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02 Aug 2024

Five Interesting Stocks Today - August 02, 2024

1. Zen Technologies:

This defense company has jumped 11.2% since the declaration of its Q1FY25 results on July 28 and has risen 32.5% over the last month. In Q1FY25, the company’s net profit grew 68.8% YoY to Rs 79.5 crore, and its operating revenue increased 92.2% YoY to Rs 254.6 crore during the quarter. However, its EBITDA margin decreased by 10%. On 26 July, Zen Technologies hit a 5% upper circuit as it launched four AI-powered robots for the global defense market. The IP-owned robot products are Hawkeye, Barbarik-URCWS (Ultralight Remote Control Weapon Station), Prahasta, and Sthir Stab 640.

Ashok Atluri, Chairman and Managing Director of the firm said, “Training and simulation, including virtual simulators and live ranges, are our cornerstone. Recently, the armed forces have recognized the need for tactical training, preparing soldiers for combat. This shift is expected to drive significant growth for our company and we are confident about meeting our guidance of Rs 900 crores of turnover in the current financial year.“ The company has an outstanding order book valued at Rs 1,158.5 crore as of June 30, a 113% YoY growth. This includes orders worth Rs 647.9 crore for training simulators and Rs 510.9 crore for anti-drone systems. Typically, the company receives a higher number of new orders in Q2 and Q3.

Motilal Oswal has given a ‘Buy’ rating on Zen Technologies with a target price of Rs 1,820. The brokerage states that the current valuation of ZEN is still cheaper than that of other comparable companies in the private defense sector and expects a CAGR of 63% in revenue, 57% in EBITDA, and 57% in PAT during FY 25-27.

2. Navin Fluorine International:

This commodity chemicals company fell by over 4.4% after it announced its results on Tuesday. The company’s net profit fell by 16.8% YoY to Rs 51.2 crore in Q1FY25, while its revenue rose by 6.9% YoY. The firm missed Trendlyne’s forecaster estimates for revenue by 9.2% and for net profit by 17.1%. The stock shows up in a screener for stocks with PE higher than the industry PE.

A big driver of the profit decline was the company’s specialty chemical segment revenue falling by 30% YoY. It was affected by poor demand and inventory optimization efforts by global clients. By H1FY24, chemical companies lowered their expectations due to weak global demand from a European recession, U.S. inflation, and a slow recovery in China.

High inventory levels from over-ordering in previous years has resulted in less than 1% YoY growth in chemical output. In response, companies are focusing on cost reduction and improving efficiencies to counter falling production. It was the less profitable High-Performance Product (HPP) segment that was the primary revenue driver for Navin Fluorine, with a 66% YoY growth attributed to stable operations at the Dahej plant and increased utilization and sales of new R32 gas for compressors and refrigerators.

Anish P Ganatra, CFO of the firm, said: “To strengthen the product pipeline in the specialty chemicals vertical we have established an R&D center in Surat and have introduced a new agro molecule in this center for a global major, with an annual peak revenue potential of Rs 40-50 crore over the next three years.” Ganatra also highlighted the signing of a supply agreement for a patented agrochemical product catering to the Japanese market, with an incremental annual revenue potential of Rs 20-30 crore in CY25. The firm’s priority for the coming quarter is to commission the Agro Specialty project, with a capex of Rs 540 crore.

Axis Direct has given a “Sell” rating on Navin Fluorine International, with a target price of Rs 3,135. The brokerage has revised estimates downward due to the slower-than-expected recovery in the Specialty Chemicals. The brokerage believes that long term growth prospects remain strong and the growth is likely to pick up towards the end of FY25 – but this is subject to project stabilization and optimal capacity utilization. It values the stock at 27x FY26E, which implies a downside of 17% from the CMP.

3. Dixon Technologies:

This smartphone manufacturer rose 6.8% in the past week as its Q1 results beat estimates on all fronts. The company reported a revenue growth of 101.2% YoY to Rs 6,588 crore, beating Trendlyne’s Forecaster estimate by 13%. Net profit rose 94.2% YoY to Rs 133.7 crore, beating forecasts by 20.6%.

Dixon’s rise in sales was driven by their mobile and electronic manufacturing services (EMS) division. This division saw revenue growth of 189% YoY to Rs 5,192 crore and contributed 79% to the total revenue in Q1FY25, compared to 55% during the same period last year. The company currently manufactures smartphones and feature phones for brands such as Xiaomi, Motorola, and Samsung. Notable growth was seen in volumes of Motorola smartphones during Q1, driven by rising export orders. In the past four fiscal years, Dixon’s smartphone production capacity has increased at a CAGR of around 100%, thanks to their aim to add capacity of 15 million units on an annual basis.

Dixon’s shares took a hit on Budget day after the Finance Minister proposed to cut import duty on mobile phones and chargers from 20% to 15%. However, Dixon Tech MD, Atul Lall says that the mobile manufacturing ecosystem has matured in India and expects the ‘Made In India’ trend to continue. He also said that India should make all the components going into the smartphones domestically, and expects a package for the component sector soon.

During the earnings call for Q1, Lall said, “We are looking to capture 55-60% of the smartphone market after the Ismartu acquisition, which will add 10-12 million to the current production capacity of 45 million.” He also highlighted that the company plans to deepen its manufacturing capabilities by partnering with HTC for display module technology, with production anticipated to begin in FY26.

BOB Capital Markets maintains a ‘Buy’ rating on Dixon Technologies. The brokerage is upbeat on the company’s outlook because of the strong performance in the mobile & EMS segment. They raised their EPS estimates for FY25/26 by 7% due to the company’s leading position in the electronics manufacturing sector. With a target price of Rs 13,800, the stock has a potential upside of 18.4%.

4. Colgate-Palmolive (India):

This FMCG company has risen by 6.8% over the past week after announcing positive Q1FY25 results on Monday. The company reported net profit growth of 33% YoY to Rs 364 crore, helped by inventory destocking and lower finance costs. Revenue rose 13% YoY to Rs 1,496.7.1 crore, driven by improvements in the toothpaste, toothbrush, and personal care segments. Net profit beat Trendlyne’s Forecaster estimates by 9.6%, while revenue surpassed estimates by 4.5%. EBITDA margins also expanded 238 bps YoY to 34% during the quarter.

During the quarter, the company reported double-digit sales growth in the toothpaste segment, led by a 7-9% volume growth. The personal care brand Palmolive, which consists of body wash and hand wash, continued to experience strong growth but currently lacks a significant presence in rural areas. The company aims to expand its personal care footprint in India, focusing on the high-growth body wash segment.

Over the past month, Colgate-Palmolive has risen by 17.6%, outperforming its sector’s by 11.5%. The company witnessed a pick-up in domestic demand in Q1. According to Prabha Narasimhan, the Managing Director & CEO, “We have seen continued demand pickup in rural markets outpacing growth in urban markets for the second quarter in a row”. The re-launch of the Colgate Strong Teeth toothpaste brand helped drive rural growth. Colgate has continued to add new products, increase investments in advertising, and expand its distribution network. During the quarter, ad spends rose 10% YoY.

The company’s peers like Hindustan Unilever, Dabur, and Emami reported a good first quarter and also highlighted signs of rural recovery. Dabur’s CEO said, “The timely arrival of monsoon coupled with a rural-centric Budget with a focus on rural infrastructure, agriculture, and employment is a key positive for the overall sector”.

Post Colgate’s earnings announcement, Axis Securities has a ‘Hold’ rating with a target price of Rs 3,050. But the brokerage believes the recent sharp rise in share price has capped its upside potential. It anticipates that increasing competitive intensity may further impact long-term growth prospects.

5. Kaynes Technology:

This electrical equipment manufacturer rose by 4.3% over the past week, following the release of its Q1FY25 results. The company’s net profit rose 106.6% to Rs 50.8 crore, surpassing Trendlyne’s Forecaster estimates by 14.7%. The company appears in a screener of stocks with growth in quarterly net profit with increasing profit margin YoY.

Revenue grew 74.3% to Rs 532.3 crore, beating Forecaster estimates by 4.6%. This was led by strong growth in the automotive (up 56% YoY) and industrial & EV (up 2.7x YoY) verticals. The industrial vertical's revenue contribution increased by 19 percentage points YoY, reaching 55% during the quarter.

Kaynes’ order book has grown to Rs 5,040 crore during the quarter, including major orders in aerospace, EV, and medical sectors. It has onboarded a leading medical equipment provider for exports to Europe and the US, anticipating significant revenue growth from this partnership.

