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

03 May 2024

India’s rising military exports boost defence stocks | Screener: Defence stocks with strong estimates

After the Russia-Ukraine war, PM Modi, in a conversation with Vladimir Putin, said, “This is not a time of war”. But while global leaders welcomed the statement, military spending has shot up worldwide.

Military spending has jumped on the back of rising 'tensions' - the word we use for worsening relationships between heavily armed states. Russia-Ukraine and Israel-Gaza have already caused thousands of deaths. Risky face-offs have been happening between China and its East Asian neighbours, between India and China, and between Israel and Iran.

Each time, these countries backed off from the cliff's edge, before these fights could blow up into a bigger war. But heads of state have recently exchanged increasingly aggressive statements. When Phillipines President Ferdinand Marcos Jr congratulated the winner of Taiwan's election (who the Chinese disliked), China summoned the Filipino ambassador and warned him, "don't play with fire". After China's renaming of various parts of Arunachal Pradesh, Defence Minister Rajnath Singh asked recently, "What if we rename parts of China? Don't try to hurt our self-respect."

As the situation grows more volatile, countries are busy forming military alliances and building in-house defence systems. Heads of state continue to say that peace is crucial, but money talks: global military spending has increased to $2,443 billion in 2023, a 6.3% rise from 2022. This is the highest jump since 2009.

Military spending by the US ($916 billion) and China ($296 billion) account for nearly half of global spending. India spends around $83.6 billion, making it the fourth largest. But unofficial numbers of China's military spend are even higher. According to the American Enterprise Institute, China spent $710 billion - more than twice its official figure - on its military.

To counter the threat of a China that is busy arming itself with long-range drones, nuclear warheads and AI systems, smaller Asian countries are partnering with India, the US and key regional powers like Japan and South Korea. Over the past decade, India has shifted from a non-aligned player to a strategic ally for the US, Japan and Australia. Australian PM Anthony Albanese noted, “China has amassed the greatest military build-up of any nation since World War II. So the regional defence cooperation of India, Japan and Australia is key to bringing stability to the South China Sea”.

While India’s defence manufacturing is small compared to the G20 countries, our defence exports have already risen by 32% to Rs 21,083 crore in FY24. These exports are boosting domestic defence players.

In this week’s Analyticks:

Defence sector boom: India’s rising defence exports are a win for the domestic industry
Screener: Rising defence stocks with high Forecaster growth estimates for revenue and EPS in FY24

Let’s get into it.

India’s military expenditure is rising in an uneasy world

India’s skirmishes with China in the Galwan Valley, and the Balakot strikes in Pakistan brought India close to war-like scenarios. As the borders become uneasy, India is ramping up military expenditure by modernising its weapon systems. Most of the spending has been towards procuring more fighter aircraft, unmanned capabilities, helicopters, tanks and artillery guns.

India’s military spending is 28% of China’s official military spending, and just 11% of unofficial numbers. China has also been spending (nearly $43 billion) on R&D and in-house systems.

China’s military expenditure has increased almost 3 fold in the past 14 years

China has developed 5th generation J-20 fighter planes, which are far superior to India’s indigenous Tejas (developed by HAL). To counter China, India is buying foreign aircraft like Rafael along with existing MIGs.

Pakistan's military expenditure of around $8.5 billion has been constrained due to its economic crisis. Pakistan is spending around 14.5% of its GDP towards its military, and has strengthened its China relationship by increasing defence imports from China by 43%.

Pakistan is spending nearly 15% of its GDP on military

Old relationships are also fraying and countries are finding new friends. India’s military partnership with Russia has weakened as China, Pakistan and Russia have grown closer, especially after the Russia-Ukraine war. Russia has been supplying defence systems to both Pakistan and China, which is a serious threat as major Indian defence systems are Russian.

So India is quickly changing its defence strategy - Russia accounted for 76% of India’s procurement in 2014, but only 36% today. Indian defence deals are now being signed with France, the US, Israel, Spain and Germany.

India is building military alliances while increasing defence exports

India is no longer a 'non aligned' country. It has been building alliances with key players and providing military assistance to countries in distress.

The Quad group, comprising India, the US, Japan, and Australia is working for security in the South China Sea. The group is conducting maritime exercises with smaller nations like the Philippines and Taiwan.

India has also increased defence exports to allies. It dispatched the first batch of its supersonic Brahmos missiles to the Philippines in a $375 million deal. Brahmos missiles are known for their high range and precision with a striking capability range of 500 km, speeds up to 3.5 Mach and are capable of evading radar systems.

India’s defence exports rise 32% in FY24

To beat back the Turkey-Pakistan alliance, India is supplying Akash missiles to Armenia in a Rs 6,000 crore deal. Countries like Singapore, Egypt, Sri Lanka, UAE, Turkmenistan, and Malaysia have shown interest in buying the indigenously developed Light Combat Aircraft (LCA) Tejas.

Defence firms are seeing big opportunities with offset policies

India’s defence budget increased by 4.7% YoY to Rs 6,21,450 crore in FY25. Most of the spending is toward buying foreign-manufactured fighter aircraft. The government's clause in the defence offset policy (foreign firms need to invest a certain percentage of the deal value in India) is a big boost for domestic manufacturers. The offset policy has resulted in $7.9 billion in new orders for domestic firms. Defence stocks have outperformed the broader indices owing to an uptick in new orders.

Defence stocks outperform the Nifty 50 in the past year by huge margins

Zen Technologies Chairman Ashok Atluri expects the firm's revenue to grow by 50% CAGR for the next four years. Zen Technologies has bagged orders for Tank simulators and anti-drone systems. The firm has an order book size of Rs 1,500 crore with an export order book of Rs 437 crore.

PSU defence firms like Hindustan Aeronautics and Bharat Electronics have also been winners of the offset scheme. HAL has delivered two Hindustan-228 aircraft to Guyana Defence Forces and has made tie-ups with General Electricals USA for the manufacturing of aircraft engines. HAL expects to double its revenue in FY25 due to order execution of 83 Tejas aircraft.

PSU defence firms have the largest order books in the industry

Bharat Electronics has reported a 13.7% growth in its revenue for FY24. The firm has benefited from export orders of Akash missile systems, communication systems for naval ships, radars, night vision devices and so on. The firm is expected to win orders of around Rs 50,000 crore in FY25 and FY26, and is expected to grow its revenue by 20% CAGR in the same period.

Mazagaon Dock Shipbuilders supplies ships and submarines to the Indian Navy. It has recently won orders for the supply of patrol vessels (Rs 1,612 crore) and hybrid-powered vessels (Rs 350 crore). Its current order book stands at Rs 35,000 crore. It has formed a JV with Germany’s Thyssenkrupp to bid for Rs 45,000 crore worth six P-75 class submarines for the Indian Navy. The firm is also looking at exports to countries like Sri Lanka, Brazil and South America.

While Indian firms are benefiting from increased global military spending, India still lacks key technology and depends on foreign counterparts. Defence tech has been seeing rapid innovations in unmanned systems, drone warfare, deep tech and now artificial intelligence. We need to step up our game by investing in R&D and scaling up domestic manufacturing in these areas, to truly gain an edge in both exports and on the battlefield.

Screener: Rising defence stocks with high Forecaster growth estimates for revenue and EPS in FY24

Defence stocks boast double-digit growth forecasts from analysts

As the result season is ongoing, we take a look at the booming sector of defence and stocks which are touted for growth in FY24. This screener shows defence stocks that have risen over the past year with high durability and Forecaster growth estimates for revenue and EPS in FY24.

Major stocks that appear in the screener are Data Patterns, Bharat Dynamics, Mazagon Dock Shipbuilders, Bharat Electronics and Astra Microwave Products.

Data Patterns has the highest Trendlyne Forecaster estimates for YoY revenue growth at 26.7% in FY24, Forecaster also expects the company’s EPS to grow 32.7% YoY. The company rose by 78.6% over the past year. Nirmal Bang is positive on the stock on the back of high demand from the armed forces for defence electronic systems, and the company’s diversified ability to design and develop in multiple domains – space, air, land and marine.

