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

05 Nov 2024

Chart of the Week: Banks & AMCs beat analyst forecasts in Q2, while OMCs & pharma disappoint

Who doesn’t enjoy surprises? The word makes us think of something pleasing and unexpected. However, when viewed through the lens of an analyst with specific forecasts about a company’s performance, surprises can be negative too, as we’ll explore in this article.

If you check the quarterly reports of analysts, available here, it typically begins with an assessment of whether the firm exceeded or missed estimates for revenue, net profit, margins, and other key metrics in their results. These beats and misses significantly impact the company’s share price. In this week’s chart of the week, we’ll look at Trendlyne’s Analyst Estimates dashboard to review companies that either beat or missed forecasted estimates for Q2 FY25.

Banks shine in Q2, wealth management & related firms outperform

Most banks reported strong results in Q2, with firms like ICICI Bank and Axis Bank exceeding analyst expectations for revenue and net profit. Improved asset quality and sustained loan growth boosted earnings; deposits however, remain a concern, impacting profitability. Changing savings preferences have driven customers away from deposit accounts, as more and more people buy into the idea of “Mutual Funds sahi hai.”

Public Sector Undertaking (PSU) banks like the Bank of Baroda, Punjab National Bank, and Union Bank of India outperformed estimates by significant margins. Many PSU banks currently offer strong valuations, with Trendlyne Valuation Scores above 70. This trend aligns with Nifty PSU Bank—an index of 12 government banks—trading at a discount of over 15% from its 52-week high.

On the contrary, Kotak Mahindra Bank missed its consensus estimates due to higher slippages (bad debt), particularly in the credit card and microfinance segments, impacted by macroeconomic stress and borrower overleveraging. In response to this, traders and investors led Kotak’s share price down by over 4% on the result announcement day, October 21. The RBI's ban on digital customer onboarding by Kotak due to a tech embargo has also slowed growth, especially in new credit cards. A positive development for the bank, however, was the significant growth in deposits, driven by the relaunch of ActivMoney, an alternative to fixed deposits.

All asset management companies, including HDFC AMC, Nippon Life India, UTI AMC, and Aditya Birla Sun Life AMC, surpassed estimates by wide margins, reflecting increased investor confidence in India’s long-term economic growth. Other firms, like CDSL, MCX, and KFIN Technologies, also reported strong results, benefiting from similar trends.

Consumer electronics, realty and general industrials were a mixed-bag

The past few years have been favourable for consumer electronics manufacturers in India. Demand continues to rise, driven by rapid advancements in technology, such as the shift from 3G to 4G to 5G and the emergence of generative AI. On the supply side, the government has introduced policies to incentivize local manufacturing of electronic goods, supporting industry growth.

Rising disposable incomes have also blurred the line between essential and discretionary products. What was once considered a luxury is now viewed as a norm. Companies like Dixon Technologies and Amber Enterprises exceeded revenue and net profit estimates by significant margins. In contrast, Voltas missed estimates slightly during a seasonally weak quarter, as much of its revenue relies on air-conditioner sales.

The real estate sector experienced a mixed performance, with both upbeat and downbeat results. DLF, Godrej Properties, and Prestige Estates Projects reported positive Q2 results, while Macrotech Developers, Oberoi Realty, and Phoenix Mills posted weaker-than-expected results. Similarly, in the general industrials sector, companies like BHEL and Jindal Saw exceeded expectations, whereas Grindwell Norton, Suzlon Energy, Supreme Industries, and AIA Engineering underperformed relative to Forecaster estimates.

OMCs miss estimates on all fronts

Q2 was a real bummer for oil marketing companies (OMCs) such as Indian Oil, Bharat Petroleum, and Hindustan Petroleum. All of these firms missed net profit estimates and saw it decline for another quarter — a negative trend that started in Q2 last year. However, just before this downhill journey, these OMCs had reported all-time high net profits because of cheap Russian crude that India imported last year. Even today, India imports most of its crude oil from Russia (above 40%), but it is not as cheap, creating pressure on their profit margins.