The company plans to expand its business into the outsourced semiconductor assembly and test (OSAT) sector, focusing on modern chip packaging. This expansion is expected to boost exports, which currently makes up 15% of the order book. Commenting on this, Director and Chief Financial Officer Jairam Sampath said, “We anticipate exports to climb from 15% to about 20-25% by FY26, driven by chip packaging in the OSAT sector and expansion in aerospace and medical electronics segments.”

Motilal Oswal retains a “Buy” rating on the stock with a target price of Rs 5,000. The brokerage notes that the Telangana facility, starting by the end of August 2024, will boost the company’s EMS capabilities, especially in the smart meter sector. It remains positive on Kaynes’s strong order book growth, projecting a revenue CAGR of 62% and a PAT CAGR of 78% for FY25-26.

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

The Baseline

02 Aug 2024

Superstar investors on a selling spree as markets hit record highs | Screener: Promoters increase pledges in these stocks

By Tejas MD

You know the experience of watching someone blow air into a balloon? They puff and puff and sometimes they keep going even when the balloon looks about to pop. That's what investors have been feeling, with the Indian indices.

We've seen yet another all-time high for the Nifty 50 this week: the benchmark index has hit its all-time high for the eleventh week in a row. The bull run is now a full gallop, and the Nifty is within kissing distance of 25,000 as of this writing.

US markets on the other hand, have recently struggled as the tech-heavy Nasdaq 100 fell 3.6% on Friday, the most since 2022. Tesla and tech stocks took a beating as investors and analysts reconsidered the promise of AI. The S&P 500 and Dow Jones also fell on Friday, down 2.3% and 1.2%. Bloomberg called the sudden drop ‘scary and long overdue’ – the S&P 500 had been on a 17-month streak without a drop of 2%, unseen since 2007.

But Indian markets seem unbothered by US weakness, and managed to hit another all-time high on Monday. This long upward trend has investors biting their nails. This nervousness is also showing up in the portfolios of superstars. Investors like Kacholia and Singhania sold much more than they bought in Q1FY25.

Which sectors are superstar investors worried about? And which are the few stocks that they bought?

In this week’s Analyticks,

Watching the balloon: Superstar investors think twice before adding new companies to their portfolios
Screener: Promoters that increased pledged shares QoQ in Q1FY25

Let’s dive in.

Superstar investors go on a selling spree as markets hit all-time highs

Superstar investors have turned picky with their investments as the market heats up.

Many top superstar investors saw their portfolio net worth fall in Q2FY25 (till July 29) – the trend is visible in the new shareholding data for Q1FY25. This is not because of underperformance but because superstar investors have sold their holdings in many companies. The portfolio net worth of Ashish Kacholia, Sunil Singhania, and Vijay Kishanlal Kedia has fallen at least 7.5% in Q2FY25 till July 29, as they went into selloff mode.

Major superstar investors see net worth fall in Q2 after major sells

Dolly Khanna’s portfolio on the other hand, has risen the highest (9.6%) as this superstar investor increased her stake in many companies, and bought new stakes in five companies. Rakesh Jhunjhunwala’s portfolio, now managed by Rare Enterprises, has remained flat as the team did not make any big changes, but sold small stakes in seven companies.

Ashish Kacholia, who favors small-cap companies, sold his stake to below 1% in seven companies, and made only one new buy. Singhania and Kedia did not buy any new stocks in the past quarter, and each cut stakes to below 1% in two companies.

Singhania and Kedia did not add any new stock to their portfolios in Q1

In all, the superstars in focus bought new stakes in only ninecompanies (Khanna bought in five) and sold their stakes to below 1% in 21 companies.

Superstar investors are selling overvalued and loss-making companies

When it comes to sells, it’s a particular kind of stock that is being dropped: the stock is either in the PE sell zone (trading higher than their historical PEs) or is making losses.

Only two stocks in the sell list are exceptions here, being profitable and trading in the PE buy zone – Shankara Building Products and Route Mobile. Kacholia and Mukul Agarwal sold their stakes in Shankara Building Products to below 1%.

Most stocks sold by superstar investors trade in PE Sell Zone

Superstar investors sell industrials, metals stocks

General Industrials and Metals and Mining sectors dominate the sell list, followed by Consumer Durables and textiles. Interestingly, Goldman Sachs noted that American hedge funds are also selling off industrial stocks, amid concerns around GDP growth for the US and China.

General Industrials sector dominates the superstar sell list

The sells list also includes loss-making companies (negative net profit TTM) – Reliance Infra, Sterlite Technologies, Barbeque-Nation, and Dish TV India.

Expert investors are buying new stakes in financially strong, moderately valued and rising companies

Three themes come to light when looking at the buy list – strong financials, rising share prices and moderate value.

Barring Paytm and Super Sales India, all other companies’ Trendlyne Durability score is in the ‘Good’ category. A high Durability score indicates good and consistent financial performance: stable revenues, profits, cash flows and low debt.

Superstar investors are buying rising stocks with good financial health

Paytm is the only loss-making company that features in the list, bought by Akash Bhanshali. During the same quarter, Softbank, which had an initial investment in Paytm of around $1.55 billion, exited its position at a loss of 12%-14%.

Nile and Dilip Buildcon top the list with a durability score of 80 and 75. These two companies’ momentum and valuation scores are also in the good category, making them ‘Strong Performers’.

Investors look to ride the momentum on moderately valued stocks

Eight out of the nine companies bought recently have PE TTM lower than their sector PE.

In addition, the PEG ratio, which includes the net profit growth component into the PE ratio, is lower than one for all companies except Ujjivan. A PEG ratio of less than one can indicate undervaluation. Paytm (loss-making) and newly listed Awfis Space Solutions, are excluded in this analysis.

Most stocks bought by superstar investors are trading below their sector PE TTM

The final theme among the stocks in the buy list is Momentum - a critical factor in a bull market. All stocks except Ujjivan Small Finance Bank have risen in the past quarter.

Only Ujjivan Small Finance Bank underperforms Nifty 50 in the past quarter and year

Ashish Kacholia’s new bet Awfis Space Solutions, which was listed on May 30, is already up 81.6%. Top performers over the past year include Tinna Rubber, Emkay Global and Nile.

Rakesh Jhunjhunwala’s old bet Titan outshines in long term growth

When we look at long-term bets by these superstars, late Rakesh Jhunjhunwala’s Titan and Mukul Agarwal's Neuland Labs come out on top. Titan and Neuland Labs respectively contribute to 33.7% and 5.7% of their portfolios.

Best performing long-term holdings: Jhunjhunwala's Titan, Mukul Agarwal's Neuland Labs

Bhanshali’s Gujarat Fluorochemicals (27.3% of total holding value) and Kedia’s Atul Auto (24.7% of total holding value) on the other hand, have failed to beat the benchmark index in terms of share price performance since they bought these stocks. However, both these superstar investors’ net worth has almost doubled in the past year, due to high performance in their other holdings and fresh buys in new stocks.

India's superstar investors have become famous for their patience during the ups and downs of the market. The recent, increased selling in their portfolios could be an important signal. Warren Buffett once said, ‘Be fearful when others are greedy’. And right now, valuations of many stocks look greedy indeed.

Screener: Promoters increasing pledged shares QoQ in Q1FY25

Banking and construction stocks see a rise in promoter pledges in Q1FY25

As the latest shareholding data for companies came in, we took a look at stocks that saw a significant rise in promoter-pledged shares (which indicates higher loans taken out against stock). This screener identifies companies where pledged shares by promoters are greater than 20% and have increased QoQ in Q1FY25.

The screener has stocks from the banking, cement & construction and metals & mining sectors. Major stocks that appear in the screener are 360 One Wam, IRB Infrastructure Development, Max Financial Services, Kalpataru Projects, India Cements, Hindustan Zinc, and Lloyds Metals & Energy. Most of the stocks in the screener have seen their promoters also sell stakes over the past quarter.

360 One Wam stands out with the highest rise of 9.2 percentage points QoQ in promoter-pledged shares. This takes the promoter pledge to 40.5% of their total holding in Q1FY25. Yatin Shah holds a 3.7% stake in the company and has pledged 73.6% of his holding, while Kush Family Private Trust and Kyra Family Private Trust have a 1.5% stake each and have pledged 100% of their holding.

IRB Infrastructure Developers’ promoters increased their pledges by 6.4 percentage points in Q1FY25. This takes the company’s promoter pledge to 55.3% of their total holding in the company. IRB Holdings holds a 29.5% stake in the company and has pledged 56.9% of its total holding.

You can find some popular screeners here.

