the spotlight was industry leader Titan, which reported a 15.8% increase in revenue, but its net profit dropped by 23% due to a reduction in customs duty. The customs duty cut led to lower gold prices, boosting jewellery sales. However, increased costs and reduced margins affected net earnings. The company saw its standalone jewellery business revenue grow 26% to Rs 10,763 crore compared to the same quarter last year. Meanwhile, Kalyan Jewellers saw a nearly 37.6% surge in revenue, though its operating profit margin fell by around 24% due to the fluctuating gold prices. Senco Gold also contributed to the overall industry growth with positive revenue, net profit and operating margin growth in Q2FY25.

The movies and entertainment industry experienced a 13.4% drop in revenue. India’s largest multiplex chain, PVR Inox, reported its third consecutive quarterly loss as the growing popularity of streaming services kept audiences at home, impacting box-office collections and food and beverage sales.

Movie theaters have been struggling with low footfalls in recent quarters as higher inflation has led consumers to cut back on discretionary spending. In response, multiplexes have introduced lower-priced weekday passes and reduced popcorn prices to attract customers.

Cement industry and roads & highways witness revenue moderation in Q2FY25

Both cement and roads & highways industries reported a decline in revenue growth YoY in Q2. The cement industry’s average revenue and net profit growth declined by 1.4% and 75.4%, respectively in Q2. This was due to weak demand during the monsoon season. UltraTech Cement, the market leader, saw its first quarterly revenue drop in four years, with a 2% and 19% decline in revenue and operating profit margin, respectively. Grasim Industries also saw a 66.5% decline in net profit and a 22.3% reduction in its operating profit margin.

Similarly, the roads and highways industry's average revenue declined by 11.7% during Q2, but operating profit margins edged up by 0.8%. IRB Infrastructure reported a 6% decline in revenue growth for the quarter, while operating profit margins increased by 6%. Virendra Mhaiskar, Chairman and MD of IRB Infrastructure said, “We anticipate better performance in the upcoming quarters, driven by the end of the monsoon season, the onset of the festive season, and accelerated progress in under-construction projects."

The Baseline

29 Nov 2024

Five Interesting Stocks Today - November 29, 2024

1. NBCC (India):

This construction and engineering company rose over 3.2% on Thursday after signing a memorandum of understanding (MoU) with Housing & Urban Development Corp (HUDCO) to develop a 10-acre institutional plot in Noida Sector 62. The project, estimated at Rs 600 crore, will have NBCC as the project management consultant.

NBCC has risen by 6.3% over the month, driven by multiple order wins during November worth more than Rs 1,500 crore (excluding the MoU with HUDCO). These include work orders worth Rs 428 crore from the ST & SC Development Department, Government of Odisha, to upgrade primary school hostels and schools across various locations in the state.

Other orders this month include project management consultancy services for Rajasthan State Industrial Development and Investment Corp and building construction for the Bureau of Indian Standards (BIS) across five locations, among others.

During Q2FY25, NBCC reported a 19.8% YoY increase in revenue to Rs 2,458.7 crore, driven by improvements in the PMC (project management consultancy), real estate, and EPC (engineering procurement and construction) segments. Net profit increased 53.4% YoY to Rs 122.1 crore during the quarter, (the company incurred an exceptional expense of Rs 65.4 crore in Q2FY24).

The company’s current order book stands at Rs 84,400 crore. During the first half of the year, NBCC secured Rs 28,100 crore worth of orders, up 19.6% YoY. With a strong order pipeline in place, the focus now falls on the execution of projects. Speaking on this, Kellambally Mahadevaswamy, CMD of the company said, “This is one of the highest ever business secured in six months. We are targeting to take it up to Rs 1 lakh crore at the end of this financial year”.

Trendlyne classifies NBCC (India) as an Expensive Performer. The company is trading in the Strong Sell Zone, indicating that it is currently trading above its historical PE.

2. LTIMindtree:

This IT software firm has risen by 4.1% in the past week, following two developments. The company entered a partnership with Microsoft to jointly invest in AI-powered solutions and create go-to-market strategies, aimed at helping clients accelerate AI adoption. Additionally, Life Insurance Corporation of India (LIC) increased its stake in LTIMindtree (LTIM) from 5% to 7% between March 20 and November 19, 2024, now holding shares worth approximately Rs 12,630 crore.

LTIM reported a 10.3% QoQ growth in net profit, reaching Rs 1,251 crore in Q2FY25, surpassing Trendlyne Forecaster’s estimates by 1.8%. Revenue also rose 3.9% to Rs 9,731.8 crore, driven by growth in the banking, financial services & insurance (BFSI) and technology, media & communications segments. The EBIT margin improved modestly by 50 bps QoQ to 15.5%. The company features in a screener of stocks with increasing revenue every quarter for the past two quarters.

The company secured $1.3 billion in deal wins in Q2, including a $200 million multi-year deal in the manufacturing segment. The company has a strong deal pipeline, with a total contract value (TCV) of $5 billion. Over the past 18 months, LTIM has closed 45+ large deals worth $2 billion, with a balanced portfolio: 30% in banking, financial services & insurance (BFSI), 33% in manufacturing, and 31% in communications.

However, the management expects Q3 to face seasonal headwinds and furloughs (temporary employee absences), which could moderate its momentum to some extent. Chief Financial Officer Vipul Chandra said, “We expect a 200 bps margin impact from wage hikes and furloughs in Q3. Our target EBIT margin is 17-18%, but achieving this will depend on the industry returning to double-digit growth.” Analysts believe that increased spending by BFSI clients on transformation projects will drive growth, despite margin pressures.

LTIM plans to expand its scaled verticals, such as BFSI and Technology, and accelerate overall growth. The management sees AI as its key focus and expects Gen AI to drive the next wave of productivity. It has recently established an AI innovation center in Bengaluru, in partnership with IBM, to accelerate AI adoption for clients.

Motilal Oswal maintains a ‘Buy’ rating on this stock with a target price of Rs 7,400, indicating a potential upside of 19.9%. The brokerage is confident in the company's expertise in data engineering and ERP modernization, positioning it well to benefit from pre-GenAI investments. It expects a net profit CAGR of 19.2% over FY25-27. However, the firm is in the PE Sell Zone, currently trading above its historical PE.

3. Tips Music:

Thismedia and entertainment company gained 3% on November 25 after announcing a direct strategicpartnership with TikTok, the short-form video platform owned by ByteDance. The deal will promote Tips music library globally, excluding India and China.

The agreement between Tips Music and TikTok aims to meet the increasing global demand for Indian music, particularly among non-resident Indians (NRIs) and expatriates. Through this agreement, TikTok users will have access to over 31,000 songs from Tips Music's library, featuring genres from Bollywood classics to regional language hits.

Kumar Taurani, Managing Director of TIPS Musicsaid, “This direct strategic partnership with ByteDance marks an important step in expanding the global footprint and engagement of TIPS Music. The TikTok platform has a massive audience base and this deal improves the discovery of our music.”

InQ2FY25, the company reported a net profit growth of 21.5% YoY to Rs 48.2 crore, while revenue surged 33.7% YoY to Rs 86.2 crore. This growth is attributed to the increasing contribution from digital platforms such as YouTube, Spotify, Saavn, Amazon Music, and Apple Music. Managementexpects overall revenue and net profit to grow by 30% for FY25 and plans to increase market share from the current 8-9% to 10-11% within the next 3-4 years.