Meanwhile, in the pharma industry, it feels like the firms were struggling to manage both sides of the scale — one side representing revenue and the other side representing net profit. Pharma bellwethers like Sun Pharmaceutical and Cipla barely managed to meet their revenue consensus, while delivering on higher than expected net income. On the contrary, firms like Torrent Pharmaceuticals, Ajanta Pharma, and Piramal Pharma missed Forecaster's net profit estimates, primarily due to their growth-seeking approach.

The Baseline

31 Oct 2024

Some sectors show positive signs in a downbeat quarter | Screener: Stocks beating their estimates

The CEOs are less bombastic, the analysts are concerned, and the investors are brooding over the red in their portfolios.

Much of the talk in these past few weeks has been around India Inc's disappointing Q2 results. Revenue growth across sectors and industries looks in the range of 5-7% YoY, the slowest in four years. Large bellweather companies like Reliance Industries have reported disappointing numbers, missing estimates.

Among the underperfomers is the cement and construction sector, whose results so far have shown negative average revenue growth and falling margins. One factor here is the strong monsoon, which while great for agriculture, has delayed construction activity across the country.

But a bigger factor, as the Nuvoco Vistas management pointed out, is falling government spending. "Union government capex has dropped 19% YoY, and state governments’ capex declined by 6% YoY in the first five months of FY25, after a 40% surge in the previous year," they noted. "Some states have seen 35%+ drops in state capex spending."

Construction and cement account for one-fifth of corporate earnings, so weakness here has dragged down overall performance. Sectors such as industrial machinery and plastics are also struggling, and consumer demand remains weak across sectors like FMCG, auto, and retail.

Still, there are some bright spots emerging in the results. In our hunt for silver linings, we take a closer look at these.

In this week's Analyticks:

It's results season!: In a downbeat quarter, who are the outperformers?

Screener: Rising stocks outperforming Forecaster estimates in revenue and EPS in Q2FY25

Banking and tech are the front-benchers this quarter

As Q2 results have rolled in, one emerging bright spot has been banks. Stronger deposit growth has helped drive net profits up. Net interest income is higher, although it is growing slower than it did over the past two years. Still, steady performances from major banks like ICICI Bank has helped boost sentiment for this part of India Inc.

Another sector that is emerging from the doldrums, is IT and software. According to tech CEOs, discretionary spending is coming back globally, with Mastek CEO Umang Nahata noting that "sentiment in the market is positive compared to what it was earlier." Infosys has increased its guidance for the second consecutive quarter amid this shift.

A relatively surprising entry here is textiles. The textile sector has struggled for the past several quarters with rising competition from players in Vietnam and Bangladesh, as well as weak demand for intermediary products. This quarter however, there are hints of green shoots, with rising revenues overall. Welspun Group Chairman Balakrishan Goenka has pointed to the growth of the advanced textiles segment and global brands as drivers for Indian players. "Domestic demand," he notes, "has also ramped up."

Average revenues jump, but companies struggle with margins and profitability

Even in these better performing sectors, there are some concerning trends. Textiles is still struggling with margin growth, despite double digit revenue expansion. Banks while growing, are seeing a more muted result than previous quarters.

When domestic growth slows, investors and analysts alike look to export-oriented sectors like software and textiles. While the jury is still out on the outlook for the textile sector, IT companies, particularly IT services, are coming out of the doldrums, thanks to drivers like interest rate cuts in the US and EU. Salil Parekh, the Infosys CEO noted, "Typically we have seen that when interest rate cuts begin and inflation is more in control in Western Europe and the US, spending on large technology programs increases".

But what is driving overall Q2 weakness? Management across sectors point to the slowing Indian economy. There are some clear warning signs: slower credit growth and higher food inflation. FMCG growth,which used to be in the double digits a couple of quarters ago, is now down to 1.5% to 2%. All of this points to Indians growing more protective of their wallets.

So even as consumer spending recovers globally, we need to keep an eye on Indian demand, particularly in urban areas. "The pressure points are coming from mega cities and metros," Nestle India Chairman Suresh Narayanan says. This lack of consumer confidence is set to suppress the performance for much of India Inc.

Screener: Rising stocks outperforming Forecaster estimates in revenue and EPS in Q2FY25

Banking & finance stocks have the highest positive surprise in Q2FY25

With the result season in full flow, we take a look at companies that have outperformed Trendlyne’s Forecaster estimates. This screener shows stocks rising over the past month while outperforming Forecaster estimates in revenue and earnings per share (EPS) in Q2FY25.