The Baseline

01 Aug 2024

Five stocks to buy from analysts this week - July 31 2024

By Ruchir Sankhla

1. Thyrocare Technologies:

ICICI Securities maintains a ‘Buy’ rating on this healthcare services company with a target price of Rs 825, indicating a potential upside of 6.3%. In Q1FY25 the company’s net profit rose 39.7% YoY to Rs 24.2 crore, beating Trendlyne’s Forecaster estimates by 11.4%. Its operating revenue grew 16.3% to Rs 156.9 crore, driven by the pathology business.

Analysts Abdulkader Puranwala and Nisha Shetty state, "Thyrocare’s management is diversifying its historically high-volume test-focused business model." They note the recent launch of bundled test packages like 'Jaanch,' which grew 25% year-over-year, and the acquisition of Polo Labs and Think Healthcare to expand Thyrocare’s test menu and service offerings.

Puranwala and Shetty expect Thyrocare to achieve a 33% earnings CAGR from FY25 to FY26, with an RoCE of approximately 22.3% by FY26. They project cumulative free cash flow generation of Rs 260 crore over the same period. While the stock has recently hit a fresh year high, it has underperformed the Sensex and Nifty over five years.

2. Jindal Steel & Power:

Motilal Oswal reiterates a ‘Buy’ rating on this iron and steel products company with a target price of Rs 1,200, indicating a potential upside of 22.9%. In Q1FY25 the company’s net profit fell 20.5% YoY to Rs 1,340.2 crore, but beat Trendlyne’s Forecaster estimates by 6.9%. Revenue grew 8% to Rs 13,652.3 crore, driven by healthy volumes.

Analysts Alok Deora and Sonu Upadhyay note that as of June 2024, the company has spent approximately Rs 17,500 crore of the Rs 31,000 crore allocated for its capital expenditure plan and aims to incur the remaining Rs 13,500 crore over the next three years. They also highlight that the management does not anticipate any cost increases due to the delay in the BOF-II plant expansion, which is expected to be completed by the second quarter of FY25.

Analysts say, “While first-quarter results were slightly below our estimate, the outlook remains bright.” They expect ongoing capital expenditures to lead to more value-added products, resulting in better profitability.

3. Pitti Engineering:

KRChoksey retains a ‘Buy’ rating on this electrical equipment manufacturer with a target price of Rs 1,379, indicating a potential upside of 15.1%. In FY24 the company reported a net profit rise of 53.3% to Rs 90.2 crore, beating Forecaster estimates by 21.5%. Operating revenue grew 9.2% to Rs 1,201.6 crore.

Analyst Unnati Jadhav notes that the company has agreed to acquire 100% of Dakshin Foundry’s equity for Rs 153.1 crore. Dakshin Foundry specializes in high-quality castings from materials like ductile iron, grey iron, low carbon steel and alloy steel. In March 2024, the company also acquired Bagadia Chaitra Industries (BCIPL) for Rs 124.9 crore. The analyst believes these acquisitions will boost production capacity and operational capabilities, supporting the company's inorganic growth strategy.

Jadhav expects a CAGR of 26.8% for revenue, 29.7% for EBITDA, and 42.9% for PAT over FY25-26 and anticipates FY26 EPS to be Rs 57.5 due to strong demand across various sectors, and increased capacity from recent acquisitions.

4. Coforge:

Axis Direct maintains a ‘Buy’ rating on this IT consulting and software company with a target price of Rs 6,895. This indicates an upside of 9.2%. In Q1FY25, the company‘s revenue grew 1.8% YoY to Rs 2,400.8 crore, but missed Trendlyne’s Forecaster estimates by 1.1%. Net profit fell by 19.4% YoY to Rs 133.2 crore due to higher operating expenses and acquisition-related costs. The company witnessed increased demand in North America, which contributes 50% of its revenue.

Analyst Omkar Tanksale highlights that the company’s growth is supported by a strong deal pipeline, with significant wins in the banking, financial services and insurance (BFSI) and travel sectors. He expects continued momentum from these deals and anticipates the revival of the BFSI sector, projecting double-digit growth in FY25.

Tanksale notes concerns about cross-currency headwinds affecting margins but remains positive about the company’s growth potential and strong deal pipeline in the long term perspective.He projects a revenue CAGR of 20.9% and an adjusted PAT CAGR of 29.7% over FY25-26.

5. Schaeffler India:

Sharekhan maintains a ‘Buy’ rating on this auto parts and equipment manufacturer with an upgraded target price of Rs 4,764. This indicates an upside of 13.3%. In Q2CY24, Schaeffler’s net profit grew 12.8% YoY to Rs 253 crore. Analysts attribute this growth to increased exports and expansion into new markets in Asia. The analysts state “The improvement in export performance can be attributed to the completion of de-stocking in the European market, and the rise of new markets in the Asia-Pacific region.”

Analysts highlight Schaeffler’s focus on high-value electric vehicle components, domestic demand, and export revenues. They expect continued momentum from its railways business and see potential growth in the non-bearings segment, driven by innovative solutions for hybrid power trains.The management remains positive about the company's order wins, backed by its technological expertise and cost-effective manufacturing.

The analysts project revenue and net profit CAGR of 16.8% and 19.5% respectively, over CY25-26, driven by Schaeffler’s strategic focus on localisation, expanding its product portfolio, and leveraging its brand equity in the aftermarket business.

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

(You can find all analyst picks here)

The Baseline

30 Jul 2024

Chart of the Week: IT, metals and transport stocks lead with aggressive capex growth estimates

By Satyam Kumar

Capital expenditure (capex) is a key number that investors watch. It tells them how forward-looking a company is, and how invested it is in its future. Such spending is essentially, a bet on upcoming growth.

Capex growth forecasts by analysts is thus a useful proxy for future bullishness, and helps justify current valuations. These forecasts tell us which companies are making the biggest bets on expansion and growth. Higher forecasts suggest good financial health, and also indicate the company's confidence and commitment to long-term growth.

In this edition of Chart of the Week, we look at a screener of stocks with high Forecaster capex growth estimates. The bubble chart circles represent the size of capex growth estimates. We also look at the individual sectors poised for high capex growth in the coming year and identify the biggest contributors.

Better-than-expected Q1 results and capex plans for FY25 suggest a turnaround in Software & Services

Happiest Minds and Zensar Tech have the highest capex growth estimates in the software and services sector for FY25

Five of the 25 stocks in our chart belong to the software & services sector. This expansion in the IT sector comes after around two years of slowing growth and disappointing numbers. IT firms reported better-than-expected results in Q1FY25 because of the rise in the number of deal wins. This came after major central banks have already cut or hinted at a probable rate cut i.e. lower borrowing rates starting this year, as inflation comes down in major global economies.

Happiest Minds Technologies leads with an estimated capex growth of 2,751.9% for FY25, the highest forecast among the Nifty500 stocks. The estimated capex for FY25 is Rs 294 crore compared to Rs 10.3 crore in FY24. This aligns with the aspirations of the company’s Chairman, Ashok Soota, who says that FY25 will be their best year in terms of revenue growth since the IPO.

In Q1FY25, the company acquired PureSoftware and Macmillan Learning and added 1,250 employees. These acquisitions strengthen its presence in key verticals like BFSI, Healthcare, and Education. The company also looks forward to ramp-up orders from the Generative AI segment. It expects to achieve $1 billion in revenue by 2031, driven by organic growth initiatives, strategic acquisitions, and new technology capabilities in Gen AI and bioinformatics.

Zensar Technologies follows with a capex growth estimate of 863%, while Mphasis and Birlasoft are expected to incur capex growth of 406% and 250%, respectively. Another software & services firm, Just Dial started this year on a positive note, with net profit growth of 69.3% YoY to Rs 141 crore in Q1FY25. Trendlyne’s Forecaster expects Just Dial to have an estimated capex of Rs 51 crore in FY25, signifying growth of 273% on a YoY basis.

Metals & mining sector companies plan to fulfill capex with internal accruals

Maharashtra Seamless has the highest planned capex growth estimates in the mining sector for FY25

In the metals and mining sector, Maharashtra Seamless stands out with the highest capex growth estimate of 1,395% for FY25. The company had taken debt for a Telangana plant and rig acquisition, but prepaid it in full in October ‘22 and June ‘23 respectively through internal accruals. For FY25-26, the company plans to spend over Rs 800 crore from their cash in hand and internal accruals.

Another major player, Jindal Stainless, is expected to grow its capex by 252% in FY25. The company has announced a total expansion capex of around Rs 5,400 crore. They are also partnering with a Singapore entity to set up a 1.2 million tons per annum stainless steel weld shop in Indonesia, where JSL will hold a 49% stake with an outlay of around Rs 700 crore.