Yes Securities hasinitiated a ‘Buy’ rating on Tips Music, with a target price of Rs 1,050. The brokerage believes that favourable industry trends, a strong content acquisition strategy and improved licensing laws will benefit the company in the medium term. They expect revenue and EPS to grow at a CAGR of 38% each over FY25-27, driven by a mix of growth in advertising revenues and premium subscriptions.

4. L&T Finance:

ThisNBFC surged 3.4% over the past week as itannounced a multi-year partnership with Amazon Finance India, a lending service provider to offer loan products through Amazon’s app and website. This will help L&T Finance (LTF) diversify its loan book as it extends loans to Amazon’s merchants as well as customers.

InQ2FY25, the company reported revenue growth of 15.6% YoY at Rs 4,024 crore, with net profit rising 16.9% YoY to Rs 696 crore. Both revenue and net profit beat Forecaster estimates marginally. As disbursements in the retail segment increased 12% YoY, assets under management (AUM) grew 28% YoY to Rs 88,975 crore. Credit costs stayed almost flat YoY which led to 32 bps YoY growth in net interest margins.

During itsinvestor day on November 25, LTF provided insights into its project Cyclops, which is an AI-based underwriting engine still in its beta phase. Managing Director and CEO, Sudipta Roy, says, “Cyclops will help the company transition from a wholesale dominant franchise to a retail-focused NBFC.” Management at LTF highlighted that they introduced the Cyclops project to the two-wheeler business in June ‘24.

Before Cyclops, LTF was able to handle 8,000 requests per day, but now it can handle over 2 lakh requests per day. Customer mix has also improved and shifted towards the ones that have the least number of delinquencies (failed payments by borrowers) due to improved borrower segmentation.

ICICI Securitiesmaintains a ‘Buy’ rating on L&T Finance as they expect these new initiatives to improve operational efficiency. LTF also plans to introduce an automated risk management system by September 2026, which will be able to generate early warning signals resulting in a further decline in credit costs. With AUM growth of 20-25% on a sustained basis, the company aims to double its loan book in the next 3-4 years.

5. Sobha:

This realty company has gained over 10% in the past week after it posted its Q2FY25 result on 15th November. Its net profit rose 74.6% YoY to Rs 26.1 crore, while its revenue increased by 24.8% YoY on the back of a 43.7% rise in real estate segment revenue. The company beat the Trendlyne Forecaster estimates for revenue by 15.5%. However, it missed the net profit estimate by 37.7% as its EBITDA margin contracted by 192bps YoY to 9%. It appears in a screener of stocks which have consistently given high returns over five years in Nifty500.

Q2FY25 was a mixed quarter for the company, with a 32% YoY decline in pre-sales, primarily due to lower demand for recent launches in the first half of the year. The company’s contract manufacturing segment also saw a 22.9% YoY revenue decline. However, completions were up by 28% YoY to around 0.9msf, supporting strong revenue growth. The company’s residential segment has been a growth driver for the company with its collections rising by 8.6% YoY to Rs 2,614 crore due to new launches. Also, the company's extensive land bank across multiple cities has further strengthened its market position.

Analysts note that the company has resolved its debt issues through better operating cash flow and successful completion of its Rs 2,000 crore rights issue, positioning it for aggressive growth. They also mention that the promoter is gradually increasing their stake, and Sobha is expanding its portfolio by acquiring land and forming more joint ventures.

Jagadish Nangineni, managing director of the company, on the EBITDA margins said, “The contracts and manufacturing can give much better margin once we choose the right set of contractual projects or we choose to deemphasize on some of kind of contracts that we are currently undertaking like civil in nature”. He adds that, “The revenue yet to be recognized from the sales that have been done till date, stands at about Rs 14,500 crore and the blended margin for this unrecognized revenue is over 33% and which would be recognized in the next 4 to 5 years.” On FY25 guidance he added, “Our previous guidance of Rs 8,500 crore in pre-sales depends on the timing of our expected launches in the next 5 months. We're hopeful that things will align, but a clearer picture will emerge in the next 2 months as we roll out new products.”

Geojit BNP Paribas has retained an ‘Accumulate’ rating on Sobha with a target price of Rs 1,802. The brokerage expects the company to do well in H2FY25 on the back of planned launches of ~5.5msf in the latter half, from its massive pipeline of ~19.3msf. However, it also points out that as a premium player in the sector, any moderation in real estate demand is a key risk along with any delay in obtaining approvals.

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

The Baseline

29 Nov 2024

The debate over cutting interest rates | Screener: Stocks outperforming a bearish market

By Swapnil Karkare

One can argue that the Reserve Bank of India works like a game of dominoes. The bank makes one move, and it sets off a whole series of cascading events.

There is a Tom & Jerry cartoon that shows RBI's dilemma (my mother used to claim that cartoons were useless, but I have now proven that this is not true). In the cartoon, Jerry tries to take a piece of cheese. A string tied to the cheese pulls an alarm clock, setting off a series of events which ends up with a very heavy box hitting Tom.

In its role as the central bank, RBI is constantly trying to avoid moves that will result in a heavy hit on the Indian economy. But right now, the economy is in a difficult mood. It's dealing with high inflation, a weakening rupee, and capital outflows.

What can the RBI do? On the one hand, prices are rising and the consumer price index (CPI) has crossed the 6% mark – the upper limit of the target inflation range. On the other hand, a slowing economy is hurting businesses.

Should RBI hold interest rates at the current level to bring inflation down, or should it cut rates to boost economic growth? The government is on the side of lower interest rates. Finance Minister Nirmala Sitharaman has pushed for lower rates to drive GDP growth, and Commerce Minister Piyush Goyal has made similar remarks. This has got many hoping that the RBI may cut rates at its next meet.

The central bank however, makes up its own mind. And it sees inflation as a dangerous creature, which if let loose with low interest rates, can create havoc. So it will probably hold rates steady in its December monetary policy meeting, despite the government's displeasure.

A screenshot of a social media post

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In this week's Analyticks,

Push and pull: The debate over interest rates cuts as the Indian economy slows

Screener: Rising stocks recovering towards year highs, and outperforming their sectors

Inflation: No immediate relief in sight

RBI is a cautious central bank, unlikely to cut rates without clear signals. And the big picture is unfriendly right now, because of persistent inflation coming from rising food prices. These increases are partly due to unseasonal rains, which destroyed crops like onions and tomatoes, and strained already fragile supply chains. In October, vegetable prices surged by 42% year-on-year (YoY), driving up the CPI to a 14-month high of 6.2% YoY.

Commerce Minister Piyush Goyal, has suggested that the RBI can ignore food inflation when setting rates. However, food makes up nearly half of household expenditure for many Indians. The central bank cannot just ignore the effect of rising food prices on overall demand.

Despite hopes that food inflation will ease over the next few months as supply conditions improve – thanks to higher mandi arrivals, adequate reservoir levels, and better rabi sowing, the outlook right now is unclear. The State Bank of India (SBI) estimates that consumer inflation will stay higher than the RBI's projection (4.8-4.9% vs. 4.5%) till the end of FY25. This dampens hopes for a rate cut even by February, according to SBI.

Near-term risks: A stronger dollar, and the China factor

Another complicating factor is the stronger US dollar. While a strong dollar has made Indian exports more competitive, India is now importing inflation, particularly in crude oil and other commodities. Being a net importer of goods, imported inflation is hitting India hard. Analysts at Goldman Sachs and UBS expect the dollar to stay strong under a Trump administration, which could keep pushing up the cost of imports.

Then there is China. China is for now, still grappling with deflation, low demand and falling fiscal revenues despite several rounds of stimulus. Lower demand has kept commodity and crude oil prices low.