Bharat Dynamics also features in the screener with Trendlyne Forecaster estimates for revenue and EPS YoY growth at 16.3% and 49.5% for FY24. The company has risen 94.3% over the past year. Analysts believe that the company’s large order book will provide headroom for growth over the next 3-4 years with order execution picking up in H2FY24 and FY25. Analysts also expect the company to receive an influx of orders as it is the primary provider of guided missiles and torpedoes to the Indian Armed Forces.

You can find more screeners here.

The Baseline

02 May 2024

Chart of the Week: The biggest misses by institutional analysts over the past year

By Satyam Kumar

Retail investors often rely on analysts to navigate the ups and downs of financial markets and help them spot potential winners. But predicting stock prices is tough. Many things can go wrong – such as a worse than expected monsoon (which hurt Deepak Fertilisers) or a regulatory move against a company (RBI vs PayTM).

This Chart of the Week takes a look at Nifty 500 stocks over the past year, and compares their actual performance to the Forecaster share price estimate from analysts one year ago, in April 2023. We have selected stocks where analysts made the biggest misses, whose share price performance diverged the most from the 12 month forecast in April 2023.

Asia’s oldest exchange stock leads the rally

BSE, formerly the Bombay Stock Exchange, rose 518.1% in the past year, compared to Forecaster’s 12-month upside estimate of 17.8% in April 2023. The exchange’s revenue in Q3FY24 has grown 76.1% YoY to Rs 431.4 crore, while its net profit during the same period went up by 109.5% YoY to Rs 108.2 crore. These improvements were primarily driven by market share gains in the derivatives segment. The exchange's strategic decision to shift the expiry day of their derivatives contracts, such as Sensex and Bankex, from Thursday to Friday, and subsequently to Monday for Bankex, has contributed significantly to its increased market share.

Capital markets company, Anand Rathi Wealth has also benefited from the rising interest in the Indian equity market among the domestic as well as international investor community. The stock has risen 365.8% in the past year, beating the Forecaster estimates of 24.7% by a huge margin. The wealth manager’s assets under management stood at Rs 59,351 crore in FY24, up 52% compared to Rs 38,993 crore at the end of FY23.

PSUs give outsized returns in FY24

The S&P BSE PSU Index has gained 97.3% in the past year, as per Trendlyne Technicals. This rise of the PSU index was backed by a government capex push of Rs 10 lakh crore. These and other government initiatives are a big boost to the infrastructure sector, and this is reflected in the share prices of PSU stocks. In the Union Budget of 2023-24, the Indian Railways received a capital outlay of Rs 2.4 lakh crore.

Indian Railway Finance Corporation (IRFC) rose 460.6% in the past year, compared to the Forecaster estimate of 24.8% at the start of FY24. This Navratna PSU borrows funds from financial markets to fund the acquisition/creation of assets that are leased out to the Indian Railways. The rise came mostly after the government announced plans to boost Indian Railways by introducing high-speed trains like Vande Bharat and dedicated freight corridors.

Similarly, another PSU operating in the construction and engineering industry, Ircon International also benefited from the government's plans to lay dedicated freight corridors. This company has an order book of Rs 29,400 crore, with 72% of it coming from the railways, 21% from roads, and remaining from other sectors. With promising revenue visibility for the upcoming years, Ircon has given returns of 296.8% in the past year beating Forecaster’s estimate of (16.1%) in April ’23.

Erratic, weak monsoon hurts Deepak Fertilisers and UPL

Commodity chemical manufacturer Deepak Fertilisers & Petrochemicals has gained only 2.3% in the past year, compared to Forecaster’s 86% estimated in April ’23. This moderation in its share price was mainly because the company has seen consistent underperformance in sales in FY24, with profits declining in its fertilisers segment. This was mainly due to weak and erratic monsoons over the past year. In Q3FY24, the company’s revenue declined 33.1% YoY to Rs 1,863.8 crore, while its net profit declined 76.9% YoY to Rs 57.6 crore. Looking at its profitability in the past three quarters, the company in its fertilizers segment reported a net profit of Rs 42.3 crore in Q2 and reported a net loss of Rs 68.7 crore and Rs 0.8 crore in Q1 and Q3 respectively.

Similarly, agrochemical company UPL also posted a net loss of Rs 1,217 crore in Q3FY24, compared to a profit of Rs 1,087 crore in Q3FY23. This resulted in a decline of 29.1% in the past year, contrary to Forecaster’s estimated upside of 38.3%.

Adani Energy & Rajesh Exports disappoint analysts the most

Adani Energy Solutions, an electric utilities firm, saw a significant decline in its share price following the release of the Hindenburg report on January 24 last year. The report accused the Adani group of manipulating stock prices, which adversely affected investor confidence in the company. Adani Energy also saw a 9.5% year-on-year decrease in net profit to Rs 1,137 crore. This led to the stock rising marginally by 7.1%, missing Forecaster’s estimates of 229.2% upside, predicted at the start of FY24.

Gems and Jewellery company, Rajesh Exports declined 43.1% in the past year, contrary to Forecaster’s estimated upside of 97.2% in April ’23. The company is reportedly involved in various compliance issues, including instances of missing documents during earnings filings, which were further compounded by declining revenues. Their net profit for Q3FY24 slumped 97% YoY at Rs 12.4 crore. According to Trendlyne’s Technicals, Rajesh Exports fell to a 5-year low at Rs 261 on March 28, 2024.

One97 Communications, an internet software and services firm, faced a major setback following the Reserve Bank of India’s (RBI) directive on January 31. The RBI ordered Paytm Payments Bank to cease banking services due to persistent non-compliance concerns. The stock has been stabilizing after its Founder & CEO, Vijay Shekhar Sharma resigned from the Payments Bank board. However, the company’s share price has gone down 42.1% in the past year, compared to Forecaster’s estimated upside of 42.2% in the starting of the previous fiscal.

The Baseline

29 Apr 2024

5 stocks to buy from analysts this week - April 29, 2024

By Satyam Kumar

1. Welspun Living:

Sharekhan maintains its ‘Buy’ rating on this textiles company with a target price of Rs 181. This indicates an upside of 19.3%. In Q4FY24, the company’s net profit rose by 16.4% YoY to Rs 146 crore, and its revenue increased 19.2% YoY to Rs 2,616.7 crore. Analysts at Sharekhan are positive as the company stands to benefit from India signing a free trade agreement (FTA) with the UK, which will help boost revenue in the long term.

Management has given cautious guidance for the near term given the geopolitical tensions. However, the analysts are confident of long-term growth prospects due to large opportunities in the export markets, entry into the home textile segment, and benefits from the ‘China + 1’ strategy.

Analysts at Sharekhan forecast a 10-12% revenue growth in FY25 driven by fashion towels and flooring segments, coupled with capacity additions. They maintain EBITDA margin guidance at 15-15.5% for FY25.

2. Nestle India:

Axis Direct maintains a ‘Buy’ call on this packaged foods manufacturer with a target price of Rs 2,880, indicating an upside of 14.8%. In Q4FY24, the company’s profit increased 12.4% YoY to Rs 934.2 crore and its revenue grew by 8.8% YoY. It reported EBITDA margins of 25.7%, up 289 basis points YoY. Analysts Preeyam Tolia and Suhanee Shome say, “Nestle delivered resilient all-round performance, driven by growth across all categories, with a healthy balance in product mix, pricing, and volume growth.”

Tolia and Shome are positive about the company due to its efforts toward rural penetration and premiumization in its core categories, and differentiated product launches by adding new categories like Nespresso and Purina Pet Care. They believe the firm’s direct-to-customer platform and its focus on a fast-growing nutraceutical portfolio will help it increase demand. They expect Nestle sales and profit to grow at 13% and 18% CAGR respectively over FY24-25. The analysts are also optimistic about Nestle’s joint venture with Dr Reddy’s to launch a nutritional portfolio.

3. Hatsun Agro Products:

ICICI Securities upgrades this packaged foods manufacturer to a ‘Buy’ call with a target price of Rs 1,190. This indicates an upside of 8.3%. In Q4FY24, the company’s net profit rose by 108.7% YoY to Rs 52.2 crore and its revenue increased 14.4% YoY to Rs 2,049 crore. Analysts Aniruddha Joshi, Manoj Menon, Karan Bhuwania, and Nilesh Patil are optimistic due to its strong volume-led revenue growth and no price hikes in the past year. The analysts noted that the company reported 10-quarter high gross margins of 30.7% on the back of deflationary trends in raw material prices.