Close behind are Lloyds Metals & Energy and Welspun Corp., with capex growth estimates of 245% and 222%, respectively, in FY25. Lloyds Metals has announced plans to remain debt-free even though the company intends to execute a capex of Rs 33,000 crore. The company has delivered a 55%+ return on employed capital in the past two years.

Transportation sector companies are spending heavily to keep up with India’s growth in the coming years

Three transportation sector firms have high planned capex growth for FY25

Forecaster estimates that InterGlobe Aviation (Indigo) will incur a capex of around Rs 15,000 crore, signifying a growth of 1,253% YoY. CEO Pieter Elbers aims to double Indigo’s fleet size by 2030 from around 350 aircraft at present to 600 aircraft. The company plans to add 10 new destinations and approximately 6,000 employees in FY25. It also aims to add one new aircraft per week to expand its domestic and international operations. For this, Indigo placed an order for 500 aircraft with Airbus in June ‘23, setting a new record for the largest aircraft order in the history of commercial aviation.

Another transportation company, JSW Infrastructure, is expected to incur capex growth of 642% in FY25. The company has planned a capex of Rs 2,500 crore in FY25 to expand its cargo handling capacity. Joint MD and CEO, Arun Maheshwari, said, “By 2027, the company anticipates a 50% increase in capacity to 258 million tonnes with an investment of Rs 14,000 crore.” He also highlighted that the company will fund these expansion plans and new projects with internal accruals, leveraging a strong balance sheet with low debt.

Solar EPC firms to gain from India’s plan to lower carbon footprint by 2030

Solar engineering, procurement and construction (EPC) firm Sterling and Wilson Renewable Energy plans to capitalise on India’s target of 500 GW of non-fossil-based energy, aiming to reduce the carbon footprint by 45% by 2030. Reduced solar prices and overcapacity in the Chinese market have also worked in favour of EPC players in building their captive solar power plants. Forecaster expects Sterling and Wilson’s capex to surge by 1,469% in FY25.

Similarly, battery manufacturer Amara Raja Energy & Mobility is expected to incur capex growth of 284% in FY25. Meanwhile, Forecaster estimates Patanjali Foods and Eris Lifesciences to incur 10x capex costs compared to last year to fund their growth ambitions.

It is evident that companies have become more cautious about debt-driven spending after enduring a prolonged high-interest rate environment. In the past year, many companies have significantly ramped up their debt repayments to reduce their finance costs. Now, they are taking a more conservative approach and are looking to fund their growth aspirations with the cash they have on hand

The Baseline

26 Jul 2024

Five Interesting Stocks Today - July 26, 2024

1. Titan Company:

This jewellery company jumped 6.5% on Budget day, following Finance Minister Nirmala Sitharaman's proposal to lower customs duty on precious metals like gold, silver, and platinum. She proposed cutting the customs duty on gold and silver to 6% from 15%, and reducing the customs duty on platinum to 6.4% from 15.4%.

Analysts expect the recent drop in gold prices to spark demand for gold jewellery in the coming quarter, boosted by the upcoming wedding season. Jewellers have reported a rise in daily demand, with some experiencing a surge of up to 20% since the duty reduction. Titan’s jewellery segment has already seen double-digit growth in the number of buyers in FY24. On a consolidated basis, the company reported revenue growth of 26.3% YoY to Rs 51,617 crore in FY24, with net profit of Rs 3,496 crore, up 7.6% YoY.

In the Q1FY25 business update, the company said that standalone sales grew 9% on a YoY basis. Its jewellery segment, which contributes over 85% to the total revenue, added 34 stores during the quarter, taking the total count to 699. The watches and wearables segment outperformed other segments in terms of sales growth, with a 15% rise on a YoY basis.

Ajoy Chawla, CEO of the jewellery division at Titan, said, “Q1 is likely to be a little bit more stressed because of the absence of wedding dates and the elections, and the elevated gold prices during April to June period”. However, he expects the second half of the year to be much better compared to the first half.

Motilal Oswal maintains a ‘Buy’ rating on Titan given its growth outlook driven by new store additions, attractive designs, and market share gains. With a target price of Rs 4,100, Titan has a potential upside of 17.3%.

2. United Spirits:

This breweries & distilleries company has risen 8.9% in the past week, reaching an all-time high of Rs 1,450 on Thursday. The surge came after the Andhra Pradesh government announced it would resume buying liquor from top brands, boosting shares of major alcohol companies.

In Q1FY25, United Spirits' profit rose 1.7% YoY to Rs 485 crore, while its revenue increased by 7.6% YoY to Rs 6,273 crore, driven by strong performance in the beverage alcohol segment. EBITDA margin grew by 174 bps YoY to 19.5%. The company appears in a screener of stocks outperforming their respective industry over the past year.

During the quarter, the company saw strong consumer demand for its premium offerings, including the successful launch of McDowell's X-series, which are new beverages targeted at mid-to-upper consumer segments. The firm also acquired stakes in specialty beverage firms like V9 Beverages and Indie Brews, expanding into zero alcohol and premium craft segments.

United Spirits projects a volume growth of 4-5% and aims for a price mix improvement in the premium and above segments. The company’s CFO and Executive Director, Pradeep Jain said, “We project volume growth in the range of 4-5% and a price mix improvement of 6-8% on a full-year basis.” He also highlighted that the company aims to maintain its 'Prestige and Above’ (P&A) segment revenue growth rate in double digits.

Post Q1FY25 results, Edelweiss has upgraded the stock to ‘Buy’, with a higher target price of Rs 1,630. The brokerage remains positive on the company's expansion into new premium categories like tequila and craft spirits. However, the firm is in the PE Sell Zone, currently trading above its historical PE.

3. Newgen Software Technologies:

This IT consulting & software company fell 2.2% on July 18 as its net profit plunged 54.8% QoQ to Rs 47.6 crore in Q1FY25 due to higher employee benefits and other expenses. Revenue declined by 16.1% QoQ to Rs 314.7 crore, caused by weakness in key geographies. The company’s revenue missed Trendlyne’s Forecaster estimates by 1.3%. EBITDA margins contracted 17.6 percentage points to 15.1% in the same period.

During the quarter, the company’s India and e EMEA (Europe, Middle East and Africa) markets, both of which separately contribute around one-third of the revenue pie saw revenues fall by 23% and 32% QoQ respectively. In contrast, the APAC (Asia Pacific excluding India) and USA markets grew by 23.5% QoQ and 10.5% QoQ, respectively.

Q1 is typically a weak quarter for IT companies. But this year the bigwigs in the industry reported a decent first quarter, and highlighted green shoots in the banking, financial services, and insurance (BFSI) space. However, for Newgen, the banking segment saw a decline of 17.3% QoQ. The products and platforms business also declined 41.3% QoQ, resulting in weak quarterly performance.

Meanwhile, Newgen continued to seetraction from its existing and new clients in Q1 and added 13 new clients during the quarter. It secured significant orders from banks in Indonesia, Malaysia, and Qatar. In Q1, Newgen also launched a new product, Newgen LumYn, a Gen AI-powered platform designed for the banking sector.

During FY24, revenue was up 27.7% YoY to Rs 1,243.8 crore, while net profit grew by 42.7% YoY. Speaking on the outlook, Virender Jeet, the CEO said, “We would like to keep the historical momentum of over 25% annual topline growth going forward, led by deal wins. We expect around 20% PAT growth and 23-24% EBITDA margins in FY25.”

Over the past week, Newgen Software rose by 5%, outperforming its industry by 3%. However, it has surged by 158.6% in the past year. The company is in the PE Strong Sell Zone, and is currently trading above its historical PE.

Post Newgen’s results, ICICI Securities maintains its ‘Hold’ rating with a target price of Rs 1,010. The brokerage notes the strong traction in lending, trade finance, and supply chain financing solutions. It believes 25% plus growth could sustain in the near term.

4. Gravita India:

This lead & aluminium metals company rose by 21.7% over the past week and announced its results on Monday. For Q1FY25, the company’s net profit increased by 29.3% YoY to Rs 67.3 crore, while its revenue rose by 25.9% YoY due to a rise of 42.6% YoY in lead segment revenue. The firm beat Trendlyne’s Forecaster estimates for revenue by 7.5% and for net profit by 11.3%. The stock shows up in a screener for stocks with strong momentum.

The company’s lead and plastics segment were the revenue drivers in Q1FY25. Lead volumes rose by 43% YoY to 41.9kt, while plastics volumes rose by 18% YoY to 3.2kt. EBITDA per tonne for lead stood at Rs 19,321 and for aluminum it stood at Rs 19,414. The management has upped its lead EBITDA/kg guidance, from Rs 17-18/kg to Rs 18-19/kg for FY25.