The CME Group points out that if China can reverse its economic slowdown, we could see higher commodity prices worldwide, so the central bank is keeping an eye on the Chinese recovery.

Growth vs. Inflation: Walking a tightrope

Remember last month’s newsletter on India’s slowdown? We discussed how lower government spending dragged the economy down. However, post-elections, it has picked up compared to the previous year. The jump in government spending is expected to help the economy recover.

Motilal Oswal expects a better second half for businesses, driven by higher government expenditure, a robust kharif crop, and strong rural demand. A rate cut may not be needed urgently if these factors kickstart the recovery.

But there are still factors that can drive prices up, from unseasonal rainfall and supply chain issues to global upheaval that hits oil and commodity prices. Governor Das has warned that a rate cut right now would be "very premature" and "risky".

RBI is unlikely to budge on rate cuts, for now

With high inflation and upward price pressures expected to persist for at least a month, the RBI monetary policy committee is likely to hold rates. Government officials and ministers might not be thrilled with this decision, but it's a common scenario worldwide. Governments often push central banks to cut rates, and rarely call for hikes.

If the economic conditions improve — possibly by February or April 2025, when the MPC meets again —we believe the RBI will be ready to cut rates. Till then, the central bank is likely to keep both the government and investors in a sulk.

Screener: Rising stocks recovering towards year highs, and outperforming their sectors

General Industrials & IT stocks rise the most in the past month

In the current bearish market environment where the Nifty 50 is trading at a discount of 7.9% from its 52-week high of 26,277.6, we look at stocks that have risen the most over the past month, outperforming their sectors and trading near their year highs. This screener shows rising stocks over the past month trading near their year highs which are also outperforming their sectors.

The screener contains stocks from the banking & finance, pharmaceuticals & biotechnology, software & services, general industrials, and diversified consumer services sectors. Notable stocks in the screener are Kirloskar Brothers, Vijaya Diagnostic Centre, Jyoti CNC Automation, KFIN Technologies, Gillette India, Mastek, eClerx Services, and CCL Products India.

Kirloskar Brothers has risen the most, by 36.9% over the past month, helping it to outperform the general industrials sector by 33.4 percentage points. This has helped the stock to recover towards its 52-week high of Rs 2,684 per share and it is currently trading at a discount of 17%. The industrial machinery company (which manufactures engineered, industrial, agriculture and domestic pumps, valves, and hydro turbines) has been on the rise since reporting its Q2FY25 results on October 29 where its revenue and net profit grew by 14.7% YoY to Rs 1,050.1 crore and 89.9% YoY to Rs 95.1 crore, respectively. Its revenue increased on the back of Rs 1,162 crore worth of new orders during the quarter, while its net profit surged, led by higher volumes, cost control initiatives undertaken by the company, and a reduction in raw material prices.

Vijaya Diagnostic Centre comes in next after rising by 27.9% over the past month, outperforming the diversified consumer services sector by 28.6 percentage points. This has helped the stock to recover towards its 52-week high of Rs 1,250 per share and is currently trading at a discount of 7.4% from its year-high. This healthcare services company’s price rose on the back of its revenue and net profit growing by 28.7% YoY to Rs 187.5 crore and 25.9% YoY to Rs 41.9 crore, respectively, in Q2FY25. Its revenue increased on the back of an improvement in patient footfall and higher test samples.

You can find some popular screeners here.

The Baseline

28 Nov 2024

Five stocks to buy from analysts this week - November 28, 2024

By Ruchir Sankhla

1. Bharti Airtel:

Geojit BNP Paribas reiterates its ‘Buy’ rating on this telecom services provider with a target price of Rs 1,711, indicating an upside of 9.7%. The company reported a net profit growth of 168% YoY to Rs 3,593.2 crore in Q2FY25. Revenue increased by 11.6% YoY to Rs 41,728 crore, helped by improvements in the Indian mobile services, Airtel business, and home services segments.

The analyst highlights that average revenue per user (ARPU) of the company has increased to Rs 233 from Rs 203 a year earlier, supported by recent tariff hikes. Airtel's customer base grew 4.3% YoY to 563 million. The company installed 5,000 additional towers and 15,200 mobile broadband stations, enhancing connectivity. The capital expenditure for the quarter stands at Rs 7,675 crore, with Rs 6,260 crore incurred in India and Rs 1,415 crore in Africa.

Geojit expects a CAGR of 13.4% in sales, 14.8% in EBITDA, and 40.7% in net profit over FY25-26.

2. Sansera Engineering:

ICICI Direct retains its ‘Buy’ rating on this auto parts & equipment company, setting a target price of Rs 2,000, indicating an upside potential of 29.3%. The company reported a net profit growth of 7.8% YoY to Rs 50.7 crore in Q2FY25, while revenue rose 10.6% YoY to Rs 767.2 crore during the quarter.

Analysts Shashank Kanodia, Manisha Kesari and Bhavish Doshi highlight the company’s strong order book which stands at Rs 2,010 crore as of Q2FY25 (vs Rs 1,930 crore in Q2FY24), with 51% from higher-margin segments like non-auto and auto tech agnostic parts. Around 60% of orders are from international markets. Sansera is focusing on diversifying its revenue mix, aiming to lower automotive internal combustion engine dependency from 73% to 60% and improve tech agnostic and non-auto sectors to 20% each. The management aims to grow the non-auto segment with a CAGR of 35-40%.

Kanodia, Kesari, and Doshi expect a CAGR of 17% in revenue, 22.3% in EBITDA, and 36.4% in net profit for the period FY25-27, with revenue anticipated to reach around Rs 4,500 crore by FY27.

3. Sky Gold:

Edelweiss maintains a ‘Buy’ rating on this gems & jewellery manufacturer with a target price of Rs 4,500, indicating an upside potential of 16.9%. In Q2FY25, the company reported a net profit growth of 4X YoY to Rs 36.7 crore. Its revenue rose 98.7% YoY to Rs 788.6 crore, due to the recent duty cut which led to a surge in footfalls during the quarter.

Analyst Palash Kawale highlights that strong festive demand and recent acquisitions supported overall volume growth of 38% YoY to 345 kg/month this quarter. Management plans to increase volumes through new clients and higher sales to existing customers. Exports reached Rs 69 crore in Q2FY25 from Rs 14 crore in Q2FY24, contributing 9%, and are expected to reach 10% by year-end. Margin gains from value-added products, along with the sale of mutual fund holdings and reinvestment of the proceeds into fixed deposits, drove profitability.

Commenting on the results, Kawale said, “Given its record of overachieving its targets in the past combined with management’s execution capabilities, we believe that Sky Gold can be a long-term growth story.” The analyst expects revenue, EBITDA, and net profit to grow by 53%, 61%, and 73%, respectively over FY25-27.

4. CESC:

Sharekhan maintains a ‘Buy’ rating on this electric utilities company with a target price of Rs 217, indicating an upside of 24.5%. CESC reported a net profit growth of 1.4% YoY to Rs 353 crore in Q2FY25, driven by strong performances in Haldia and Dhariwal. Dhariwal Infrastructure and Haldia Energy’s profits increased by 19% and 12%, respectively, reaching Rs 81 crore and Rs 74 crore helped by higher power generation. However, the growth was partially offset by the standalone business due to higher interest expenses. The company’s revenue rose by 2% to Rs. 4,819 crore.

CESC plans to commission 1.5 GW of solar and 1.7 GW of wind capacity by FY29, with transmission connectivity of both expected to be granted in Q3FY25. Currently, 3.2 GW of wind projects are in engineering, procurement & construction (EPC) mode with Inox Wind, Suzlon, and Ecoren. Additionally, CESC Projects, a subsidiary of CESC, plans to set up a 10,500 TPA Green Hydrogen facility within the next three years.