The analysts expect margin expansion to continue in FY25 due to lower milk prices, higher revenue share of ice cream, accumulation of low-priced inventory, and improved capacity utilisation at the Solapur and Govindapur facilities. They estimate EBITDA margin to be 12.1% in FY25 compared to 11.3% in FY24. The company has introduced two chocolate brands, Hanobar and Havia in FY24 which analysts believe to be margin and value accretive in the medium-term.

4. HDFC Asset Management:

KRChoksey maintains a ‘Buy’ rating on this asset management company with a target price of Rs 4,235, indicating an upside of 12.3%. In Q4FY24, the company’s net profit increased 43.8% YoY to Rs 540.8 crore, and its revenue went up by 33.5% YoY to Rs 851.3 crore. Analyst Unnati Jadhav is upbeat as assets under management went up 39.1% YoY to Rs 60,730 crore driven by a higher tilt toward equity-oriented assets. In FY24, the company expanded its product offerings by launching five new funds. Also, it has enhanced its passive front by launching five index funds and two ETFs.

According to the management, the employee cost for FY24 increased by 13.0% YoY as it included an ESOP cost of Rs 47 crore. However, Jadhav is optimistic as management expects ESOP costs to reduce in FY25 to Rs 20 crore. At the same time, she believes that the company will continue to invest in its digital infrastructure to support its distribution partners. In FY25-26, Jadhav expects revenue and profit CAGR of 21.5% and 19.7% respectively.

5. Patel Engineering:

Hem Securities initiates a ‘Buy’ call on this construction and engineering company with a target price of Rs 80. This indicates an upside of 26.2%. The analyst Mudit Jain believes the firm’s order book of Rs 19,134 crore and its book-to-bill ratio of 4.3X provide multi-year revenue visibility.

Jain says, “Patel Engineering being the leader in hydroelectric EPC projects is expected to get a good amount of orders in this space.” The firm has 42 hydropower projects with an aggregate capacity of 18,034 MW under construction. He believes that around 27,000 MW of hydropower projects will be announced in the coming years and expects the company to win major orders from this pipeline.

Jain notes that the order inflow was muted during the quarter mainly due to the Lok Sabha elections. However, the management is confident that order awarding will be robust post elections. They have guided for 15-20% growth in the order book for FY25. The analyst expects the small-cap company to post decent numbers going forward on the back of increased execution, and expects order inflows to increase.

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

(You can find all analyst picks here)

The Baseline

26 Apr 2024

India is ignoring a critical piece of its growth story | Stocks where promoters cut their stake this quarter

Recently a friend made a guilty, late-night Swiggy food order. The order got marked as delivered but nothing arrived. Hungry and frustrated, she contacted Swiggy and got a refund.

But an hour later, a neighbour knocked on her door and handed her the parcel, which had been accidentally left outside his apartment. There was no option to reverse the refund on the Swiggy app.

The next day, a well-spoken young man turned up at her door in a panic. It was the Swiggy delivery person - he had been penalized the refund amount (Rs. 500). She gave him the money but was struck by his anxiety. This was money, he said, that he did not have. An amount that was small for her - a manager at Titan - was a lot for him.

The question for us is why there are so many like him, and so few like her. We see many young Indians working difficult, low-paying jobs in delivery, logistics, construction.

This election, PM Narendra Modi is pitching to voters for another term. He insists that he is the best choice for a young, aspirational country. Some of the successes the government claims are indeed very real. Since 2014, India has seen 54,000 kilometres of new national highways built. The number of Indians taking flights has doubled to 200 million in the last decade. The government has invested in both physical and digital infrastructure, with flyovers, metro lines, electrification, direct cash transfers, UPI, and telecom connectivity. It's a big deal for a country that had become used to potholes and power cuts.

But even with this progress, there are many questions. In the recent Lokniti-CDS survey of 10,000 voters across 19 Indian states, unemployment was the top worry for 27%, and 62% said that finding a job had become even harder in the past five years. India's unemployment rate, which hovers around 8% according to the private institution CMIE, is higher than other Asian economies at a comparable development stage.

We are often referred to as a young country that will be the 'world's next workforce'. But our youth boom is challenging India's policy makers: how are we going to provide these hundreds of millions of young people with jobs, and add to India's productivity and growth?

In this week's Analyticks:

Youth boom, yes. Job boom, no: India needs to ramp up on job creation, fast

Screener: Promoters selling stakes in their companies in the latest quarter

A youthful country, looking for work

When tourists visit India, they often remark on how visibly young the country looks. The median age of Indians is 29, compared to 39 in the US and 40 in China. Nearly half of our population is under the age of 25.

India's youth is not evenly spread out across the country. Many of India's young people are now in the north.

Over the last two decades, a big shift has happened in the Indian economy - the south and west of the country, which have long been the main drivers of growth, have grown older.

Population shifts put more young people in poorer states

The south and west of India still dominate in GDP contribution to the economy, and in GDP per capita. The Hindi heartland states, which have the youngest populations (UP, Bihar, Madhya Pradesh, Rajasthan) have a low industrial base, making this a low GDP-per-capita region.

Young people in the poorer states also have to deal with weaker educational infrastructure, resulting in low education levels. For example, nearly half of Tamil Nadu’s 18-to-23-year-olds are in higher education, compared with 17% in Bihar.

And while more Indians than ever before are finishing school, recruiters are finding major quality problems while hiring, with learning deficits that make many unemployable. The youth unemployment rate for Indians who cannot read or write is 3.4%. But the unemployment rate is 6X more for those who have completed secondary education (18.4%), and 9X more for college graduates (29.1%).

A digital skills survey showed large percentages of Indians unable to complete basic digital tasks.

At present, 83% of India's unemployed are young people, and 90% of workers are in informal work. States like Bihar, Uttar Pradesh, Rajasthan and MP have even higher unemployment levels - in Rajasthan for example, youth unemployment is estimated at 30.2%. The result of this is 3,700 PhD holders, 5,000 graduates and 28,000 postgraduates applying for 62 posts of “peon” in the Uttar Pradesh Police Department.

To avoid a crisis, this needs to change fast. India's government sector employs only 5% of the population, so private job creation is key. In addition to building up our manufacturing base, India is providing subsidies to large companies through efforts like PLI schemes. But it needs to do more for small and medium enterprises (SMEs), which are labour intensive and job creators, but were hit hard by demonetization in 2016 and the pandemic in 2020.

But the problem is not just in the supply of jobs, but also the quality of people looking for work. So most of all, India needs to take a U-turn in its school and health policies, and raise funding here. This is crucial to build the innovators and entrepreneurs who create jobs, and the high skilled workers who attract investment.

Foreign investment has lots of countries competing for it right now - India, Vietnam, Bangladesh, Indonesia - and it will go where there is high-quality human capital. If we don't focus on education and health, we are doing India's youth a great disservice, condemning them to bad schools and indifferent jobs.

But we will have to act quickly. Because the youth dividend, as China and the US already know, doesn't last long.

Screener: Stocks with reduced promoter holding in Q4FY24

With the end of the last quarter of FY24, we take a look at stocks where promoters sold the most stakes during the quarter. This screener shows stocks that saw a decline in promoter holding over Q4FY24.

There may be many reasons for a drop in promoter holdings, but investors often see it as signalling a lack of confidence in future growth. So promoter sales can trigger selling from other investors. Promoters may also sell their stake to earn profits when shares have risen sharply.

The screener is dominated by banking & finance, software & services, realty, metals & mining and pharmaceuticals & biotechnology. Major stocks that appear in the screener are Whirlpool of India, Aavas Financiers, Swan Energy, Suven Pharmaceuticals, Shyam Metalics and Energy, NLC India, InterGlobe Aviation and Samvardhana Motherson International.