The screener is dominated by stocks from the banking & finance, software & services, and consumer durables sectors. Most notable stocks that feature in the screener are Amber Enterprises, Dixon Technologies, Nippon Life India Asset Management, Aditya Birla Sun Life AMC, Indian Bank, Federal Bank, Great Easter Shipping, Multi Commodity Exchange of India, and City Union Bank.

Amber Enterprises’ revenue and EPS beat Trendlyne’s Forecaster estimates by 44.8% and 1,283.3% in Q2FY25. Revenue beat estimates, helped by the consumer electronics company’s revenue growing by 81.2% YoY on the back of an improvement in the consumer durables (which contributes to 64% of total revenue) and electronic manufacturing services (EMS) (contributes 29%). The company’s EPS outperformance was driven by a net profit of Rs 19.2 crore in Q2FY24 compared to a Rs 6.9 crore loss in Q2FY24.

Nippon Life India Asset Management also shows up in the screener after beating Forecaster estimates for revenue and EPS by 21.2% and 14.3%, respectively in Q2FY25. This asset management company’s revenue beat estimates owing to higher assets under management and improved inflows in the SIP and equity funds segments. EPS beat Forecaster estimates after growing by 47.3% YoY to Rs 360.1 crore during the quarter.

You can find some popular screeners here.

The Baseline

30 Oct 2024

Five stocks to buy from analysts this week - October 30, 2024

By Divyansh Pokharna

1. Varun Beverages:

KR Choksey maintains a ‘Buy’ call on thisbeverages company with a target price of Rs 738, indicating a potential upside of 21.1%. Varun Beverages reported revenue growth of 24.1% YoY to Rs 4,804.7 crore in Q3CY24, outperforming analyst expectations by 3.6% and Trendlyne’s Forecaster estimates by 4.9%. This growth was primarily fueled by strong performance in its carbonated soft drinks, juices, and water segments.

The company’s net profit grew by 23.7% YoY to Rs 619.6 crore, driven by higher sales and improved margins. The growth was partially offset by an 89.7% increase in finance costs related to the acquisition of BevCo, a Kerala-based beverage company. Analyst Dipak Saha notes that the company’s expansion in India is on track, with new facilities expected to be commissioned before summer next year. With some facilities opening in early 2025 (January-February) and the rest by August, Saha expects this expansion to double the firm’s capacity from current levels.

The company also plans to expand its facilities in Africa to double its capacity there by February 2025. Saha remains optimistic, noting that ongoing expansion in Africa, new facilities in India, and product innovations like an upcoming jeera-based beverage should be the major growth drivers for the company.

2. ICICI Bank:

Edelweiss reiterates its ‘Buy’ rating on this bank with a higher target price of Rs 1,490. This indicates a potential upside of 11.9%. In Q2FY25, the bank's net interest income (NII) increased by 3% QoQ to Rs 20,048 crore, though net interest margin (NIM) fell by 9 bps to below 4.3%. Meanwhile, the cost-to-income (C/I) ratio improved to 38.6%, down 108 bps, as operating expenses remained stable due to lower employee costs.

Analysts Raj Jha, Umang Patil, and Sanjana Faujdar, said, “The contraction in NIM was expected but improved C/I ratio & lower credit cost is a positive. We expect the bank to maintain strong performance due to its digital initiatives and solid balance sheet.”

ICICI Bank is optimistic about its balance sheet, as it does not anticipate any loan growth challenges in FY25 and is confident in generating sufficient deposits to fund loan growth. The management indicated that there are many opportunities present to drive risk-calibrated growth, particularly in the credit card segment, which currently constitutes 5% of the overall mix and has a minimal impact on credit costs.

Jha, Patil, and Faujdar noted that operating expenses may rise slightly in H1 FY25 due to increased spending related to festive activities and technology investments. They expect the bank’s price-to-earnings (P/E) ratio to decrease from 17.9 in FY24 to 13.4 by FY26.