The company implemented a 5.7% tariff hike starting in June to recover fuel and power purchase adjustment costs. The analysts say, "The 5.7% tariff hike, along with renewable energy investments and the turnaround of the distribution business, will boost earnings." They expect the company’s revenue and net profit to grow by 7.5% and 11.5%, respectively, over FY25-27.

5. Lemon Tree Hotels:

IDBI Capital maintains its ‘Buy’ rating on this hotels company with a target price of Rs 145. This indicates a potential upside of 11.6%. Lemon Tree Hotels’ (LTH) management highlights that Aurika Mumbai targets over 60% occupancy in Q3, up from 50% in Q2, by focusing on high-rate international crew business, which offers higher average rates and more predictable demand.

Analysts Archana Gude and Sarthak Awasthi note, “We remain positive on LTH within the mid-scale hotels segment due to its operational scale and the opening of Aurika, Mumbai, which will further boost earnings." They believe the management's strong outlook on inventory expansion and debt repayment is encouraging despite margin challenges in FY25 due to cost escalations.

In Q2FY25, the company reported a revenue growth of 21% YoY to Rs 284.4 crore, beating Trendlyne Forecaster estimates by 1.6%. However, net profit fell 27% due to lower available rooms and higher expenses from ongoing renovations.

The management is upbeat about growth in H2FY25, with October-November showing 15% revenue and 20% EBITDA growth YoY, driven by increasing wedding and banquet demand, particularly from destination weddings and social events. They expect renovation spending in FY25 to be Rs 100-110 crore, with 60% focused on high-value properties like Delhi and Mumbai.

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

(You can find all analyst picks here)

The Baseline

26 Nov 2024

Chart of the Week: IT and banking sectors outperform Nifty, while FMCG and auto struggle

By Aditi Priya

Over the past quarter, the Indian market has turned volatile, as both global and domestic pressures pile up. As the dollar strengthened and US elections resulted in a Trump win, foreign Institutional Investors (FIIs) were net sellers over the past quarter, with total net sales amounting to Rs 67,601 crore in equity. India’s Q2FY25 GDP growth is also expected to show a slight slowdown.

According to rating agency ICRA, the GDP growth rate is expected to dip marginally to 6.5%, compared to 6.7% in the previous quarter. However, the RBI has maintained its FY25 GDP growth forecast at 7.2%. It has adjusted the second-half estimate to 7.4%, despite a weaker first quarter and has revised the second-quarter forecast to 7% (down from 7.2%). Heavy rainfall and weaker corporate profits have contributed to this slowdown. India's retail inflation also increased to 6.2% in October, up from 5.5% in the previous month, primarily driven by higher food prices, surpassing RBI’s upper tolerance level of 6%. Madan Sabnavis, Chief Economist, Bank of Baroda described the pace of consumer price inflation as shocking. He noted, “While inflation for cereals and pulses may ease gradually, vegetables will take longer to stabilize. Core inflation also shows an upward trend, particularly in personal care products, as rising input costs are passed on to consumers.” This, he said, makes a rate cut in December unlikely.

While overall market sentiment has been negative, several sectors have outperformed the Nifty50 index in the past quarter. Key sectoral indices like IT, financial services, banking, services and realty have been resilient, delivering strong returns amid tough conditions. On the other hand, sectors such as metal, infra, auto, FMCG, energy and oil & gas have struggled, underperforming the broader market due to weaker consumer demand, as well as global uncertainty and inflationary pressure.

In this week’s Chart of the Week, we take a look at Trendlyne’s Indices Dashboard to identify the sectors that have outperformed and underperformed the flagship Nifty50 over the past quarter.

IT sector rebounds and emerges as the top-performing sector over the past quarter

The IT sectoral index Nifty IT has emerged as the best-performing sector, posting a 7.3% gain over the past quarter. Average revenue rose by 6.6% YoY in Q2FY25, driven by strong demand for emerging technologies such as Generative AI, machine learning, and cloud transformation. Tech Mahindra saw YoY net profit jump in triple digits, with a jump of 132.8%.

Its growth was fueled by positive sequential growth across all verticals, except manufacturing and healthcare. IT companies got a boost due to interest rate cuts in the US and EU. Salil Parekh, CEO of Infosys, notes, “Historically when interest rates are cut and inflation is better controlled in Western Europe and the US, spending on large technology programs tends to rise.”

The financial services and banking sector indices also outperformed Nifty50, rising 3.5% and 2.5%, respectively, over the past quarter. Banks saw higher YoY growth in deposits in Q2FY25 compared to Q1FY25, driven by increased efforts to attract deposits through higher rates and innovative schemes. Punjab National Bank, the second-largest public sector bank, recorded a 10.9% YoY growth in domestic deposits, up from 8.1% in Q1FY25.

The services sector index has risen 2.1% over the past quarter, with Zomato’s net profit increasing by 33.7% YoY for Q2FY25. The telecom services company Bharti Airtel saw a massive increase in the net profit to Rs 2,517.6 in Q2FY25 from a loss of Rs 293 crore in Q2 last year.

The Nifty Realty Index has also outperformed Nifty50, posting a return of 1.1% over the past quarter. The festive season typically sees an increase in consumer and business activity boosted by new project launches. Developers like Oberoi Realty reported strong net profit growth. It reported a profit of Rs 463.6 crore in Q2FY25, compared to a net profit of Rs 194.4 crore in the same quarter last year.

Oil & Gas, FMCG and Infrastructure are top losers over the past quarter

The Nifty Oil & Gas index has significantly underperformed Nifty50, falling 16.9% over the past quarter. This decline is primarily due to the poor performance of oil marketing companies (OMCs) such as Indian Oil, Bharat Petroleum, and Hindustan Petroleum, which reported a substantial drop in net profit (between 70-99%) during Q2FY25. The Q2 profit came in well below expectations, as weaker oil refining margins and larger-than-expected inventory losses pushed core profit before tax (PBT) into the negative territory.

The Nifty FMCG index saw a 8.8% decline over the past quarter. Rising costs and inflation impacted FMCG companies’ topline and bottom line. To counter rising raw material costs, many companies took steps to control expenses, which slightly helped reduce the impact on their profits. ITC stood out as one of the few exceptions, posting a 15.8% increase in revenue in Q2FY25, beating its Forecaster estimate. Other companies such as Colgate-Palmolive, Britannia, Nestlé, and Dabur fell short of their revenue estimates.

The Nifty Auto index has fallen 9.4% over the past quarter. This was mainly due to the passenger vehicle segment seeing a 1.8% drop in Q2FY25 compared to the same period last year, likely due to demand saturation in urban markets and sales disruptions caused by the extended monsoon. Commercial vehicles also recorded an 11% decline in Q2FY25 compared to the previous year, which was likely driven by a slowdown in industrial and construction activity.

The Nifty Infrastructure index has declined by 6.6% over the past quarter. UltraTech Cementsaw a decline of 33.9% YoY in the net profit in Q2FY25. The cement and construction company, Larsen & Toubro’s net profit also fell 26.5% in Q2. Additionally, the government has spent only Rs 3.1 lakh crore on capex by August 2024, or 27% of its annual target. This leaves a 73% shortfall, compared to 37.4% spent in the same period last year.

The Nifty Metal index has fallen by 4% over the past quarter, with 9 out of its 15 constituents, including Tata Steel, Hindustan Zinc, Hindalco Industries, Hindustan Copper, and Jindal Steel, falling during this period

The Baseline

26 Nov 2024

Which stocks did superstar investors buy in Q2FY25?