Whirlpool of India’s promoters sold a 24% stake in the company during Q4FY24, the most among the Nifty 500 index. This takes the company’s promoter holding down to 51% in Q4FY24. The promoters plan to use the proceeds from the sale to repay a $500 million term loan. The sold shares were bought by mutual funds as they invested in a 21% stake in the company. SBI Small Cap Fund bought a 9.7% stake, the most among other mutual funds, in the company. The company’s stock price has underperformed the consumer electronics industry by 7.1 percentage points in the past quarter, despite rising by 15.8% in the same period.

You can find more screeners here.

The Baseline

26 Apr 2024

Five Interesting Stocks Today - April 26, 2024

1. Macrotech Developers (Lodha):

This realty company hit its all-time high of Rs 1,309.5 on Thursday before falling by 1.3% in today’s session. Its Q4FY24 results showed revenue growing by 24.8% YoY while profit fell 10.6% YoY to Rs 665.5 crore. Profit declined due to a rise in the cost of projects and increased depreciation & amortization expenses. Despite the fall, it beat Trendlyne Forecaster’s net profit estimate by 45.6% and revenue estimates by 9.6%. It reported a 340 bps growth in EBITDA margin to 33.4%.

Lodha achieved its estimated FY24 pre-sales growth of 20% and posted pre-sales of Rs 14,520 crore. Its pre-sales jumped 40% YoY in the quarter to Rs 4,230 crore and collections grew 20%. The Mumbai-based company’s business is focused in Tier-1 cities in Maharashtra, and the Mumbai region contributed 61.6% of its pre-sales while Pune contributed 24.5%. The firm is now diversifying its focus toward the south, and Bengaluru contributed around 8% of the pre-sales. The management expects to advance its ‘expansion stage’ in Bengaluru.

On the back of its strong operating cash flow generation and its recently raised Rs 3,300 crore via QIP, Macrotech Developers reduced its debt by 55% to Rs 3,010 crore, less than 0.2X the equity. Managing Director Abhishek Lodha said, “The sharp reduction in net debt has happened alongside the addition of new projects worth Rs 20,300 crore. This enhanced financial strength will give us the opportunity to accelerate margin and top-line growth.” The company has targeted a 20% sales booking CAGR over FY24-26, implying bookings worth Rs 21,000 crore in FY26. The firm appears in a screener for stocks with low debt.

ICICI Securities maintains its ‘Hold’ on Macrotech Developers based on its strong launch pipeline and new project additions. The brokerage is however cautious due to its higher-than-expected price growth. Over the past year, the company’s share price has grown by 167.5%, outperforming its industry by 26.8 percentage points.

2. Axis Bank:

This banking & finance company surged 6% on Thursday following the announcement of CEO and Managing Director Amitabh Chaudhry's term extension by three years till December 31, 2027. Chaudhry, who joined the bank in January 2019 after leading HDFC Standard Life Insurance for nine years, is increasingly seen as instrumental for the bank's growth trajectory. The bank released its quarterly and annual results this week, which aligned with or beat estimates across all fronts.

In FY24, Axis Bank reported a 22% YoY increase in revenue to Rs 72,336 crore, slightly exceeding Trendlyne’s Forecaster estimates by 1.7%. The bank's net profit for the fiscal year stood at Rs 24,861 crore, surpassing estimates by 4%. Its profit in FY24 is not comparable to the same in FY23 because of the acquisition of Citibank India's consumer banking business in March 2023. The company shows up in a screener of stocks with increasing revenue every quarter for the past eight quarters.

Additionally, the bank's board approved a fundraising plan of Rs 55,000 crore, with Rs 35,000 crore to be raised through debt and the remaining Rs 20,000 crore through equity. This capital infusion aims to strengthen the bank's financial position and support future growth efforts.

Commenting on the results, Amitabh Chaudhry said, “In FY24, we relentlessly focused on our key priority areas - Bharat Banking, Digital and Sparsh (our customer obsession program), I believe we were also nimble in picking up some enticing new opportunities that came our way.” He also highlighted the progress in integrating Citi's operations, which will complete within the next six months.

ICICI Securities reiterated its ‘Buy’ call on Axis Bank. They are optimistic as the bank posted an improvement in net interest margin by 5 bps QoQ to 4.6%, contrary to their expectation of a decline. With a target price of Rs 1,280, Axis Bank presents offers a potential upside of 13.2%.

3. Persistent Systems:

This IT consulting & software company has fallen 11.6% over the past week. This comes after its Q4FY24 EBIT missed Trendlyne’s forecaster estimates by 4.2%. The EBIT margin flatlined at 14.5% as margin expansion was offset by lower resource utilisation, higher subcontractor costs and travel costs. The company’s management gave a flat margin guidance for FY25.

Sandeep Kalra, the CEO acknowledged the weak numbers, and said, “We will be working towards improving utilization, onsite-offshore mix, and other operational efficiencies to achieve our medium-term target of improving margins by 200-300 basis points over the next 3 years”.

In Q4FY24, Persistent Systems’ net profit grew 1% QoQ to Rs 315.3 crore, driven by lower finance costs. Its revenue also increased 3.7% QoQ to Rs 2,590.5 crore, led by growth in its BFSI (which constitutes around 31% of its total revenue) and healthcare (24% of the revenue pie). The software, hi-tech, and emerging industries (45.1% of the revenue) weakened during the quarter. Both net profit and revenue however, beat estimates.

The company has outperformed its larger IT peers in revenue growth. For instance, Infosys reported a 2.3% QoQ degrowth in revenue during the quarter, while TCS’ was up 1.1% QoQ.

In terms of geographies, North America and India revenue grew by 4% and 4.5% QoQ while Europe declined 9.3% QoQ. In contrast, Infosys’ North America revenue declined by 2.2% QoQ. During the quarter, Persistent’s total contract value (TCVs) stood at Rs 44.8 crore. The company also highlighted that there has been no deal re-negotiation.

Post the company’s results, Sharekhan maintains its ‘Buy’ rating and lowers the target price to Rs 4,510. The brokerage says the company’s commentary on maintaining EBIT margin at the current level for FY25 via investments in building sales and marketing capacity as well as building next-gen technology assets, including the AI domain, is likely to place an upper limit on the profitability.

4. Hindustan Zinc:

This zinc company has been on a rally, rising by 42.4% over the past month. However, the stock fell by 1.5% on April 19 after it posted a 21.1% YoY decline in its net profit to Rs 2,038 crore in Q4FY24. Revenue also decreased by 12% YoY to Rs 7,285 crore during the quarter. The company’s revenue missed Trendlyne’s Forecaster estimates by 5.8%, but net profit beat estimates by 1.9%. It shows up in a screener of stocks with high promoter pledges.

Revenue fell on account of significantly lower zinc & lead prices and lower lead volumes, which was partially offset by an increase in silver and zinc volumes. On an annual basis, the company’s refined zinc production was marginally down YoY, while refined lead production was up 3% YOY. The increase in lead production was due to the company adopting pyro operations which increases the value of lead ores.

The company has set a capex of Rs 2,249.7-2,708 crore for FY25. Part of the capex will be used for the undergoing expansion of its 160 kt roaster in Debari which is expected to be completed by Q4FY25. The remaining will be used for the 510kt fertilizer plant in Chanderiya which will be commissioned by FY26. Speaking after the results, Amit Misra, CEO of the company said, “Our FY25 volume growth guidance for mined metal production is set at 4-6.5% YoY, refined metal production at 4-6% and saleable silver production at 0.5-4%.”

The sharp rise in the stock’s share price prior to results came in reaction to the company reaching its highest-ever production numbers for zinc and silver production in its FY24 business update, and a surge in zinc prices (up 17.4% in April 2024). Zinc prices had fallen by 13% in 2023, contributing to the fall in the company’s revenues. But prices have been on a recovery in 2024, rising by 9.5% so far. With its rise in production, the company has become the 2nd largest producer of zinc and the 3rd largest producer of silver globally. The company has also incorporated a subsidiary to discover and develop mineral blocks, which will produce lead alloys and other critical minerals listed by the government.

Post results, Motilal Oswal maintains its ‘Neutral’ rating on the stock with an upgraded target price of Rs 370 per share. The brokerage states that the company’s performance has been in line with its estimates. It also believes that the company’s focus on improving production with tight cost control will boost profitability. It expects the company’s net profit to grow at a CAGR of 16.7% over FY24-26.