Yogesh Malhotra, CEO of the firm, said that the company is expecting the launch of the aluminum alloy commodity derivative on MCX shortly. He notes that this development would play a crucial role in managing price volatility risks. He added, “We are setting up a pilot project for lithium-ion recycling and our first Indian tire recycling plant at Mundra, both of which are expected to be operational in H1FY26. The paper recycling plant and steel recycling plants are anticipated to be operational by FY27.” On MCX, aluminum prices are seeing a decline amid concerns over China’s lack of new stimulus. Lead prices have also remained flat. However, analysts predict that global lead production is expected to grow by 4.3% to more than 4.7 million tonnes in 2024. The increase will mainly be fuelled by rising output from key producers such as Australia, the US, and Russia.

The company under its “Vision 2028” has placed targets of revenue CAGR of >25% and PAT CAGR of >35%, and aims to increase the proportion of value added products (VAP) to 50% by entering new verticals. Gravita expects earnings to reach Rs 750-800 crore by 2028.

According to a report by Avendus Capital, the domestic battery recycling market is expected to grow to Rs 8,371.8 crore by FY30. The company has plans to invest Rs 70-100 crore in the Li-ion vertical, over the next 3 years to grab the opportunity.

Emkay has given a “Buy” rating on Gravita India, with a target price of Rs 1,650. The brokerage has raised its target multiple to 25x, from 23x earlier, thanks to implementation of regulatory norms and a strong outlook from diversification into new verticals.

5. Indian Hotels Company:

This hotels company rose by 11.1% in the past week after announcing positive Q1FY25 results on Friday. The company reported net profit growth of 11.7% YoY to Rs 248.4 crore, while its revenue improved by 5.3% YoY to Rs 1,596.3 crore. However, it missed Trendlyne Forecaster’s net profit estimate by 4.4%. The company also appears in the screener for stocks outperforming their respective industry over the past quarter.

Revenue growth was slower compared to growth in Q4FY24 (18% YoY) as extreme heat waves and elections impacted occupancy. However, its EBITDA margin expanded by 103 bps YoY to 29% due to better operating efficiencies. The firm’s revenue per available room for Q1FY25 stood at Rs 6,900, outperforming its industry and competition with a premium of 60%.

Indian Hotels has opened six hotels in Q1FY25 and one new hotel in July 2024, and it has guided to open 25 new hotels in FY25. At present, the company's portfolio of hotels stands at 224 operational hotels with 102 new hotels in the pipeline. Speaking about growth, Managing Director Puneet Chhatwal said, “We expect a 20% plus revenue growth with sustained margins in FY25. We remain confident that we will deliver on our guidance, backed by diversified revenue growth and tailwinds for the industry.” The management expects the new businesses (Ginger, Qmin, amã Stays & Trails) to accelerate growth to 30%, and a focus on asset management should drive profitability.

Axis Securities maintains a ‘Buy’ call on Indian Hotels Company as it expects the hospitality industry upcycle to be long and sustained. Additionally, it believes upcoming events such as the Women's World Cup hockey and kabaddi championships could improve occupancies.

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

The Baseline

24 Jul 2024

Chart of the Week: Capital goods, consumer services and telecom see highest inflows from FPIs

By Satyam Kumar

The FY25 Budget marked a volatile day for Indian equity markets. All major indices nosedived after Finance Minister Nirmala Sitharaman, in her Budget speech, proposed increasing taxes on stock market gains. Long-term capital gains will now attract a tax of 12.5% compared to 10% earlier, while short-term capital gains tax was raised from 15% to 20%. Taxes were also hiked on F&O transactions.

Meanwhile, Sitharaman proposed reducing the corporate tax rate on foreign companies from 40% to 35% to become the top alternative in the “China plus one” strategy, and attract foreign capital.

Post-elections, the Indian equity markets in June and the first fortnight of July witnessed a total inflow of Rs 47,284 crore in equities. Before that, Foreign Portfolio Investors (FPIs) had withdrawn Rs 34,286 crore in April and May due to poll jitters and concerns over sticky inflation. Since then, a better-than-expected earnings season has helped build investor confidence and attract FPIs back to Indian equity markets.

In this week’s Chart of the Week, we take a look at sectors with the highest FPI activity over the past year. FPIs consistently poured money into capital goods companies, with a total inflow of Rs 47,422 crore. The consumer services sector was the second favourite among FPIs, attracting a net investment of Rs 36,570 crore.

The financial services sector, on the other hand, witnessed the highest FPI outflow of Rs 35,066 crore in the past year. The sector has recently underperformed due to high borrowing rates, resulting in lower net interest margins as advance growth outpaced deposit growth over the past year.

Capital goods, consumer services and telecom emerge as FPI favourites

More than half of the total investment of around Rs 2 lakh crore by FPIs went into capital goods, consumer services and telecom sectors. Capital goods companies have benefited from a robust order backlog and a steady inflow of fresh orders. This growth was supported by stable commodity prices and increased government infrastructure spending, as well as production-linked incentive (PLI) schemes. The “China plus one” strategy has also helped the order surge.

The consumer services sector ranked second in FPI interest, with net positive inflows even during highly volatile months leading up to the election. Higher discretionary spending over the past year has boosted investor confidence in the sector. The telecom sector caught the attention of FPIs, attracting investments worth Rs 28,461 crore, with over 90% of the total investment coming in the last five months. The recent tariff hike by telecom companies is expected to drive growth in average revenue per user and expand their net profit margins in the coming quarters.

IT sector is gaining traction post surprise outperformance in Q1 results

The information technology sector also saw a notable shift, with FPIs turning net buyers and investing Rs 2,765 crore from July 1 to 15. This was a reversal from the net selling of Rs 981 crore observed in June. The IT sector showed early signs of recovery in their Q1FY25 results, driven by opportunities in the GenAI segment and potential rate cuts in the US in September. This recovery could boost orders from the BFSI segment, which constitutes around 50% of revenue for IT companies.

Similarly, the auto sector has also seen net FPI inflows post-elections. With expectations of a good monsoon this year, analysts are predicting a volume uptick in the sales of two-wheelers and three-wheelers. The EV sector, however, received no direct subsidies or announcements in the Union Budget for FY25.

Healthcare and FMCG sectors witness turnaround post elections

The healthcare sector, comprising the pharma and hospital industries, witnessed an inflow of Rs 14,822 crore over the past year. Analysts expect the pharma industry to deliver earnings growth driven by better product mix, and improved margins. Over the past year, hospitals saw growth in average revenue per occupied bed, alongside steady capacity additions, leading to higher net income and revenue visibility.

The FMCG sector, on the other hand, has seen net outflows of over Rs 20,000 crore in the past year. However, during the first July fortnight (i.e. first half of the month), the sector saw a net inflow of Rs 1,809 crore. This turnaround for FMCG came as reports surfaced of a recovery in rural demand in recent months. Tobacco company ITC rallied after the government, in the 2024 Budget, decided to maintain the current tax rates on cigarette and tobacco products, which contributed around 75% to its profit before taxes as of Q4FY24.

Stocks that have seen the highest increase in FII holdings in the past quarter

Banks & telecom sector stocks witness a sharp rise in FII holdings

The above chart represents the top eight Nifty500 stocks that saw the highest jump in FII holdings in terms of percentage points on a QoQ basis. You can take a look at all the stocks where FIIs have increased their shareholding in the past quarter in the “FII/FPI increasing their shareholding” screener.

Telecom company Vodafone Idea (VI) has seen its share price surge from Rs 13 at the time of FPO to Rs 19 in the past month, following a fundraise of Rs 18,000 crore through the FPO. The company plans to use the proceeds for 5G expansion and to clear dues of around Rs 10,000 crore to the tower company Indus Towers. FPIs have significantly increased their shareholding in both companies in the past quarter.

Meanwhile, FPIs have also increased their stake in Ujjivan Small Finance Bank and CSB Bank by 21.2 and 7.4 percentage points respectively. Both banks are currently trading at fair valuations as they have a Trendlyne valuation score of around 70.

These FPI trends in different sectors reflect both global economic trends, changing investor preferences and sector-specific challenges/policies in India. Right now, the overall sentiment surrounding India is increasingly positive, and this has shown up in the return of foreign funds in recent months.