By Melissa Koshy

Investors closely follow superstar investors like RARE Enterprises, Ashish Kacholia, Sunil Singhania, and Vijay Kedia for valuable insights into the market. Their buys and sells help investors discover interesting sectors and stocks. Here’s a look at their top buys in Q2FY25.

(You can now also invest in shadow superstar baskets available on Starfolio, which are updated and rebalanced as per Trendlyne's superstar portfolios).

In Q2, most superstar investors turned cautious, making fewer additions and more stake sales. The chart below shows the changes in superstar investors' current portfolio net worth. Note that net worth reflects changes in both current holdings and new buys & sells.

Each superstar investor's public portfolio reflects their particular investing style and sector preferences. The following chart gives a breakdown of the dominant sectors in each investor’s portfolio.

Sector preferences vary among superstar investors – RARE Enterprises leans towards the textiles apparels & accessories sector, while Ashish Kacholia and Sunil Singhania favor the general industrials sector. Vijay Kedia’s preferred industry is telecommunications equipment. Dolly Khanna prefers the oil & gas industry, and Porinju Veliyath favors software & services.

RARE Enterprises adds a newly listed company to its portfolio in Q2

Rakesh Jhunjhunwala’s portfolio, currently managed by Rekha Jhunjhunwala and RARE Enterprises, has increased 2.9% to Rs 49,831.7 crore as of November 26. RARE Enterprises added just one new company and increased a minor stake in another during the quarter.

Jhunjhunwala’s portfolio added recently listed Baazar Style Retail by buying a 3.7% stake. The department stores chain debuted on the stock exchanges on September 6, 2024. The company was listed at a 2.8% premium but is currently trading at 15.7% lower than its listing price.

During Q2, RARE increased a minor stake in Tata Motors. The portfolio now holds a 1.3% stake in the cars & utility vehicles maker. Over the past year, the company’s share price has increased by 16.2%.

Ashish Kacholia adds six new companies to his portfolio

Ashish Kacholia’s net worth has declined by 12.3% to Rs 2,967.9 crore as of November 26. During the quarter, the marquee investor added six new companies to his portfolio and raised a minor stake in another.

Kacholia’s biggest buy during the September quarter was Radiowalla Network, an advertising & media stock. The ace investor bought a 7.8% stake in the company. Radiowalla debuted on the stock exchanges on April 5, 2024. The company’s share price has increased by 49.9% from its listing price.

During Q2, the ace investor also bought a 2.7% stake in Advait Infratech. Over the past year, the electrical equipment maker has surged by 223.7%, outperforming its industry by 142.8%. Kacholia also added construction & engineering firm Jyoti Structures, by buying a 2.5% stake. The company’s share price has increased by 84.2% in the past year.

Kacholia also added Bharat Parenterals to his portfolio by buying a 2% stake, as well as a 1.1% stake each in Aimtron Electronics and E2E Networks. Over the past year, the pharmaceuticals, electronic components, and internet software & services companies have surged by 174.9%, 217.8%, and 515.1% respectively.

The ace investor increased a minor stake in Aeroflex Industries. He holds a 1.8% stake in the iron & steel products maker.

Sunil Singhania’s Abakkus Fund makes no new buys in Q2

Sunil Singhania’s Abakkus Fund saw its net worth fall by 4.1% to Rs 2,929.9 crore as of November 26. The fund has been pretty quiet in recent months, and made no buys or stake increases during the quarter, continuing the trend from the June quarter.

Vijay Kedia adds a new company in Q2, increases stake in another

Vijay Kedia’s net worth decreased by 3.2% to Rs 1,777.7 crore. During the July-September quarter, the ace investor added consulting & software company TAC Infosec to his portfolio by buying a 14.6% stake.

Over the past year, TAC Infosec’s share price has zoomed 628.7%, outperforming its industry significantly by 589% points.

Kedia increased his stake in Precision Camshafts in Q2 by 0.9%. The ace investor now holds a 2.1% stake in the auto parts & equipment maker. Over the past three months, the company’s share price has increased by 28.1%, compared to the industry’s 8.3% decline.

Dolly Khanna adds three new companies to her portfolio in Q2

Dolly Khanna’s net worth decreased by 23% to Rs 449.5 crore, she publicly holds 19 companies. During Q2, the investor continued to expand her portfolio by adding three new companies and raising stakes in eight others. Among her new investments is a 1.3% stake in mining company 20 Microns and a 1.1% stake each in Pondy Oxides & Chemicals, a non-ferrous metals company, and commodity chemicals stock POCL Enterprises. Both Pondy Oxides and POCL have risen by 284.9% and 420.9%, respectively, over the past year.

During the second quarter, Khanna bought a 0.88% stake in plastic products company Prakash Pipes, taking her holding to 3.8%. She bought a 0.85% stake in capital markets company Emkay Global Financial Services and now holds a 2.5% stake. The ace investor added minor stakes in the sugar stock KCP Sugar & Industries Corp and the fertilizers company Mangalore Chemicals & Fertilizers. She now holds 1.6% stakes in both these companies.

During Q2, Khanna also bought minor stakes in Selan Exploration Technology, Nile, National Oxygen, Rajshree Sugars & Chemicals, and Zuari Industries. Notably, she added stakes in three companies from the sugar industry.

Porinju Veliyath adds a hotels stock to his portfolio

Porinju Veliyath’s net worth increased by 17.6% to Rs 271.9 crore. During the second quarter, he added Apollo Sindoori Hotels to his portfolio, acquiring a 1.4% stake in the hotels company.

The investor also increased his holdings in three of his existing companies. He bought an additional 1.1% stake in real estate firm Ansal Buildwell, raising his total stake to 3.1%. Over the past year, Ansal Buildwell has outperformed its industry by 32.8%.

The ace investor also added a 0.5% stake in an IT software company Aurum Proptech, taking his holding to 5.4%. Additionally, he raised his stake in TAAL Enterprises, an airline industry company, which has a good durability score of 70.

The Baseline

22 Nov 2024

Quant mutual funds and GQG partners back in focus as another Adani Group controversy erupts

By Satyam Kumar

On January 24, 2023, Hindenburg Research, famous for activist short-selling, published a report with the headline, “Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History.” This impacted all the stocks of the Adani conglomerate and within a matter of days, brought down his wealth by more than 50%. In response to this, Gautam Adani said that all allegations are baseless. The Supreme Court of India and SEBI gave him a clean chit after an investigation.

Almost two years later, Adani stocks were still recovering from the Hindenburg shock, and Gautam Adani was busy raising fresh funds, and set to launch $600 million of dollar-denominated bonds.

But around 3 am, early Thursday morning in India, US prosecutors published the allegations that he, along with others, had promised to pay more than $250 million in bribes to Indian government officials to win solar energy contracts. The crux of their case was that he concealed these efforts while he sought to raise money from US investors.

Adani Group’s stocks and bonds plunged, wiping off around Rs 2,50,000 crore of the conglomerate’s total market value. Here at Trendlyne, we follow these market movements closely, and in this article, we will explore the impact of this on retail as well as institutional players who hold Adani stocks in their portfolios.

Domestic and foreign investors hold substantial Adani Group shares

Domestic investors held 17% of Adani stocks, while foreign investors owned 13%

Of the total investments worth over Rs 2 lakh crore by the foreign institutional investors (FIIs) as of October end, around 40% was from GQG Partners. GQG, an investment management firm, saw its shares listed on the Australian Securities Exchange fall by around 20% on Thursday.