5. Laurus Labs

This pharma company rose by 2.6% today post its result announcement. The firm beat Trendlyne Forecaster estimates for Q4FY24 for revenue by 2.1%, however missed the net profit estimate by 37%. For Q4FY24, the company’s net profit fell by 26.6% YoY to Rs 75 crore on the back of rise in raw material and employee expenses, while its revenue rose by 4.3% YoY. The stock shows up in a screener for companies with annual net profit declining for the last 2 years.

The company’s API business contributed more than half of the revenue and saw a growth of 30%. Its formulations or FDF business saw continued volume-led recovery in Antiretrovirals (ARV), and stable pricing despite market challenges. Spends were high compared to last year partly due to additional spend towards Competitive Generic Therapies (CGT) space.

The company’s management expects EBITDA margins to improve in FY25 as they are prioritizing capex into high value and growing market segments. For FY24, net capex was reported at Rs 700 crore (14% of the revenue). The management also notes that their $100 million CDMO investments are on track and they are planning an R&D center coming on line by June 2024 end. Laurus has recently inked a pact with Slovenia-based drug maker Krka to set up a joint venture firm in Hyderabad. Krka will hold a 51% stake and Laurus 49% share in the joint venture.

The company’s management says that at least two products are under preparation for the US market and they have launched one in Q4. V V Ravi Kumar, Executive Director & Chief Financial Officer, said: “Overall FY24 was challenging, driven by selling price decline in antiretroviral (ARV) products and absence of large purchase orders (PO). Despite operational challenges, our committed capacity built-up is on track as is our focus on productivity improvement.”

Goldman Sachs initiated coverage on Laurus Labs with a "sell" rating and a price target of Rs. 350, with a “Sell” rating. According to the brokerage, shares of Laurus Labs may fall as much as 23% over the next 12 months as it thinks that its segments lack immediate growth catalysts.

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

The Baseline

25 Apr 2024

Chart of the Week: Capital goods, consumer services see highest inflows from FPIs in FY24

By Satyam Kumar

In FY24, a rising Indian equity market saw net foreign portfolio investment (FPI) inflows amounting to $25.3 billion (approx. two lakh crore), surpassing other emerging market peers, as reported in RBI’s ‘State of the Economy’. Sectors like capital goods, consumer services, automobiles, and financial services emerged as top choices for FPI investments, collectively accounting for over 60% of the total foreign inflows, according to NSDL data. This trend underscores the importance of FPI activity as a measure for retail investors seeking insights into strong-performing sectors.

In this Chart of the Week, we take a look at sectors with the highest FPI activity in FY24. Throughout the year, FPIs consistently poured money into capital goods companies, with a total inflow of Rs 46,935 crore. The consumer services sector was the second favourite among FPIs with a net investment of Rs 32,186 crore.

Metals and mining, on the other hand, witnessed the highest FPI outflow of Rs 8,531 crore in FY24. The FMCG sector saw cyclical FPI investments: an inflow of Rs 10,621 crore from April to July 2023, followed by a divestment of Rs 15,521 crore from August 2023 to February 2024, influenced by El Niño conditions and rural consumption worries.

Capital goods, auto and consumer services emerge as favourites

More than half of the total investment of around Rs 2 lakh crore by FPIs went into capital goods, auto and consumer services sectors. Capital goods companies have benefited from a robust order backlog and a steady inflow of fresh orders. This growth was supported by higher commodity prices and increased government infrastructure spending, as well as production-linked incentive (PLI) schemes.

Consumer services ranked second in FPI interest, with heavy inflows in the final two months, with FPIs purchasing stocks worth Rs 12,179 crore in February and March. Auto stocks also caught the attention of FPIs, attracting investments worth Rs 29,862 crore in FY24. This was propelled by strong OEM sales, new product launches, and favourable raw material prices, all of which gave profit margins a boost.

The financial services sector was doing quite well until interest rates went steadily higher and the RBI tightened loan requirements in November 2023. The sector observed mixed FPI inflows, with inflow of Rs 51,947 crore in H1FY24, followed by an outflow of Rs 23,154 crore in H2FY24. In the past year, public sector banks also garnered attention as analysts highlighted their cheap valuation compared to private banks.

Healthcare and Telecom witness rapid expansion amid positive consumer sentiment

The healthcare sector, comprising the pharma and hospitals industry, witnessed an inflow of Rs 16,687 crore in FY24. The pharma industry's growth was driven by international market launches, steady domestic operations, and improved margins. Similarly, hospitals saw increased bed occupancy and growth in average revenue per occupied bed, alongside steady capacity additions, leading to higher net income and revenue visibility.

FPIs were net buyers worth Rs 15,277 crore in the telecom sector in FY24, supported by healthy subscriber additions and a gradual uptick in average revenue per user (ARPU). However, sector performance consolidated due to marginal expansion in ARPU, due to the absence of price hikes in the past year. Also, added capex costs with the 5G rollout and network densification kept debt levels elevated giving rise to higher finance costs.

IT and FMCG sectors see muted investment

FPIs injected a net amount of Rs 5,931 crore into the information technology (IT) sector in FY24. This inflow is comparatively lower than other sectors as hiring at IT companies was at all-time lows during the past year, as margins grew stressed and clients renegotiated contracts. Indian tech firms, particularly IT services companies, faced pressure due to their reliance on the slowing North American market for over 60% of their revenue.

The FMCG sector also saw muted investor interest as FPIs added stocks worth Rs 1,341 crore in FY24. Topline growth remains muted due to subdued demand, particularly in the mass end of the segment. Lower crop yields after a below-average monsoon have affected rural demand.

Oil and metals sectors see net FPI outflow in FY24

The oil & gas sector saw a net selling of Rs 5,774 crore in FY24. Market volatility resulting from OPEC cuts and geopolitical factors, such as supply chain disruptions due to the Israel-Hamas conflict and drone attacks on Russian oil refineries by Ukraine, contributed significantly to this trend. Brent Crude futures have risen by 13.4% year-to-date.

Lastly, the metals and mining sector saw the highest FPI outflow of Rs 8,531 crore in FY24. Indian companies in this sector face major hurdles because of the dumping of steel at cheaper rates and sub-standard imports from China. Here, dumping refers to an abrupt increase in supply, which was seen from April to July 2023, where steel imports from China to India rose 62% YoY. However, the government took measures to curb Chinese imports in September 2023, where they imposed a five-year anti-dumping duty targeting specific types of Chinese steel. Anti-dumping duty is a tax levied on imported goods that the government believes are priced below fair market value. The industry is also expected to address production gaps in 2024 and reduce dependence on imports, supported by policy reforms, incentives, and large-scale expansion plans by industry giants such as Tata Steel, Vedanta, and JSW Steel.

These FPI trends in different sectors reflect both global economic factors and sector-specific challenges in India, highlighting the importance of understanding market dynamics for investors to make better investment decisions. Looking ahead, developments in sectors such as IT, finance and FMCG will be closely watched, as they navigate through higher interest rates and volatile customer spending.

The Baseline

23 Apr 2024

5 stocks to buy from analysts this week - April 23, 2024

By Abhiraj Panchal

1. Amara Raja Energy & Mobility:

ICICI Direct reaffirms this auto parts and equipment company as a ‘Buy’ with a target price of Rs 1,200. This indicates an upside of 15.2%. Analyst Shashank Kanodia is bullish about the company’s strong presence in the automotive sector, which contributes 70% to its sales. He is also optimistic as the company has consistently reported better operating margins than its peers.

Kanodia is positive about the revenue visibility in the new energy space as Amara Raja entered an MoU with the government of Telangana to set up a Li-Ion Battery Gigafactory. He expects the facility to have a cell manufacturing capacity of up to 16 GWh & assembly capacity of up to 5 GWh. This venture involves an estimated investment of Rs 9,500 crore over the next decade. Kanodia is also upbeat as the company has an indirect presence in the new energy segment through its minority stake in Log9 Materials.