3. Strides Pharma Science:

Sharekhan reiterates its ‘Buy’ rating on this pharma company with a target price of Rs 1,874, indicating a potential upside of 25.5%. The analysts highlight Strides Pharma’s investment in nasal sprays and other areas, as part of a long-term strategy focused on achieving $400 million plus in revenue from the generics segment. The company has identified three opportunities within the nasal spray market, which they believe will compensate for a decline in soft gelatin volumes.

In Q2FY25, the company reported a 20% YoY revenue growth to Rs 1,201 crore, largely driven by its US business, which achieved record sales of $75 million. EBITDA margin improved by 71 bps YoY to 20%. The company saw unexpectedly high demand for the GLP-1 drug, used in the treatment of diabetes and obesity. The surge was driven by two key factors: the dosage requirement for pens — an injection to deliver insulin into the body, is twice as high, and some customers miscalculated their volume forecasts, resulting in greater demand than initially expected. The company also relaunched products from its inactive portfolio, resulting in a surge in market share and revenue in the US.

The analysts note that cost control measures and a healthy product mix support the 20% annual EBITDA growth guidance for FY25. They expect a revenue CAGR of 12.5% and a net profit CAGR of 33.3% over FY25-27.

4. Can Fin Homes:

Axis Direct maintains a ‘Buy’ rating on this housing finance company, with a target price of Rs 1,000, implying a potential upside of 15.9%. Can Fin Homes has shown strong growth in sanctions and disbursements, with the latter up 30% YoY to Rs 2,617 crore in Q2FY25. The company’s management anticipates this momentum to continue, projecting total disbursements of ~Rs 10,000 crore for FY25.

Analysts Dnyanada Vaidya and Pranav Nawale said, “Driven by positive expectations on NIMs, along with the availability of multiple levers, we anticipate a healthy CAGR of 15% in NII and 17% in earnings over FY25-27.” They believe the cost ratios are expected to remain between 17-18% due to the company’s investment in technology and the establishment of a marketing team.

The company’s management expects assets under management (AUM) growth of 13-14% in FY25, with further acceleration to 15-17% by FY26 onwards. Vaidya and Nawale attribute this growth to the addition of 15-20 branches each year and the company's expansion into North and West India.

5. ICICI Prudential Life Insurance Company:

Motilal Oswal maintains a ‘Buy’ rating on this life insurance firm with a target price of Rs 900, implying a potential upside of 17.1%. The company reported a 13.1% YoY growth in new business premium (NBP) to Rs 4,930 crore in Q2FY25. Value of new business grew 1.6% YoY to Rs 590 crore, but margins declined 460 bps on a YoY basis to 23.4%, missing analysts’ expectations of 25%. This margin decline was due to a shift towards Unit Linked Insurance Plans (ULIPs), which generally have lower margins.

Analysts Prayesh Jain and Nitin Aggarwal are optimistic about the insurer’s strategy to grow its network and introduce new products, which cater to customers seeking investment benefits and greater liquidity. Additionally, to enhance financial stability, the company plans issuance of non-convertible debentures worth Rs 1,400 crore.

Analysts are optimistic as the company sees strong growth potential in its proprietary channels due to increased investments in expanding its agency network and enhancing the skills of its agents. Jain and Aggarwal expect the firm to deliver a VNB CAGR of 20% over FY25-27.

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

(You can find all analyst picks here)

The Baseline

29 Oct 2024

Chart of the Week: Promoters are on a selling spree as markets grow volatile

By Satyam Kumar

The ongoing correction in the Indian stock market has left many retail investors wondering about the reasons behind the heavy selling. While the Middle East war is an important factor here, the relatively expensive valuations of the Indian firms, downbeat Q2 results, and a slowing Indian economy are other reasons.

Foreign institutional investors (FIIs), who are the most fickle players in a stock market, have according to Trendlyne’s FII & DII dashboard, sold over Rs 90,000 crore worth of equities in the Indian market in October (the highest ever in a single month). This suggests that FIIs are booking profits and reallocating some investments to China, which currently appears to be a more affordable market. As a result, the Nifty50 is trading at a discount of over 7% from its all-time high. Even promoters, who are closely tracked for their long-term bets on their companies, have been cashing out a sizeable chunk of their holdings.