Meanwhile, retail investors and mutual funds combined also had investments worth around Rs 2 lakh crore at the end of October.

By design, every passive fund and ETF was exposed to a few Adani Group stocks. However, even the actively managed mutual funds from Quant, ICICI Prudential, HDFC, SBI, and Mirae Asset among others had significant exposure to Adani stocks as of October 31.

Actively managed Quant mutual funds have exposure of ~Rs 5,000 crore to Adani stocks

While FIIs were continuously pressing ‘SELL’ on Adani, DIIs were pressing ‘BUY’

FIIs were right yet again in reducing their exposure to Adani-verse

Except for GQG Partners, most FIIs were quietly cutting their exposure to the Adani group stocks, while active mutual funds and retail investors were mostly sitting on the other end of the trade buying those stocks.

Quant mutual funds find themselves wrong-footed on Adani again

Quant MFs again took a chance with Adani stocks, and got burnt again

You must be wondering who were the ones among the DIIs pressing the ‘BUY’ button. I found the answer exactly where I thought I would — the monthly change page of mutual funds’ holdings on Adani Enterprises’ shareholding page, and I was struck by one name in particular — ‘Quant Mutual Fund’. If you look at the screenshot above, many funds managed by the Quant fund house took fresh positions in Adani Enterprises just last month in October. According to the data from Trendlyne, they invested over Rs 1,963 crore in this single stock and again got their hands burnt along with many investors who trusted them with their savings.

This is the second time Quant has got its fingers burnt. Quant mutual funds were among the biggest holders of Adani stocks during the Hindenburg Saga.

Adani follows the SOP

An Adani Group media release that came around 2 pm on Thursday issued denials regarding the case, “The allegations made by the US Department of Justice and the US Securities and Exchange Commission against directors of Adani Green are baseless and denied.”

The media release also cited the US Department of Justice, which said, “The charges in the indictment are allegations and the defendants are presumed innocent unless and until proven guilty.”

In an interview with Forbes over a decade ago, Gautam Adani said, “Being an entrepreneur is my dream job as it tests one's tenacity. I could never take orders from anyone.” But shareholders, regulators and investors will now play significant roles in deciding what lies ahead for his conglomerate.

The Baseline

22 Nov 2024

Five Interesting Stocks Today - November 22, 2024

1. Hindalco Industries:

This aluminum products manufacturer has gained 4% over the past week, driven by a surge in aluminum prices. The increase follows China’s proposal to reduce or eliminate export tax rebates on commodities like copper and aluminum starting December 1. This announcement pushed London Metal Exchange (LME) aluminum prices up by 8% to $2,730 per tonne on November 18.

The Chinese decision seeks to address the oversupply of Chinese aluminum in global markets, a long-standing issue that has caused trade tensions with the US and Europe. Analysts believe it will reduce China’s exports, tighten global supply, and boost prices, benefiting Indian aluminum companies like Hindalco, Vedanta, and National Aluminium Company (NALCO).

Hindalco posted a 78% YoY increase in net profit to Rs 3,909 crore in Q2FY25, supported by lower power, fuel, and finance costs. Revenue rose 8.5% YoY to Rs 59,278 crore, driven by growth in Novelis, and the upstream, downstream aluminum, and copper segments. Novelis, Hindalco’s US-based subsidiary, reported Q2FY25 revenue of $4.3 billion, with EBITDA at $462 million (-5% YoY). The EBITDA decline was attributed to rising aluminum scrap prices and a loss of $25 million from flood damage at its Sierre, Switzerland plant.

Hindalco is focusing on Indian upstream projects, including aluminum and copper smelters and an alumina refinery, with a total capex of $4-5 billion over the next 3 to 3.5 years. MD Satish Pai said, "The company will fund this capex through a combination of internal cash and debt, raising $1-1.5 billion over three years. Our capex guidance for this year stands at Rs 6,000 crore, and for next year, we expect it to be around Rs 8,000 crore."

Post results, Motilal Oswal maintains its ‘Buy’ rating on Hindalco with a target price of Rs 780, indicating a potential upside of 19.6%. The brokerage believes that the ongoing capex in Novelis is expected to position Hindalco as a global leader in the beverage cans and automotive flat rolled products (FRP) segments. However, the cost of production in the aluminum business may rise due to higher coal e-auction premiums and increasing scrap prices, potentially impacting margins in the short term.

2. PI Industries:

This agrochemicals company has declined by 3.5% over the past week following the announcement of its Q2FY25 earnings on November 13. PI Industries' revenue grew by 4.9% to Rs 2,221 crore during the quarter, helped by an improvement in the custom synthesis and manufacturing (CSM) segment. However, revenue missed Forecaster estimates by 3.5%. Meanwhile, net profit grew by 5.8% YoY to Rs 508.2 crore, and EBITDA margins were up 220 bps YoY to 28.3%, led by a favourable product mix.

The company’s domestic and pharma businesses continued to witness subdued demand during the quarter. The management highlighted that delayed and erratic rainfall and pricing pressures on inventories weighed on Kharif seed demand and market sentiment. The pharma business was impacted due to the slow offtake of some of its products. However, the company expects volumes to pick up in H2 and targets revenue of Rs 250-270 crore from the pharma business in FY25. PI Industries’ export segment (which contributes over 78% to the revenue) witnessed healthy growth, with its revenue increasing by 8% YoY during the quarter.

Going forward, the company expects lower, single-digit (~7-9%) revenue growth for FY25 compared to its earlier guidance of around 15%. Speaking on this, Mayank Singhal, the Managing Director of the company, said, “The global crop protection industry faces challenges due to volatility in agricultural markets, fluctuating commodity prices, destocking trends, pricing pressures, rising inflation, and delayed purchase decisions. Considering the current global industry scenario, we have re-aligned our overall outlook.”

Following the company’s results, Motilal Oswal maintains its ‘Buy’ rating on PI Industries with a target price of Rs 5,200. The brokerage has a positive outlook on the company, driven by consistent growth momentum in the CSM business, product launches in the domestic market (six to seven new launches in FY25), and ramping up of the pharma API and CDMO segments.

3. Britannia Industries:

This packaged foods company declined by over 2% on 21st November as the Food Safety and Standards Authority of India (FSSAI) issued a notice to the company regarding the use of a preservative in a batch of one of its products and prohibited its sale.

The company had announced its Q2FY25 result on 11th November. Its net profit declined by 9.5% YoY on the back of rise in raw material and employee expenses, while its revenue rose 5.1% YoY. The company missed the Trendlyne Forecaster estimates for net profit by 11.6% and revenue by 1.6%. It appears in a screener of stocks which are categorised as Expensive Performers according to DVM scores.

Q2FY25 was a lacklustre quarter for the company due to weak demand and high food inflation numbers, specially for items like cereals (6.9%), vegetables (42.2%), and refined edible oils (35.7%). The company’s rural market however showed mid to high single digit revenue growth, but the urban market including modern trade and e-commerce delivered slower growth as compared to previous quarters. The FMCG market slowdown was significant in urban metros – it contributed 75% of the overall sector slowdown. The FMCG sector grew by just 4.1% in volume during the September quarter, down from 7.2% during the same period last year. Heavy monsoon rains worsened the slowdown, especially for out-of-home consumption.

Varun Berry, vice chairman and managing director of the company, highlighted the company's plans to implement a 4-5% price hike in select SKUs over the next two quarters to combat raw material cost pressures. On price hikes Berry added, “We are very vigilant about competitive pricing actions because we understand that as market leaders, we need to take the lead. However, we do not want to be uncompetitive, and that is something we are keeping an eye on.” He also noted that Britannia has seen a rise in rural distribution where its number of distributors are now over 30,000 and its focus states are performing better. The company has an estimated 33% market share in India's organised biscuits market..