2. Indian Hotels Company:

Sharekhan maintains its ‘Buy’ rating on this hotel company with a target price of Rs 679, indicating an upside of 16%. The analysts point to the room demand being higher compared to supply, thanks to rising demand from domestic travellers and the growth of new tourism segments. Adding to this, the analysts note that demand is continuing to improve with India’s rising prominence in the global tourism market, along with strong support from the government in the form of improved infrastructure and favourable policies.

With good macroeconomic conditions, analysts anticipate average room rentals to grow by 10-12% in FY25. They also note a correlation between airline passenger movement and room demand and expect an increase in room demand alongside rising airline passenger numbers. Sharekhan analysts are positive about the company's plans to accelerate its hotel expansion, targeting the opening of 25 new hotels annually compared to the previous target of 15-20 hotels. In the past quarter, the company’s share price has risen by 22.2% underperforming its industry by 5.6 percentage points.

3. LT Foods:

Hem Securities initiates a ‘Buy’ call on this agricultural products manufacturer with a target price of Rs 237. This indicates an upside of 13.1%. Analyst Aarushi Lunia says, “We are positive on the future growth prospects of the company on the back of its robust distribution network, strong brand equity and endeavour to enrich its product portfolio by expanding into newer categories.”

Lunia points to LT Foods' expansion in Europe, Mauritius, Denmark, and Slovenia as a green flag. She also believes that the company’s strategic partnership with Saudi Agricultural and Livestock Investment will give boost its future growth plans in the Middle East and Saudi Arabia region, and fortify its position as one of the leading players.

The analyst notes that the company aims to enhance its product mix with a higher focus on margin-accretive premium basmati export business and plans to scale up new launches in the value-added segment. LT Foods is targeting a five-year revenue CAGR of 10-12%, driven by a focus on expanding its product portfolio, investments in branding, and strengthening its distribution network.

4. Equitas Small Finance Bank:

Motilal Oswal reiterates its ‘Buy’ call on this bank with a target price of Rs 125, indicating an upside of 27%. Analysts Nitin Aggarwal, Dixit Sankharva and Disha Singhal say, “Equitas Small Finance Bank has been delivering consistent performance, with steady improvements in both asset quality and return ratios. It ispoised to report steady operating performance, backed by robust loan growth, healthy margins and controlled credit costs.”

The bank has been investing in its business by adding new branches and building digital infrastructure and capabilities, which they believe has kept its operating expenses elevated. They expect the bank to continue investing in its tech capabilities.

Analysts note that the bank has been focusing on building a diversified loan book, with securities-based lending, vehicle finance, microfinance loans and housing finance being the key business segments. It is focused on growing the unsecured personal loan and credit card segments, and targeting the prime segment to improve its loan mix. The analysts estimate a 22% CAGR in loans and a 26% CAGR in deposits over FY24-26.

5. HDFC Life Insurance:

Bob Capital Markets maintains its ‘Buy’ call on this life insurance provider but reduces its target price to Rs 775 from Rs 850, indicating an upside of 27.9%. In FY24, the company’s net profit increased by 3.1% YoY to Rs 1,258.2 crore, while revenue grew by 5.5% YoY.

The company’s value of new business (VNB) fell by 5% YoY to Rs 3,500 crore, with margins decreasing by 130 basis points to 26.3%. Analyst Mohit Mangal notes that the margin decline is due to a one-time fixed cost of Rs 1,000 crore and a higher share of unit-linked insurance plans (ULIPs). He expects the company to report a VNB margin of 26.5% in FY25 and estimates a 17% VNB CAGR over FY24-FY26. The analyst adds, “HDFC Life’s market share (individual APE) decreased to 15.4% YoY at the end of FY24, indicating the company's growth struggles.”

However, Mangal maintains his positive stance on HDFC Life Insurance on the back of its innovative launches, balanced product mix, and increasing demand from tier-2 and tier-3 markets.

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

(You can find all analyst picks here)

The Baseline

19 Apr 2024

Five Interesting Stocks Today - April 19, 2024

1. Ambuja Cement:

This cement manufacturer is currently trading near its 52-week high of Rs 640.8. This comes after promoter Adani Group invested an additional Rs 8,339 crore in the company. With this, the Adani family’s total infusion into Ambuja Cement reaches Rs 20,000 crore, via preferential warrants. The group had acquired Switzerland-based Holcim’s 63.1% stake in Ambuja Cements in September 2022. It invested Rs 5,000 crore in October 2022 and Rs 6,661 crore in March 2024. Their stake in Ambuja Cements has now increased to 70.3%.

The additional capital from the Adani family will enable Ambuja Cements to fast-track its expansion plans. The cement manufacturer is looking to establish dominance in the cement space, and plans to double its production capacity to 140 million tonnes per annum by FY28. Ajay Kapur, CEO of Ambuja Cements said, "This infusion of funds enables various initiatives including debottlenecking capex, to enhance operational performance and bring efficiencies across resources, supply chain”.

Ambuja has expanded its capacity by 15% (9.9 MTPA) in the past year. The majority of capacity expansion was on account of the acquisition of Sanghi Industries (6.1 MTPA) and Asian Concrete & Cements (2.8 MTPA). In addition, Ambuja is doing a brownfield expansion of 12 MTPA.

Ambuja Cement’s net profit TTM stands at Rs 3,166.6 crore, up 63.4% YoY, and revenue TTM at 32,231.6 crore. According to Trendlyne’s Forecaster, the company’s net profit is expected to grow by 47.2% YoY in Q4FY24.

Earlier this week, Ambuja Cements signed an agreement to acquire My Home Group's 1.5 MTPA cement grinding unit in Tuticorin, Tamil Nadu for Rs 413.75 crore. This is expected to boost the company’s coastal footprint across southern markets of Tamil Nadu and Kerala.

ICICI Securities maintains its ‘Buy’ with a target price of Rs 831 (factoring in the equity dilution post-warrant conversion). The brokerage is optimistic about the company’s growth prospects and believes it has the potential to outperform its peers in capacity growth.

2. Phoenix Mills:

This realty company achieved an all-time high of Rs 3,265 on Thursday after rising 18.5% in the past month. This rise came after the company reported its business update for Q4 & FY24, which showed a 22% YoY increase in retail consumption in FY24 to Rs 11,327 crore. Global brokerages reiterated their bullish stance on the stock post-update.

Morgan Stanley reaffirmed its 'Overweight' rating, noting that same-store consumption has surpassed consensus expectations, indicating a revival in growth. Trendlyne’s Forecaster estimates a 36% YoY revenue growth to Rs 3,589 crore in FY24, with a 42.1% increase in EPS. According to the data released by the Ministry of Statistics, Indian households are spending less on food, and more on discretionary items. This justifies Phoenix’s growth, as 70% of its revenue comes from malls that deal in discretionary items.

Phoenix Mills aims to expand its office portfolio by 5.1 million square feet near its existing malls in the next three years, boosting its operational office space to 7 million square feet by 2027, a significant increase from the current 2 million square feet.

Managing Director, Shishir Shrivastava, noted the strong rebound in office space demand, nearing pre-pandemic levels in major cities like Mumbai, Pune, Bengaluru, and Chennai, where the company intends to develop office spaces. He emphasized the high demand for quality office space, reflected in low vacancy rates and strong rental trends in grade-A buildings in these cities.

The Hong Kong-based brokerage CLSA has maintained its outperform rating on the stock and increased its target price to Rs 3403 from the previous target of Rs 2825. This suggests a potential upside of 9% from the current levels.

3. Ramkrishna Forgings:

This industrial products manufacturer has risen by 11.9% in the past week after winning two orders. The firm bagged a Rs 270 crore order from the Bharat Heavy Electricals-Titagarh Rail Systems consortium for Vande Bharat train components. It also secured approval to supply powertrain components to the USA’s largest electric passenger vehicle producer. The company appears in a screener for stocks outperforming the industry over a month.

In the past week, the company announced a ~9% increase in production capacity to 2,29,150 tonnes per annum, with an investment of around Rs 54.6 crore to cater to the growing customer demand.