This chart of the week takes a look at promoter activity over the past quarter. Given promoters' significant influence over board selection and key decisions, their trading activity can be a leading indicator that gives insights into the future of the business. According to Trendlyne’s shareholding stock screeners, promoters of 155 of the top 500 firms have reduced their shareholding, while just 23 increased it over the past quarter.

Stocks with expensive PEs see corrections, promoters selling stakes

Many stocks trading at very high price-to-earnings (PE) ratios or with a Trendlyne valuation score of below 35 have seen significant correction over the past month. An easy-to-understand value metric tracked on Trendlyne is the percentage of days the stock has traded below the current PE ratio. If this is more than 80%, it indicates that the stock usually trades below its current PE and is at a relatively high valuation, or in the “Strong Sell Zone”. This could explain why promoters are cutting their stake.

Out of the 155 stocks where promoters decreased their stake in the last quarter, 93, or 60%, are in the Sell Zone or Strong Sell Zone. Firms like Prestige Estates Project, Vedanta, Max Financial Services, KPR Mill, and Adani Energy Solutions are in the Strong Sell Zone. Meanwhile, JK Tyre & Industries, Welspun Living, Patanjali Foods and 33 other firms are in the Sell Zone — which means that stock has traded below the current PE for at least 60% of the days.

Notable sells by promoters

According to a Trendlyne screener that tracks promoter stake cuts of over 2% in Nifty500 firms, 31 companies have witnessed significant promoter selling over the past quarter. Companies appearing in this screener include GE T&D India, Easy Trip Planners, Route Mobile, Sterling and Wilson Renewable Energy, InterGlobe Aviation and Adani Energy Solutions among others.

GE T&D India, an industrial machinery firm, saw its promoter offload a 15.6% stake via an offer for sale priced at Rs 1,400 per share — around Rs 300 below the then trading price. This resulted in stock hitting a lower circuit of 5% the day the offer opened for subscription on September 19.

Meanwhile, Easy Trip Planners’ promoter, Nishant Pitti sold half of his stake in the past quarter and currently holds only 14.2%. This has reduced the cumulative promoter holding from 64.3% a quarter ago to slightly above 50% as of September 2024. The stock currently trades at nearly half its 52-week high of Rs 54.

Similarly, at the end of August 2024, Rakesh Gangwal, co-founder and promoter of airline operator, InterGlobe Aviation (Indigo), sold a 6% equity stake valued at over Rs 10,000 crore. The Gangwal-backed promoter group’s stake has dropped from 36.7% in 2019 to 13.5% as of September 2024. This includes the 8.2% stake of Chinkerpoo Family Trust – whose trustees are Shobha Gangwal and JPMorgan Trust Company of Delaware – and Rakesh Gangwal's personal 5.3% stake.

This all started when the partnership between co-founders Rahul Bhatia and Rakesh Gangwal soured and fell apart in 2019. In February 2022, Gangwal resigned from IndiGo’s board as a non-executive, non-independent director and announced plans to reduce his stake. “I have been a shareholder in the company for more than 15 years, and it's only natural to someday think about diversifying one's holdings,” Gangwal explained in his resignation letter.

Significant corrections have led to stake additions

With the ongoing correction in the Indian stock market, many stocks are trading at a substantial discount from their all-time highs. Promoters are taking this as an opportunity to increase their stakes, though the list of buyers is notably shorter compared to the number of sellers.

While major promoter sells often make news headlines, however, the case is not the same when they increase their stake. This is likely because they don’t want to drive up the price while they are stacking up on those shares. Trendlyne’s screener, however, constantly tracks these activities and currently highlights over 20 stocks where promoters have increased their holdings over the past quarter.

For instance, Maharashtra Seamless, a steel pipe manufacturer, saw its promoter, Jindal Group, add around 2.5 lakh shares year-till-date in 2024. Trendlyne categorises this stock as a “Value Stock, Under Radar”, noting the company’s sound financials, with the stock currently trading at a discount of over 40% from its all-time high.

Similarly, Adani Green Energy, an Adani-Group firm, witnessed stake additions over the past two quarters as the stock currently trades at a discount of around 25% from its 52-week high. Other notable companies where promoters increased their stake over the last quarter include Indus Towers, GMR Airports Infrastructure, and Kalyan Jewellers India, among others.

The Baseline

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)