The Baseline

23 Jul 2024

Five stocks to buy from analysts this week - July 23, 2024

By Divyansh Pokharna

1.Infosys:

Axis Direct recommends a ‘Buy’ rating on this IT consulting and software company with a target price of Rs 1,950, indicating a potential upside of 6.1%. The bigwigs of IT have got a boost in Q1FY25 after several quarters of weak numbers and high attrition. In Q1FY25, the company's net profit fell by 20.1% QoQ to Rs 6,368 crore but showed a 7.1% YoY growth, beating Forecaster estimates by 1.3%. Revenue fell 1.2% QoQ to Rs 40,153 crore due to a reduction in the retail and hi-tech segments.

Analyst Omkar Tanksale notes a strong recovery in BFSI and other verticals, which boosted the tech major. He notes that the management expects sustained demand for Gen AI and improved client engagement, which should lead to higher realizations. The company’s total contract value (TCV) surpassed expectations by securing deals worth $4.1 billion.

Tanksale expects improvement in the North American region and Europe to sustain strong demand. The company anticipates demand should pick up further as uncertainties resolve in the next 2-3 quarters, leading to consistent deal wins.

2. Bajaj Auto:

Sharekhan maintains a ‘Buy’ rating on this 2/3-wheeler manufacturer, with a target price of Rs 11,400, indicating an upside of 21.5%. In Q1FY25, the company reported revenue growth of 15% YoY to Rs 12,267.4 crore, with net profit up 18.1% YoY to Rs 1,941.8 crore. Analysts attribute this growth to an improved motorcycle sales mix and an expansion in EBITDA margin by 130 bps YoY to 23.6%.

Bajaj Auto (BAL) expects the 2-wheeler industry to grow by 6-7% in FY25, largely driven by the 125+ cc segment. The company plans to expand its manufacturing capacity for CNG motorcycles to 40,000 unitspermonth by Q4FY25. The brokerage says, “We believe BAL's segment-specific brands are attracting attention as premium segment demand surpasses entry-level segments.” African markets have yet to fully recover, but the management expects improved export performance in Q2FY25 compared to Q1FY25.

Analysts are positive about BAL benefiting from the expanding CNG network in India, boosting demand for its CNG three-wheelers due to its market leadership. Sharekhan projects a revenue CAGR of 15.6% and an adjusted PAT CAGR of 17.9% for FY25-26.

3. India Glycols:

Edelweiss initiates a ‘Buy’ rating on this chemicals company, with a target price of Rs 1,365, indicating a potential upside of 31.1%. The stock also hit a new year high in the past week. Analyst Ranvir Singh is positive about the company’s prospects on the back of increased biofuel opportunities. The company's bio-based specialties and performance chemicals (BSPC) segment grew 26% YoY, contributing 65% to its revenue in FY24.

Singh expects India Glycols to benefit from its expanded ethanol production capacity, aiming to triple its production levels from FY23 by mid-FY25. He highlights the company’s diversification into biofuels, and expanded supplies for its spirits business as growth drivers. Additionally, the company has established a joint venture with Clariant International to enhance its specialty chemicals segment via Clariant’s expertise and resources.

Singh anticipates revenue and profit CAGR of 15.9% and 40% respectively over FY25-26. He notes that the firm is focused on refining the BSPC revenue mix and improving the balance sheet by reducing the debt.

4. Gabriel India:

ICICI Direct maintains a ‘Buy’ call on this auto parts and equipment manufacturer, with a target price of Rs 600, indicating an upside of 26.5%. The company’s net profit rose by 40% YoY to Rs 185 crore in FY24, while its revenue increased 12.5% YoY.

Gabriel holds a market share of over 30% in the 2-wheeler segment and a 70% share in the electric 2-wheeler market.Analysts Shashank Kanodia and Manisha Kesar are upbeat about the company's outlook, highlighting its outperformance in the 2-wheeler segment driven by strong domestic demand and recovering export volumes. The company also plans to expand its SUV presence by entering the sunroof segment through a JV with Inalfa Roof System, bolstering its growth potential.

Kanodia and Kesar foresee Gabriel benefiting from strong partnerships in the EV sector and a cash positive balance sheet, with continued margin strength and growth. They project a revenue and net profit CAGR of 9.3% and 24.2% respectively over FY25-26.

5. Reliance Industries:

BOB Capital reiterates its ‘Buy’ rating on this refineries and petroleum products company with a target price of Rs 3,585, indicating a potential upside of 20.4%. In Q1FY25 the company’s net profit fell 5.4% YoY to Rs 15,138 crore, missing Forecaster estimates by 9%. This decline was driven by a 5% lower EBITDA in retail and 4% lower in oil & gas. Revenue rose 11.7% YoY to Rs 231,784 crore due to an 18% YoY increase in revenue from the Oil-to-Chemicals (O2C) segment.

Despite the estimates miss, analyst Kirtan Mehta is upbeat, noting that Digital Services' EBITDA grew 8.9% YoY in Q1 and should accelerate further in Q2, due to recent tariff hikes of 13-20%. These hikes are expected to raise average revenue per user (ARPU) for Reliance Jio by 11% annually to Rs 245 by FY27.

Mehta expects a 22% annual growth in EBITDA for both digital services and retail over FY25-FY27. Additionally, RIL’s overall EBITDA is projected to grow 11% annually during this period, primarily driven by a 22% CAGR in the consumer business.

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

(You can find all analyst picks here)

The Baseline

19 Jul 2024

Five Interesting Stocks Today - July 19, 2024

1. Avenue Supermarts (DMart):

This department store company has been rising in the past week after its quarterly results for Q1FY25. The company saw revenue growth of 19% YoY to Rs 14,111 crore, surpassing Trendlyne’s Forecaster estimates by 1.5%. However, its net profit fell short of estimates by 3.8%, despite increasing by 17.5% YoY to Rs 773.8 crore.

The net profit jump was driven by higher revenue from the discretionary segment. DMart’s general merchandise and apparel segment saw an uptick, driven by a growing number of DMart Ready outlets. But high EBITDA margins were offset by higher operating costs, due to investments in service sales and future capacity building. DMart added six new stores in Q1, bringing its total to 371.

The company, like many others, has been facing heat from quick commerce players like Zepto and Blinkit. Trent’s Zudio has also emerged as a competitor in the value apparel segment. Neville Noronha, CEO of Avenue Supermarts, said, “We aim to open new stores as quickly as possible, but our main focus remains on how well the newly opened stores are being managed.”

The company currently trades in the PE Neutral Zone. However, even at this neutral level, its PE stands at 123, which is higher than the industry average. The company appears in a screener of stocks with annual profit growth higher than sector growth.

Prabhudas Lilladher downgraded DMart’s rating to ‘Accumulate’ as the company missed net profit and margin estimates. However, the brokerage is upbeat about the company’s sustained focus on tier-2 and tier-3 cities, and further acceleration in store openings in the coming years. They expect addition of 45-50 stores in FY25 to drive a 21% sales growth and anticipate a net profit CAGR of 25% over FY25-26.

2. Asian Paints:

This paint maker fell 1.4% on Thursday after announcing Q1 results. Asian Paints’ net profit surprised investors by declining sharply, down 24.5% YoY to Rs 1,170 crore, and missing Forecaster estimates by 15.6%. Revenue was down 2.3% YoY during the quarter. The weak profit performance was due to previously taken price cuts, higher raw material prices and employee benefit expenses, as well as restricted supply chains due to heatwaves.

During the quarter, domestic business, contributing around 97% to the revenue, grew by 5.9% YoY. Domestic business includes decorative and industrial segments. The decorative segment was impacted due to raw material price inflation and supply chain challenges.

Raw material prices were up 1.8% YoY in Q1FY25 and are expected to rise further, around 1.5% in Q2. Asian Paints announced a 0.7-1% price hike on July 10 to offset these costs, and more hikes are likely in the upcoming quarter. The industrial segment, however, outpaced decoratives, led by growth in auto OEM and powder coatings. Meanwhile, international business (constituting over 3% of the revenue) fell by 3.6% YoY due to underperformance in key markets including Nepal, Bangladesh, and Egypt.

The paint industry faces both cost and competitive pressures and potential market share shifts, especially with the entry of Aditya Birla Group’s Birla Opus. The next few quarters are crucial to assess the impact of Birla Opus on the industry as a whole, and on Asian Paints.

The management highlighted that April and May were challenging months, while June saw some demand recovery, particularly in rural areas. Speaking on the outlook, Amit Syngle, the MD and CEO, said “We are seeing some green shoots in rural areas, and the progression of the monsoon is expected to support this uptick”. He adds that growth in T3 and T4 cities outpaced T1 and T2 cities. Syngle also highlights that the upcoming festive season will drive growth for the company.

Motilal Oswal has a ‘Neutral’ rating with a target price of Rs 3,150. The brokerage expects muted revenue growth due to price cuts and competitive pressure, despite initiatives to improve volumes. The company is in the PE Buy Zone, indicating it is currently trading below its historical PE.