Trendlyne’s Forecaster expects Ramkrishna Forgings to report a 37% YoY growth in net profit in FY24 and a revenue increase of 10.3% YoY. Despite what the management calls challenging business conditions, they expect order growth and better capacity utilization (currently at 95.6%). They also estimate a 15-20% growth in volume over the medium term, supported by new client additions. The company has guided for a turnover of Rs 5,600-6,075 crore annually by FY26.

“Our ongoing restructuring with arms like ACIL, JMT, MultiTech, and Mal Metalliks will streamline our approach and provide cross-selling opportunities to marquee clientele," says Managing Director Naresh Jalan.

Ramkrishna Forgings is in diversification mode, looking to enhance its global presence, expand into non-auto products and electric vehicles. The company has expanded its international customer base and grown its export mix from 30.1% in FY19 to 41.5% in 9MFY24. The approval to supply components for electric vehicles enables its entry into the international electric passenger vehicle segment. The firm’s acquisition of JMT Auto will enhance revenue potential in the oil & gas segment, with an expected turnover of Rs 400-500 crore from JMT Auto in FY26.

The company’s acquisition of Multitech Auto is also projected to result in an EBITDA growth of 18% by FY26. The firm has also planned the acquisition of ACIL to extend its reach into the tractors and passenger vehicles segment.

Sharekhan maintains a ‘Buy’ call on Ramkrishna Forgings on the back of its inorganic growth plan, diversification strategies, and focus on high operating margins.

4. Angel One:

This capital markets stock declined 12.6% in two sessions after opening in the green on Thursday after the company posted its Q4FY24 results. The stock fell due to its EBITDA margin contracting by 7.7 percentage points YoY to 39% during the quarter. The company spent more on client acquisition and technological upgrades to fend off competition from online brokers such as Zerodha, Groww and Upstox.

Angel One’s net profit increased by 27.4% YoY to Rs 339.9 crore, while revenue rose by 64.4% YoY to Rs 1,357.3 crore on the back of increasing gross client acquisition and average daily turnover (ADTO). Its net profit and revenue beat Trendlyne’s Forecaster estimates by 13.9% and 48.6%. It appears in a screener of stocks with increasing revenue QoQ for the past three quarters.

In the company’s business update for Q4FY24, its overall average daily turnover (ADTO) improved by 139.9% YoY to Rs 44.3 lakh crore. Its client base also increased by 61.5% YoY to 2.2 crore, helped by a 123.7% growth in client acquisition. The company’s average daily turnover (ADTO) in the futures & options (F&O) segment also grew by 141.5% YoY. Despite the rise in ADTO, the company’s overall and FnO market share declined 470 bps and 300 bps YoY, respectively, due to increasing competition.

Speaking on the company’s results, its Chairman and Managing Director, Dinesh Thakkar, said, “Our digital outreach has enabled us to gain clients from tier 1 and 2 cities. We are not yet seeing price pressures or product fatigue in the space, and there are still opportunities for growth. For example, in the cash segment we are among the few players who are not charging customers.”

Post results, Motilal Oswal retains its ‘Buy’ rating on Angel One with an upgraded target price of Rs 4,200 per share. This indicates a potential upside of 56%. The brokerage believes that the company is well positioned to grow business across client acquisition, orders and MTF book due to its Rs 1,500 crore fundraising. It expects the company’s revenue to grow at a CAGR of 20.6% over FY24-26.

5. Bajaj Auto:

This 2&3 wheelers manufacturer’s stock declined by 2.4% on Friday after the company posted its Q4FY24 results on Thursday. The firm beat the Trendlyne Forecaster’s estimates for Q4FY24 for revenue by 0.9%, however missed the net profit estimate by 2.6%. For Q4FY24 the company’s net profit rose by 17.9% YoY to Rs 2,011.4 crore, while its revenue rose by 29.9% YoY on the back of 29.1% rise in the automotive segment revenue. The stock shows up in a screener for companies with low debt.

In Q4FY24 the company reported a 25.5% YoY increase in its total vehicle sales to 3.7 lakh units. The 2-wheeler domestic sales rose by 20% YoY in Q4 to 1.8 lakh units. The company emerged as the largest 125 cc+ player in FY24 where the growth rate was 8X the rest of the industry. In the commercial vehicle segment the company came close to 80% market share for the first time in FY24.

Rakesh Sharma, Executive Director, said: “We are looking for double-digit volume growth in FY25 if the industry grows at 7-8%. The export business environment remained challenging through the quarter and volumes were down sequentially by 20% MoM, largely because business came to a near standstill in Nigeria on account of election-related unrest, as well as demonetization.” However, retail has bounced back post elections”.

Bajaj Auto is managing inventory across 96 countries, of which 40 are key markets. Goldman Sachs revised its target price for Bajaj Auto to Rs 9,380 from Rs 8,780 earlier, with a “Neutral” rating. The brokerage raised the target price due to unexpected volume growth, falling EV battery costs, stable raw material prices, rupee depreciation aiding exports, and price adjustments on Pulsar models affecting the export mix.

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

The Baseline

17 Apr 2024, 07:06PM

Chart of the week: Family-owned listed firms are top buyers of electoral bonds

By Satyam Kumar

The ruling Bharatiya Janata Party (BJP) had introduced the electoral bonds scheme, amid significant controversy, in 2018. This scheme allowed corporate houses and individuals to anonymously donate funds to political parties.

The BJP had defended the scheme, saying that it will take out black money from politics. But in February 2024, the Supreme Court of India ruled that political funding cannot be anonymous and ordered the government to discontinue the scheme. The State Bank of India (SBI) was required to release electoral bonds data to the public. The Supreme Court noted that infringement of the Right to Information is not justified to curb black money.

In this Chart of the Week, let's take a look at how some of the biggest names in the Indian stock market turned out to have invested heavily in electoral bonds until February 2024, when the Supreme Court of India banned it. India's apex court noted that corporate contributions are ‘purely business transactions made with the intent of securing benefits in return’.

If we take a closer look at the top contributors, all the top donors are family-owned firms looking to pass the leadership baton to their kids. These donations to political parties can help them develop strong relationships with political parties, and in turn cement their dominance in their industries via friendly regulation. This can also act as entry barriers for other smaller players.

According to the data released by the Election Commission of India, the Modi-led Bharatiya Janata Party received funding of Rs 6,061 crore via electoral bonds. This constitutes 47.5% of the total funds donated.

Reliance and Adani Group buy bonds through their subsidiaries

Starting with Qwik Supply Chain, the third-largest donor to political parties using electoral bonds donated Rs 410 crore. Out of the total Rs 410 crore, Rs 375 crore went to the BJP, Rs 25 crore to Shiv Sena, and the remaining Rs 10 crore to the Nationalist Congress Party. According to Press Trust of India, Qwik Supply Chain, registered at Navi Mumbai's Dhirubhai Ambani Knowledge City, has connections to family-owned Reliance Industries. However, a spokesperson for Reliance Industries stated: “Qwik Supply Chain is not a subsidiary of any Reliance entity.” The Reliance Group in August 2023 announced that Isha, Akash and Anant have been appointed to the board of directors at Reliance Industries.

The Adani Group, which is believed to have close ties with the ruling party, contributed a total of Rs 55.4 crore. This includes donations from ABC India and three subsidiaries of the Welspun Group. According to a press release, the Adani Group holds a 65% shareholding in Adani Welspun Exploration Ltd through Adani Enterprises. As a family-owned business, Gautam Adani’s two sons, Karan and Jeet Adani hold crucial positions in Adani Group companies.

Environmental violations main concerns for Sun Pharma and Vedanta

Family-owned mining company Vedanta has faced criticism for environmental violations across its mining and oil & gas projects in India. The company purchased electoral bonds worth Rs 441 crore. Reports suggest that the company’s electoral bonds buying spree could have been key to the recent weakening of environmental regulations.

Of the total 441 crore paid out, more than half went to the BJP, while Rs 125 crore went to the Indian National Congress, Rs 40 crore to Biju Janata Dal, and the rest to other political parties. Anil Agarwal, who was a successor to the company, passed on to him by his father D P Agarwal, has recently said that the company will be run only by professionals. However, his kids still hold high-profile positions in the subsidiaries.