KR Choksey has retained an ‘Accumulate’ rating on Britannia with a target price of Rs 5,601. The brokerage has lowered its FY25 and FY26 EPS estimates by 11.5% and 6.1%, respectively, due to higher-than-expected raw material and employee cost, weaker-than-expected Q2FY25 and heightened competition. However, it also highlights the company’s cost optimization and growth in emerging channels. It expects Revenue, EBITDA, Adj. PAT to grow at CAGR 6.2%, 8.4%, 9.3%, respectively, over FY25-26.

4. Indraprastha Gas Ltd (IGL):

This gas distribution company's shares fell by 23% this week following the government's announcement of a 20% reduction in APM (Administered Price Mechanism) gas allocation. APM is a system designed to regulate prices of essential commodities like petroleum and natural gas in India. The latest reduction, effective November 16, 2024, follows an earlier 21% cut in allocation implemented on October 16.

GAIL, the nodal agency for domestic gas distribution, has curtailed IGL's supply, which directly impacts its operations in retailing CNG for vehicles and piped cooking gas for households in Delhi and nearby cities.

Company Secretary and Compliance Officer Vivek Sahay said, “GAIL has further reduced IGL's gas supply and this reduction is expected to negatively impact the company's profitability." Domestic gas, priced at a government-regulated $6.5 per MMBtu, is significantly cheaper than imported liquefied natural gas (LNG). As of Q1FY25, the raw material composition for IGL consisted of 62% APM gas and 38% RLNG. The reduced allocation forces IGL to rely more on costly imported LNG, driving up input costs. With gas costs forming a substantial part of CNG pricing, this shift is likely to compress IGL's profit margins.

Looking ahead, the management says that it is focused on balancing supply costs and sustaining profitability. To address the challenge of reduced APM gas allocation which is expected to negatively impact profitability, the company is pursuing long-term contracts to procure gas at prices closer to APM rates.

Price hikes for CNG and cooking gas are also expected in the near future. If successful, this approach could help restore margins to previous levels and mitigate the adverse effects of reduced domestic gas supply.

Trendlyne classifies this stock as a value stock, under radar. Macquarie has upgraded IGL from 'Neutral' to 'Outperform'. However, they have reduced the price target from Rs 480 to Rs 400, which implies a potential upside of 27.9%.

5. Century Plyboards (India):

Thisplyboard manufacturer fell by 22.4% over the past month and 6.1% on November 13 after announcing itsQ2FY25 results. Its net profit missedForecaster estimates by 41.9% as it declined 58.7% YoY to Rs 40 crore in Q2FY25. However, its revenue increased 18.7% YoY to Rs 1,183.6 crore, driven by strong volume growth in the plywood and Medium Density Fibre Board (MDF) segments during the quarter.

The sharp drop in the net profit wasdue to a 25.8% YoY surge in total expenditure, driven by higher raw material costs, especially timber prices which have been rising due to shortages in South India. Additional drivers included a Rs 13 crore forex loss from imported machinery for a new panel plant and increased marketing expenses in the Laminates segment to regain market share and support the new Andhra Pradesh facility.

During the quarter, the Plywood and Allied Products segment grew 20.9% YoY to Rs 665.2 crore, accounting for 54.5% of the total revenue. Commenting on this segment Sanjay Agarwal, MD and CEO of the companysaid, “We have revised our guidelines for H2 at 12% plus sales growth and EBITDA margins between 12% and 14%”. The company had earlier given a sales guidance of 10% for FY25.

The management alsoexpects over 10% margins in the MDF segment, which grew 36.4% YoY to Rs 268.4 crore contributing 23.9% of the total revenue, this rise was supported by the new facility in Andhra Pradesh. Agarwal also mentioned that the company aims to achieve market share between 13% to 14% from 8% currently.

Following the results, BOB Capital Marketsmaintained a ‘Hold’ rating on Century Plyboards with a target price of Rs 725. The brokerage anticipates the company’s EPS to grow at a 14.8% CAGR over FY25-27, with expected CAGRs of 17.6% for revenue and 34.3% for EBITDA during the same period.

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

The Baseline

19 Nov 2024

India’s IPO market struggles in the ongoing stock market correction

By Aditi Priya

India has seen the highest number of IPOs among Asian countries this year. In the past six months, 46 companies have collectively raised over Rs 97,000 crore via the mainboard IPO route, according to Trendlyne’s IPO dashboard.

However, the IPO buzz in India seems to be fading. A performance check of IPOs shows that the listing and post-listing performance in the second half of 2024 has fallen compared to 2023 and the first half of 2024. In the case of IPOs like Hyundai Motors, retail and non-institutional subscription levels have declined, reflecting reduced investor enthusiasm.

Moreover, quite a few of the mainboard IPOs (about 42%) of the ongoing quarter have listed at a discount. The average listing gains of the IPOs during this quarter is slightly over 16% compared to average listing gains of 33.8% last quarter. The tepid IPO market appears to be caused by various factors ranging from valuations to market sentiments.

Large issue-size IPOs struggle perform post-listing

On October 15, India saw its biggest IPO ever, with Hyundai Motors India raising Rs 27,870 crore. The world's third-largest automotive original equipment manufacturer (OEM), made its market debut at a 7.2% discount to the issue price. Analysts believe that there were two reasons behind this dull response. First, this was a 100% Offer for Sale (OFS) by the parent company, which did not sit well with retail investors since no fresh funds were being infused into the business. Second, the upper price band for the IPO was set at Rs 1,960, implying a valuation of 26 times the projected earnings per share (EPS) for FY24 and approximately 30 times EPS for FY25, which exceeds the auto industry average P/E ratio of 24x. Market-changing technology is rare in the auto sector, which limits aggressive growth forecasts

Swiggy's Rs 11,327 crore listing was another highlight, becoming the second-biggest IPO of the year. The food delivery giant made its market debut with a 16.9% premium, but has fallen since listing and is currently trading at a premium of 7.8% over its issue price. The profit booking by investors looking for IPO gains and a high valuation gap (at the time of listing) have contributed to this decline. Additionally, the company has struggled with consistent net losses since its inception. For the fiscal year ending March 31, Swiggy reported a loss of Rs 2,350.24 crore, a reduction from Rs 4,179.30 crore in FY23 and Rs 3,628.89 crore in FY22.

Cement and construction companies suffer the biggest losses post-listing

Cement and construction companies, Afcons Infrastructure, Deepak Builders & Engineers and Garuda Construction and Engineering also launched their IPOs this quarter. However, the performance of these listings has been largely disappointing.

Deepak Builders & Engineers made its market debut at a 20.2% discount. The poor performance of the IPO can be attributed to a cautious market outlook. In contrast, Garuda Construction & Engineering and Afcons Infrastructure had a more promising start, debuting at a 12.5% premium and 2.4% premium, respectively. However, Garuda’s stock is currently trading at a discount of 12.8%. Despite a strong order book and a diversified project portfolio, Garuda's performance is vulnerable to the cyclical nature of the construction industry and ongoing market volatility, which likely impacted its stock value.

KRN Heat Exchanger and Waaree Energies are the best-performing IPOs of the ongoing quarter

Among all the IPOs launched this quarter, KRN Heat Exchangers and Refrigeration and Waaree Energies stand out for delivering positive returns. The commercial services company got listed at an impressive 117% premium and is currently trading at a premium of 238%. Whereas, Waaree energies, a consumer durables company made a strong debut, listing at a premium of 55.6% and currently trading at an impressive 96.6% premium to its issue price.