3. Jubilant Ingrevia

This specialty chemicals company fell by 6.6% over the past week and announced its results on Tuesday. For Q1FY25, the company’s net profit declined by double digits, down 15.4% YoY to Rs 48.7 crore, while its revenue fell by 4.6% YoY due to a decline in its chemical intermediaries segment revenue. The firm missed Trendlyne’s forecaster estimates for revenue by 2.2% and for net profit by 0.7%.

FY24 was a difficult year for the company as well. The firm saw a fall in net profit of 40.5% YoY to Rs 182.9 crore, while the revenue declined by 13.2% YoY due to weaker speciality chemicals and chemical intermediaries segment revenue. While the firm beat the forecaster estimate for revenue in FY24 by 0.9%, hit missed the net profit estimate by 4.4%. The stock shows up in a screener for stocks sold by superstar investors.

Among the better performers this quarter was the company’s specialty chemicals segment, which constitutes 42% in the revenue mix and grew by 8.3% YoY. EBIT margin improved to 14.5% from 9.5% in Q4FY24 for this segment. However the chemical intermediaries (acetyl) segment which constitutes 40% of the revenue mix struggled, due to lower demand coming from the paracetamol end-use segment and lower acetic acid prices.

Deepak Jain, CEO and Managing Director of the firm highlighted that in the CDMO (contract development and manufacturing organizations) space, the company is in “advanced stage discussions” for multiple projects in pharma, agro and semiconductor end-use. He expects CDMO to grow at 25-30% in FY25. He adds that the specialty segment is expected to have an EBITDA of 20%+ in steady state, and with new launches going forward, EBITDA may reach 23-25% in the next 2-3 years.

Prabhudas Lilladher has maintained its “Hold” rating on Jubilant Ingrevia, with a target price of Rs 592. The brokerage notes that the company has been adding capacities across segments, but challenges are expected to persist due to international pricing pressures and agrochem weakness, which the brokerage expects will only resolve in the later stages of H2FY25.

4. Just Dial:

This internet software company hit a new 52-week high of Rs 1,304 on Friday after surging 26.5% in the past week, following the release of its Q1FY25 results. The company’s net profit grew 69.3% YoY to Rs 141.2 crore, surpassing Trendlyne’s Forecaster estimates by 16.5%.This was helped by lower employee benefit expenses and finance costs, and a deferred tax credit of Rs 3.9 crore. EBITDA margins were up by 13.8 percentage points YoY to 28.7%.

The company has outperformed the internet software industry by 4% over the previous quarter. Just Dial expanded its active business network to 4.5 crore firms during the quarter, and attracted 18.1 crore unique quarterly visitors, with 85.2% accessing the platform via mobile sites and apps.

Commenting on the company’s target, MD & CEO VSS Mani said, “We are targeting 15-17% revenue growth for FY25 and an EBITDA margin over 25%". He also highlighted the firm’s plans to launch its B2B offerings via the JD Mart app and expand its presence in Tier 2 and Tier 3 cities.

ICICI Direct maintains a "Buy" rating on the stock with a target price of Rs 1,210. The brokerage believes that the company’s focus on Tier 2/3 cities, coupled with price hikes and other initiatives, will drive future growth. It expects revenue and PAT to grow at 15% and 18.9% CAGR respectively over FY25-26.

5. Glenmark Pharmaceuticals:

This pharma company has risen by 13.7% in the past month and hit its all-time high of Rs 1,427 on Tuesday. In the past week, the company announced its exit from its arm Glenmark Life Sciences through an offer for sale. Glenmark Pharmaceuticals and Managing Director Glenn Mario Saldanha will divest their 7.9% stake (approx 96.1 lakh shares) for Rs 779 crore. In March, the firm also sold a 75% stake in Glenmark Life Sciences to Nirma for Rs 5,651 crore. This step was taken to improve its weak balance sheet and high debt position. After the divestment, the company has turned net cash positive.

In the past week, the company also received US FDA approval for topiramate capsules, a bioequivalent to Topamax, used in people with epilepsy to treat and prevent seizures. It has annual sales of $21.9 million.

Trendlyne Forecaster estimates the company’s net profit to grow approx 12X in the upcoming Q1FY25 results. In FY24, the company reported a loss of Rs 1,501.7 crore compared to a profit of Rs 297.2 crore in FY23.

Going forward, the management expects its global brands like Ryaltris and Salmex to drive growth and become worth $300-400 million over the next five years. It expects Ryaltris’ annual sales to double by FY25 from $40 million currently. Speaking about targets, the management stated, “For FY25, our revenue target is Rs 13,500-14,000 crore (up from Rs 12,653.1 crore in FY24) and EBITDA margin target is close to 19%.” The company plans to spend Rs 700 crore in capex, and around 7% of revenue on R&D.

KRChoksey maintains a ‘Buy’ call on the stock and expects revenue to grow at a CAGR of 10% and profit at a CAGR of 41.4% over FY25-26. It believes that the company’s domestic segment has a strong growth trajectory, as it has been able to outperform in key therapy areas such as respiratory, derma and cardiac, and it expects its market share to increase. The company appears in a screener for stocks with increasing shareholding by foreign investors and/or institutions.

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

The Baseline

19 Jul 2024

Rising credit is causing investors worry around bank stocks | Screener: Banking stocks with higher prices, healthier NPAs

By Swapnil Karkare

The Godrej steel almirah, first launched in 1923, came with a sturdy inside locker for storing valuables: jewellery, cash bundles, land deeds, letters from faraway family members. The almirah was just one signifier of a country of savers. Indian households have long been reluctant to take on debt.

That however, is changing fast. India's household debt has grown steadily, hitting new highs of over 39% of India's GDP in FY24. The biggest growth has been in non-housing loans.

With household debt rising and and corporate borrowings also up, banks have seen a big shift over the past two years, with their credit growth surpassing deposit growth. While the credit surge in a typically credit-starved country should be celebrated, the falling savings rates and rising household debt are red flags.

Banks make money from the difference between the interest they earn on loans, and the interest they pay to depositors. So a rising credit deposit gap should be good news for their profts, right? The reality is more complicated. Let's take a closer look.

In this week's Analyticks:

The credit boom for banks: Is rising credit growth turning into a pain point?
Screener: Bank stocks with falling non performing assets

Are banks getting stressed with high credit growth?

From April 2022 onwards, banks have seen credit growing at an average rate of 16% YoY, surpassing deposit growth of 11% YoY. The figures exclude the merger of HDFC Ltd. with HDFC Bank.

Credit growth has even outpaced India's nominal GDP growth rate for 7 consecutive quarters. In the June monetary policy statement, RBI governor Shaktikanta Das said that bank management should try to address this persisting gap.

RBI’s Financial Stability Report (FSR) cautioned that credit growth beyond current levels may not be sustainable. As of 28^th June 2024, credit growth slowed to 14% while deposit growth was at 11%. RBI's previous analysis showed that these high-credit cycles usually last for 41 months on average.

Banks’ provisional data and estimates from brokers also suggest that the unwinding of credit growth may have begun from Q1 FY25. But the credit-deposit gap still persists, and public sector banks in particular have been struggling with deposit growth.

Walking the tightrope

The credit-to-deposit (CD ratio) tells us how much money banks have lent out, compared to their deposits. A very low ratio means banks are not lending enough, while too high a ratio could mean that banks have few liquid assets (deposits) left.

The problem with a too-high ratio is also that if depositors suddenly withdraw their funds in large amounts, banks may face liquidity challenges, making it difficult to meet short-term obligations. It's a tightrope that banks need to walk.

The tolerable or 'normal' range for the CD ratio is around 80%. RBI does not prescribe any ideal level. The ratio has been in general, lower for public sector banks indicating better asset-liability management systems, compared to their private counterparts.

The incremental CD ratio - the ratio of additional credit and deposits over a particular period - crossed 100% in FY24, raising eyebrows. While public sector banks have been able to bring it down, private sector banks have pushed it even higher. This indicates aggressive lending techniques in the private sector, and the merger’s impact on HDFC Bank.

Some banks in the public sector have started raising the term deposit rates they offer to attract depositers. But private banks, on average, have reduced these rates as per the latest available data.

Margins are likely to see a hit if banks are pushing deposit rates higher without changing their lending rates. Brokers estimate that bank net interest margins will take a hit of 10-15 bps in Q1FY25. Although public sector banks fare better in most parameters, NIM compression as they raise deposit rates will hit their profitability.