Similarly, pharma company Sun Pharmaceutical Industries contributed Rs 32 crore to BJP through electoral bonds, purchased via one of its subsidiaries, Sun Pharma Laboratories. Sun Pharma has also faced allegations of environmental violations. This drug manufacturing company is also mainly family-owned. Aalok Shanghvi, son of Dilip Shanghvi, holds the position of Executive Director in the company.

Major telecom industry players bought electoral bonds

Telecom services company Bharti Airtel and its subsidiaries purchased bonds worth Rs 234 crore in total. The Bharti group donated Rs 150 crore to the ruling party through two sets of bonds purchased before and after the government introduced a new law concerning the auction of satellite spectrum. The law allowed the spectrum to be assigned through an administrative order, doing away with the need for competitive auctions. This ultimately benefited Bharti Enterprises, because OneWeb India, a subsidiary of international company Eutelsat OneWeb, with Bharti Enterprises as its majority stakeholder, was the first to meet the prerequisites for spectrum application.

This family-owned company has appointed Shravin Mittal, son of Sunil Mittal, as the Managing Director of the family’s investment arm, Bharti Global and Director at Airtel Africa.

Meanwhile, Aditya Birla Group, led by Kumar Mangalam Birla, donated Rs 556 through Essel Mining and Industries, and other subsidiaries. Many analysts indicated that the company wanted favours from the government related to its debt in the joint venture Vodafone Idea. Coincidentally, shortly after the donation of Rs 100 crore in February 2023, the centre announced the conversion of debt of Rs 16,000 crore into equity, resulting in the Indian government becoming the largest shareholder with a 33% stake in the company.

Kotak and Torrent’s contributions point to major anti-competitive favours

The Kotak family group led by Uday Kotak has purchased electoral bonds and donated Rs 60 crore only to the BJP. Uday Kotak was in a dispute with the RBI regarding his stake in Kotak Mahindra Bank, which exceeded the limit set by the central bank, which started in 2013. In December 2018, Kotak Mahindra Bank took the RBI to court over the issue. Thirteen months later, in January 2020, the RBI agreed to a proposal from the private bank in an out-of-court settlement. Infina Capital, a company belonging to the Kotak family group, purchased electoral bonds worth Rs 35 crore in the months leading up to the settlement.

In April 2021, Infina Capital purchased additional bonds worth Rs 25 crore to support the ruling party. This coincided with the RBI's announcement of fresh guidelines allowing Uday Kotak to continue as the Managing Director and CEO of Kotak Mahindra Bank for another 32 months.

Torrent Group, led by Samir and Sudhir Mehta purchased bonds worth Rs 184 crore. Torrent Power and Torrent Pharmaceuticals, both listed entities of the Torrent Group, donated Rs 76 crore and Rs 61 crore, respectively, to the BJP. Consequently, the Torrent group received special privileges from the Devendra Fadnavis government in 2019 exempting them from property tax of Rs 285 crore.

It's apparent that electoral bonds can serve as a means for corporate family entities to gain favors from the government, especially considering the 100% tax benefits associated with donations.

India has long had a problem with such crony capitalism - wealth built via close corporate-government ties accounts for 8% of India’s GDP and rising. Practices like electoral bond buying worsen such cronyism further by undermining competition, and entrenching the dominance of these companies.

The Baseline

16 Apr 2024

5 stocks to buy from analysts this week - April 16, 2024

By Satyam Kumar

1. Endurance Technologies:

Hem Securities reiterates a ‘Buy’ call on this auto parts manufacturer with a target price of Rs 2,219, indicating an upside of 20.8%. Analyst Abhishek Sharda say, “Endurance Technologies has a very strong positioning in the two-wheeler market and it is a very good proxy for the Indian two-wheeler industry.”

Sharda is optimistic about the company due to its strong order wins both in Europe and India. Order wins from India stood at Rs 940 crore in 9MFY24 and orders from Europe were 29 million euro. The analyst expects the orders to peak in FY26.

Sharda believes that the company has a diverse revenue profile in terms of geography, products and vehicles. He also believes that it is ready for the trend shift towards electric vehicles. Sharda expects EBITDA margins to improve on the back of improving capacity utilisation. He concludes, “Endurance Technologies will continue to focus on emerging technologies to grow its portfolio through both organic and inorganic routes.”

2. Coforge:

Sharekhan maintains a ‘Buy’ rating on this IT consulting and software company with a target price of Rs 7,670. This indicates an upside of 42.1%. Analysts at Sharekhan point to the company’s strong order book and large deal pipeline. “The company is well placed to deliver a top quadrant performance in FY25,” they note. Coforge has strong revenue visibility with an order book of $974 million as of Q3FY24 (up 15.8% YoY) to be executed over the next year.

Analysts are also optimistic as the company plans to raise Rs 3,200 crore from qualified institutional placements (QIP). Coforge intends to use these funds purely for mergers and acquisitions. They expect this to help the company quickly expand into new verticals such as cyber security, data services, and cloud operations. They also expect a sharp uptick in Coforge’s EBITDA margins in Q4FY24 owing to deal ramp-ups. Analysts at Sharekhan expect sales and profit CAGR of 17% and 32% respectively over FY24-26.

3. Glenmark Pharmaceuticals:

KRChoksey maintains a ‘Buy’ rating on this pharmaceutical company with a target price of Rs 1,266, indicating an upside of 21.3%. Analyst Unnati Jadhav is upbeat as the completion of the sale of Glenmark Lifesciences strengthens the balance sheet and earnings prospects of the company. She expects this deal to help Glenmark Pharma to become a ‘brand-led’ organization, with a focus on the core therapeutic areas of dermatology, respiratory, and oncology. She believes the total debt of Rs 4,953 crore will be repaid in FY25 from the proceeds of the deal, which in turn will save finance costs and boost earnings.

Jadhav is optimistic as the company has shown higher than market growth for the months of January and February 2024 for the India pharma market (IPM). While IPM growth was 9.5% YoY for January 2024, Glenmark Pharma grew 20.2% over the same period. In February 2024, the company reported 11.3% YoY growth vs overall IPM growth of 9.0%. She attributes this to changes in the distribution model involving stock point consolidation and channel inventory rationalization in the domestic business. Going forward, Jadhav expects this move to improve Glenmark’s operating margins and working capital.

4. Shalby:

ICICI Direct maintains a ‘Buy’ rating on this healthcare facilities company with a target price of Rs 320, indicating an upside of 18.7%. Analyst Siddhant Khandekar is upbeat as the company introduced the asset-light franchisee model to expand its hospital business into newer geographies. The company owns 10 multispecialty hospitals and 6 franchisee hospitals with a 2,362 bed capacity. Khandekar expects the company to expand its Shalby Centre for Orthopaedic Excellence (SOCE), an asset-light franchisee model, across India. It has established six such models across the country and expects to add 40 more over the next 4-5 years.

Khandekar believes that the company is trading at a cheap valuation compared to other PAN-India players. He is optimistic as the headwinds faced in FY24 in Shalby’s implants business look transitory. The company plans to expand its business beyond the US and India to improve profitability going forward.

5. Man Infraconstruction:

Axis Direct initiates a ‘Buy’ call on this construction and engineering company with a target price of Rs 270. This indicates an upside of 28.8%. Analysts Eesha Shah and Preeyam Tolia are optimistic about the company on the back of its healthy project pipeline and strong execution capabilities.

Man Infraconstruction has invested Rs 700 crore in real estate projects, covering a portfolio of 4.6 million square feet. The firm also maintains zero level of inventory of completed projects. The firm is expected to generate a revenue of Rs 1,343 crore with a net cash surplus of Rs 350 crore in FY24 (whereas its peer, Brigade Enterprises is expected to generate revenue of Rs 4,200 crore with a net debt of Rs 2,140 crore). The analysts believe that this asset-light model for a real estate developer makes it an attractive company in the segment.

The analysts like the company due to its order book and project pipeline. Currently, the firm has 2 million square feet of ongoing projects and 3.7 million square feet of upcoming real estate projects. Its EPC business order book stands at Rs 1,047 crore.

Shah and Tolia say that the company exhibits a very low debt book for a real estate developer. They conclude, “Due to its asset-light business model, it can scale up without significant capital pressure, thereby improving the bottom line in coming years.”

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

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