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22 Feb 2024

Indian exporters worry about rising shipping costs | Screener: Q3 winners that beat estimates for revenue and net profit

Just as the Red Sea started to look calm, the waters churned again. After a few quiet weeks, Yemen's Houthi rebels attacked a Belize-flag transport ship on Monday, forcing the crew to abandon the vessel. The attacks have continued despite the United States using its considerable firepower to hit Houthi bases with airstrikes.

The Houthi rebels walk around with oversized jambiya daggers around their waists, but their real weapons are the anti-ship cruise missiles and drones they use to target ships.

Now, other gangs are joining the action. Pirates linked to Somalia's al-Shabab terror group have been inactive for nearly a decade. But since November, nearly 20 ships have been attacked by Somali pirates in the Gulf of Aden, next to the Red Sea.

As many as 19,000 ships cross the Suez Canal and Red Sea every year, making this strait a critical point for energy and freight movement. To avoid attacks, ships are now taking the longer route around Africa, to move goods between Europe, US and Asia. The higher time spent on the water is requiring an extra 20% of global fleet capacity.

Major shipping companies – BP, Equinor, Maersk, Evergreen Line – warn that the security situation in the Red Sea is getting worse, not better in the near-term. This means higher insurance rates and more travel time for exporters.

These costs are hitting some Indian companies especially hard. The Indian think-tank Research and Information Systems, estimates that higher container shipping rates and delayed shipments could cause a 6.7% drop in Indian exports in FY24, from FY23’s $451 billion total. This puts around $30 billion on the line.

In this week's Analyticks:

Rebels in the Red Sea raise risks for Indian exporters
Winners of Q3 screener: Stocks which beat Forecaster analyst estimates in both revenue and net profit

Let's take a look.

CEOs are keeping a close eye on rising shipping costs

Sometimes, CEOs are able to take control and steer their companies through a crisis. Other times, they can only wait and watch. This has been the case with the Red Sea attacks, where Houthi rebels, shipping companies and insurance players are dictating terms to Indian exporters.

For India, the Red Sea is a major shipping route to Europe, the US East coast, the Middle East and Africa. And costs here are rising. Nilima Divi, Director of Divi's Laboratories for example, points to the "mandatory war risk insurance" exporters have to now take due to the attacks. Freight costs for Asia-Europe as well as Asia-US routes are near record levels.

Chart: WCI (World Container Index) prices for key routes from Asia to US and Europe

On earnings calls, Indian exporters say that they are currently paying 30% more on average in shipping freight. Major exports through the Red Sea from India include petroleum products, chemicals and cereals, according to the Indian Trade Ministry.

Chemicals stocks, which have been struggling with muted demand, China dumping and tight margins, have been hard hit by the additional freight costs. And while pharma companies are in recovery mode, with growth rising in the key markets of US and Europe, price pressures have only recently eased up. Rising shipping costs would renew the pressure. Lupin's Managing Director Ramesh Swaminathan called the Red Sea "the dark cloud on the horizon."

Rashesh Gogri, MD of Aarti Industries notes two main challenges for chemical exporters, "The pricing of containers has definitely gone up, and we will have a quarter lag or in some cases a month lag to push these prices up with the customers," indicating that Aarti will in the meantime, take a hit to their margins in Q4. Tha second challenge is rising shipping times, which have increased by two weeks when ships are avoiding the Red Sea. These factors impact 30% of Aarti Industries' exports.

Auto component players are upbeat, thanks to strong demand in Europe

One set of exporters that are relatively less impacted by the Red Sea crisis (so far) is India's auto component industry, thanks to stronger demand outlook and margin growth. Auto component players in India have benefited from vendor diversification by global vehicle manufacturers, and the demand recovery in key markets like Europe.

Chart: Europe sees car sales recover in January 2024

ICRA estimates that operating margins for auto component manufacturers are set to rise 50-100 bps YoY in FY24, reaching pre-Covid levels of 11.0-11.5%, and will continue to improve in FY25 by another 50-100 bps.

Vivek Vikram Singh, CEO of Sona BLW (Sona Comstar) notes that advance reservations have helped limit higher freight costs for now. "If you don't go on winter break and you're actually in office on 2nd January, it's easier to get containers booked," he says, "So the impact is not much right now. But if prices keep rising for a substantial time, we will see a significant impact."