Waaree is also expanding its global reach by setting up a 3 GW manufacturing facility in the United States to cater to rising international demand for solar energy. In FY24, the company reported the second-highest operating income among domestic solar PV module manufacturers in India. Waaree also reported a 69% year-on-year revenue increase, reaching Rs 11,398 crore, while its profit after tax more than doubled to Rs 1,274 crore.

The recent downturn in India's IPO market is part of a broader trend affecting the equity markets. Both the Sensex and Nifty have entered a correction phase, with declines exceeding 10% from their recent highs. This decline has been driven by continued selling by foreign institutional investors (FIIs) and muted macro numbers. In November alone, FIIs withdrew Rs 22,420.3 crore, contributing to a total outflow of Rs 1.2 lakh crore since Nifty peaked in September. Additionally, rising US bond yields, weak corporate earnings, and ongoing global economic uncertainties have further soured market sentiment.

The Baseline

19 Nov 2024

Five stocks to buy from analysts this week - November 19, 2024

By Divyansh Pokharna

A defensive sector - healthcare - dominates this week’s analyst picks, with three out of five stocks from this space.

1. Healthcare Global Enterprises:

ICICI Direct maintains a ‘Buy’ rating on this hospital operator with a target price of Rs 600, indicating an upside of 28.3%. Healthcare Global Enterprises (HCG) specializes in establishing and managing hospitals and medical diagnostic services, focusing on advanced cancer treatments. In Q2FY25, the company reported a revenue growth of 14% YoY to Rs 553 crore, supported by a 15% rise in its hospitals business. The average revenue per occupied bed (ARPOB) stood at Rs 45,188, marking a 7% increase.

HCG’s EBITDA margins stood at 17.3%. The company’s management anticipates margins to gradually improve to around 20% by Q4FY25, supported by higher occupancy rates and an improved payee mix. Analysts Siddhant Khandekar, Shubh Mehta, and Vedant Nilekar highlight that rising margins at new centres and the integration of Vizag Hospital, which holds over 30% market share in Vizag, will drive growth.

The company is developing two advanced hospitals in North Bangalore and Whitefield, with a combined capacity of 125 beds, expected to be fully operational by early FY26. It plans to expand its total bed capacity to 900 within three years. The analysts project a revenue CAGR of 6.8% and a net profit CAGR of 15.1% for FY25-26.

2. DOMS Industries:

Axis Direct maintains a ‘Buy’ rating on this stationary products company with a target price of Rs 3,120. This indicates a potential upside of 14.4%. Analysts Preeyam Tolia and Suhanee Shome are positive about the company's growth, highlighting its efforts to diversify its product range. DOMS is expanding into the larger pens category, moving beyond its focus on small pencils, and entering fast-growing sectors like bags, toys, and diapers.

DOMS has recently acquired a 51.8% stake in Unilcan Healthcare for Rs 55 crore, which makes baby diapers and wet wipes under the ‘Wowper’ brand. The diaper market, valued at $2 billion, is expected to grow to $3 billion in the coming years. The company's distribution network is expected to expand Unilcan’s reach across India, increasing market penetration beyond its current 12-state presence.

In Q2FY25, the company’s revenue grew by 19.7% YoY to 458 crore, driven by higher average selling prices, expanded distribution, and the integration of the Unilcan portfolio, which added Rs 14.3 crore (3% of sales) over 15 days. Its distribution reached 135,000 outlets, up from 125,000 in Q1FY25, a 10,000-outlet increase.

For FY25, the management expects revenue growth of over 20% and EBITDA margins of 17-17.5%, down from 18.8% in Q2, due to higher costs of polymers, waxes, and the integration of the lower-margin Unilcan acquisition.

3. Krishna Institute of Medical Sciences:

Edelweiss reiterates its ‘Buy’ rating on this healthcare facilities company with a target price of Rs 630, indicating a potential upside of 11.1%. The company reported a 19% YoY revenue growth to Rs 777.3 crore in Q2FY25, exceeding the Trendlyne Forecaster estimates by 4.8%. Net profit rose by 19% to Rs 121 crore, while EBITDA margins improved by 89 bps to 28.1%. Analysts Ranvir Singh and Pawan Bhatia said “The margins are expected to remain stable for H2FY25, with the ramp-up of newly launched units likely to drive further improvements."

Krishna Institute of Medical Sciences (KIMS) has expanded its operations with the launch of its Nashik unit (325 beds) and the newly acquired Queen’s NRI Hospital in Vizag (300 beds) during Q2, increasing its total bed capacity to 4,610. Additionally, the company signed operations and management (O&M) agreements with two hospitals, Kannur (200 beds) and Guntur (200 beds), set to begin operations in Q3FY25. With these O&M hospitals, KIMS' total bed capacity is projected to reach ~5,000 in FY25, up from 3,975 in FY24.

Singh and Bhatia are optimistic about the upcoming projects in Thane, Bangalore, Srikakulam, and Ongole, expected to commence operations in H2. They note that a 22% YoY growth in average revenue per occupied bed (ARPOB) during H1 indicates the potential for better-than-expected ARPOB performance for the full year.

4. Archean Chemical Industries:

KR Choksey maintains its ‘Buy’ rating on this chemical firm with a target price of Rs 890. This indicates an upside of 31.3%. Archean Chemical Industries’ (ACI) revenue fell 17% YoY in Q2FY25 due to a 19% drop in the industrial salt segment, which accounted for 62% of total sales. The decline was mainly caused by inventory losses worth Rs 40 crore due to a cyclone. Poor road conditions also disrupted logistics, reducing export volumes to 7.5 lakh tonnes, as ACI depends on over 300 trucks for salt transportation.

The company’s bromine business, however, grew 11% YoY in Q2FY25, with volumes rising to 4,800 MT from 3,400 MT in Q2FY24, supported by steady domestic demand. Analyst Dipak Saha highlights that ACI’s growing bromine derivatives business could help shift its focus from basic commodities to more value-added specialty products, offsetting weaknesses in its core operations.

ACI targets over 10 lakh tonnes of industrial salt per quarter in H2FY25, recovering from disruptions in H1. The company’s management also aims to produce 20,000 tonnes of bromine in FY25, driven by strong domestic demand and better market conditions, with plans to increase production to 25,000 tonnes in FY26.

5. Jupiter Life Line Hospitals:

Anand Rathi initiates its ‘Buy’ rating on this hospital chain with a target price of Rs 1,740, indicating an upside of 16.8%. The company reported a 9% YoY rise in average revenue per occupied bed (ARPOB) during H1FY25, led by ARPOB at Rs 66,700, Rs 55,000, and Rs 44,700 for its Thane, Pune, and Indore units, respectively. Analysts Himanshu Binani and Rohan Shukla mention “The recent insurance rate revisions at the Pune hospital and new insurance tie-ups at the Indore facility should further enhance ARPOB and occupancy rates.”

In Q2FY25, Jupiter Lifeline Hospitals reported a 23% YoY increase in revenue to Rs 322.6 crore and a 53% rise in net profit. The results were in-line with the brokerage’s expectations, with revenue surpassing Trendlyne Forecaster estimates by 5.2%, though net profit missed by 1.5%. The growth was driven by higher occupancy across hospitals. Binani and Shukla project 14% revenue and 21% EBITDA CAGR over FY25-27, supported by increasing occupancy at Pune and Indore hospitals.

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

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