Right now, public sector banks are at the top

It is banks with lower CD ratios, higher liquidity coverage (LCR), good fundamentals (higher Durability score) and appropriate valuations (higher Valuation score) will be able to sail through volatile times ahead.

Our analysis finds public-sector banks such as Bank of Maharashtra and Karur Vysya Bank are in better shape than the private sector. State Bank of India and ICICI Bank, also have a good trajectory.

Bank of Maharashtra:

The bank’s credit growth has been remarkable at 3% QoQ during the quarter ending June 2024. With an ROE of more than 20%, a healthy CD ratio and liquidity (LCR), and favourable Trendlyne scores, BoM emerges as a strong performer compared to its peers.

Karur Vysya Bank:

A bank that has maintained an LCR of more than 200% for a long time is worth adding to the watchlist. A recent ICICI Securities report highlighted that it has the lowest cost of deposit and net NPAs, compared to its peers. Provisional data for the quarter ended June 2024 showed a 4% QoQ increase in loans and deposits, one of the highest amongst peers.

Risks are rising, favouring the most cautious bank players

A strong economic outlook, a possible interest rate cut and a good monsoon all point to a booming bank sector. However, we cannot ignore a key risk: rising credit.

Considering over-leveraged households, weak consumption growth and weak rural incomes, the RBI has been taking actions to safeguard the banking system. But risks like seasonal slippages in the agricultural and microfinance sectors, lower recoveries, and NIM compression will haunt banks for at least a couple of quarters.

In such times, investors need to be cautious. Any one or a combination of these factors can shake up the sector.

Screener: Banking stocks rising over the past quarter with falling NPAs in Q4FY24

PSU and small finance banks see a decline in gross NPAs

With the start of the Q1FY25 results season, we take a look at banks and financial institutions that saw a fall in their non-performing assets (NPAs) YoY in Q4FY24. This screener shows banking and finance companies that rose over the past quarter with a YoY decrease in gross and net non-performing assets (NPAs) in Q4FY24.

The screener primarily consists of PSU and small finance banks. Major stocks that appear in the screener are Jana Small Finance Bank, Federal Bank, Indian Bank, Bank of Maharashtra, Bandhan Bank, Yes Bank, Punjab & Sind Bank and Central Bank of India.

Jana Small Finance Bank has surged 58.1% in the past quarter. Its gross NPAs contracted by 180 bps YoY to 2.1% in Q4FY24, while its net NPAs fell by 208 bps YoY to 0.6% during the quarter. This helped the bank’s provisions to decline by 12.1% YoY to Rs 175.4 crore. The decline in NPAs was helped by a low gross NPA of 0.3% in the affordable housing segment which contributes to 18% of the bank’s total advances. Systematix expects the company’s deposits to grow on the back of its strategy to relocate branches to areas with potential for higher deposits.

Indian Bank has risen 14.6% over the past quarter on the back of strong Q4FY24 results. Its gross NPAs declined by 200 bps YoY to 4% in Q1FY24, net NPAs also contracted by 47 bs YoY to 0.4% due to a moderation in slippages and a reduction in booking loans. This decline in gross and net NPAs helped the bank’s provisions to reduce by 51.3% to Rs 1,247.8 crore during the quarter. According to ICICI Direct, the company’s focus on improving asset quality, stable margins, healthy fee income, and low operational expenses will help sustain its performance.

You can find more screeners here.

The Baseline

18 Jul 2024

Five stocks to buy from analysts this week - July 18, 2024

By Ruchir Sankhla

1. Varun Beverages:

Motilal Oswal reiterates a ‘Buy’ rating on this non-alcoholic beverages company with a target price of Rs 1,900, indicating a potential upside of 18.8%. Analysts Sumant Kumar, Meet Jain and Omkar Shintre highlight the company's new exclusive snacks deal with PepsiCo for Zimbabwe and Zambia. VBL plans to invest $7 million each in these countries to build snack manufacturing plants capable of producing around 5,000 metric tons annually, with production starting by October 2025 and April 2026, respectively.

The analysts note that the total addressable market (TAM) has expanded by 67% with the addition of these two new geographies (versusMorocco earlier in Feb 2024). They highlight the snack food products market in these regions is valued at approximately $833 million as of CY24.

Kumar, Jain, and Shintre expect a CAGR of 21% in revenue, 22% in EBITDA, and 29% in PAT for CY25-26. They also foresee a potential partnership between VBL and PepsiCo across Africa, where PepsiCo lacks local manufacturing partners and relies on imports.

2. Sky Gold:

Edelweiss maintains a ‘Buy’ rating on this gems & jewellery smallcap company with a target price of Rs 3,204, indicating a potential upside of 68.9%. Sky Gold recently acquired Sparkling Chains for Rs 26 crore, a chain manufacturer accounting for 20% of India's jewellery sales, and Starmangalsutra for Rs 24 crore, which holds a 15% market share in the mangalsutra segment.

Analyst Palash Kawale writes, "These acquisitions will expand Sky Gold’s market in gold jewellery and diversify its product range." Sky Gold's addressable market share in India's jewellery sales has increased to 70%, up from 35%. The analyst also highlights that the management expects the acquired entities to generate sales of more than Rs 600 crore in FY25 and a PAT of more than 15 crore in FY25.

Kawale expects revenue, EBITDA, and PAT to increase by 53%, 56%, and 67%, respectively over FY25–27 and says, “Sky Gold can be a long-term compounding story.” He also mentioned that following these acquisitions, the management has upgraded its FY27 sales guidance to Rs 6,300 crore with over 25% RoCE.

3. National Aluminium Company:

SBI Securities initiates a ‘Buy’ rating on this aluminium and aluminium products company with a target price of Rs 234.6, indicating a potential upside of 22%. Analysts highlight significant developments, including NALCO's acquisition of a mining lease for bauxite mines in Odisha and a strategic MoU with NTPC for uninterrupted 1200 MW power supply. These developments are essential for NALCO's plans to expand the smelter plant capacity in Angul, Odisha.

Analysts note that in FY24, NALCO successfully increased production at its Utkal coal mine to 2 million tonnes per annum (mtpa), resulting in significant reductions in power and fuel costs. The upcoming Utkal Block E expansion to 4 mtpa by FY25 is expected to further enhance cost efficiencies. The brownfield alumina expansion, targeting 1 mtpa, remains on track for commissioning by the second half of FY26, with full production expected to be achieved by FY27, promising expanded revenue streams. Additionally, NALCO plans to expand its aluminum smelter capacity by 0.5 mtpa in the coming years to strengthen operational capabilities.

4. Tata Consultancy Services:

Sharekhan maintains its ‘Buy’ call on this IT consulting and software company with a target price of Rs 4,750, indicating a potential upside of 11.2%. The company’s revenue grew 5.4% YoY to Rs 62,613 crore in Q1FY25, and its net profit rose 8.7% YoY to Rs 12,040 crore, driven by outperformance in manufacturing, energy and healthcare segments.

Tata Consultancy Services plans to expand its digital transformation services and enhance its AI capabilities. The company has established new client partnerships and expects spending on tech modernizing systems to grow. Analysts are upbeat, saying that the company is working to mitigate risks from currency fluctuations and an uncertain global economy by diversifying across markets and investing in technology and talent. The management highlights consistent order bookings of Rs 700-900 crore quarterly, with an all-time high pipeline in Q1, as AI investments doubles to Rs 150 crore.

Sharekhan anticipates TCS to sustain growth despite margin pressure from wage hikes. The firm projects a robust revenue CAGR of 11% and an adjusted PAT CAGR of 15% for FY25-26, buoyed by substantial deal wins and a healthy order pipeline.

5. Indian Bank:

ICICI Direct maintains a ‘Buy’ rating on this bank, raising its target price to Rs 700, indicating a potential upside of 21.6%. This PSU bank has a total business of over Rs 12 lakh crore and a strong presence with 5,847 branches nationwide.

The bank is focused on enhancing its retail, agriculture, and MSME loan segments, which constitute about 62% of its loan book. It aims to maintain a steady CASA ratio of around 40% and expects margins to remain stable at 3.4-3.5% for FY25. Analysts Vishal Narnolia and Krishna Vyas have a positive outlook on the bank as it pursues digital transformation initiatives to improve customer experience and operational efficiency. It targets a 12-13% growth in advances for FY25, supported by new business opportunities in data centres, city gas distribution, and commercial real estate sectors.

Narnolia and Vyas anticipate that the company will achieve a CAGR growth rate of 11% for net interest income and 18% for PAT over FY25-26. They expect Indian Bank to see steady business growth and strong asset quality, projecting an improvement in RoA to 1.2-1.3% by FY25-26.

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

(You can find all analyst picks here)