The long-term cost outlook for exporters is actually pretty optimistic. According to logistics company Flexport, "There is so much new shipping capacity coming onstream in the next two years, that it can absorb the cost of long journeys around the cape of Africa, if trouble in the Red Sea persists." But in the short term, the rebels and the pirates are the ones holding the cards.

Screener: Stocks which beat Trendlyne's Forecaster estimates for revenue and net profit in Q3FY24

Natco Pharma, Adani Enterprises lead in positive estimates surprises in Q3FY24

As the Q3FY24 results season concludes, we take a look at companies that have outperformed their estimates. This screener shows stocks which beat Trendlyne's Forecaster estimates for revenue and net profit in Q3FY24 by over 5 %.

The screener is dominated by stocks from the banking & finance, cement & construction, oil & gas and pharma & biotech sectors. Major stocks that appear in the screener are Natco Pharma, Macrotech Developers, UTI Asset Management, Mazagon Dock Shipbuilders, Archean Chemical, Adani Enterprises, Nippon Life India Asset Management and Avanti Feeds.

Natco Pharma beat its Forecaster estimates for revenue and net profit by 32.1% and 155.3%, respectively, in Q3FY24. Its revenue grew by 54% YoY to Rs 758.6 crore, while its net profit jumped 2.4x to Rs 212.7 crore. The revenue growth was driven by an improvement in the pharma and agrochem segments. The company’s operating profit margin also expanded by 13.8 percentage points, owing to reduced raw material costs.

Macrotech Developers also beat Forecaster estimates for revenue and net profit by 24.8% and 51.2%, respectively, during the quarter. The realtor’s revenue surged by 65.2% YoY to Rs 2,930.6 crore in Q3FY24, helped by enhanced pre-sales and average price realisation. Its net profit increased by 24.4% YoY to Rs 503.3 crore, while its operating profit margin expanded by 736 bps YoY to 30.1%, thanks to lower finance costs.

You can find more screenershere,

The Baseline

20 Feb 2024

5 stocks to buy from analysts this week with high upsides

By Satyam Kumar

1. Royal Orchid Hotels:

Edelweiss maintains its ‘Buy’ rating on this hotel company with a target price of Rs 535. This indicates an upside of 26.4%. Analysts Amit Agarwal and Rishith Shah say, “Given the traction from domestic demand, the revival in meetings, conferences and exhibition activity, and constrained supply additions in the industry, we expect average room rate to trend upwards, with occupancy at near-optimal levels.” In Q3FY24, Royal Orchid’s revenue grew by 13.2% YoY to Rs 86.6 crore, while its net profit increased by 1.1% YoY to Rs 15.4 crore.

The analysts note that the company added 990 rooms in the past year, taking the total to 5,795. They expect the company to add around 2,300 rooms across 38-40 hotels by the end of FY25. As a large part of these room additions are under the asset-light model, Agarwal and Shah project the firm’s RoCE (Return on Capital Employed) to improve from 25.6% in FY23 to 28.8% in FY26. Benefiting from sectoral tailwinds, they predict a CAGR of 21% for revenue and 20% for profit after tax over FY23-26.

2. NTPC:

ICICI Direct maintains its ‘Buy’ rating on this electric utilities company with a target price of Rs 400. This implies an upside of 15.7%. In Q3FY24, its net profit grew 7.9% YoY to Rs 5,155.3 crore. Analyst Chirag J Shah says, “The company’s vision is to become a 130 GW+ company by 2032, with 60 GW expected from renewable energy.”

Shah is optimistic about NTPC – it is the only company that has added coal-based capacities over the past five years, reaching an installed base of 73,000 MW on a consolidated basis. NTPC has 9,300 MW of coal-based plants under construction. The analyst expects them to be commissioned by FY25-26. This will lead to an 11% growth in generation, supported by strong power load factors.

NTPC aims to produce 45-50% of its capacity from non-fossil fuels by 2030, and is targeting 60 GW of renewable capacity by 2032, according to Shah. He points out that the management is confident about reaching 20,000 MW of renewable capacity by FY26. He notes that the company is trying to diversify into green hydrogen and nuclear power through a joint venture with Nuclear Power Corporation of India.

3. Prestige Estates Projects:

HDFC Securities maintains its ‘Buy’ rating on this realty company with a target price of Rs 1,390, indicating an upside of 19.4%. Analyst Parikshit D Kandpal is upbeat about Prestige Estates registering its second-highest-ever presales by value and volume in Q3FY24, at Rs 5,320 crore, up 111% YoY, and 5.5 million square feet (msf), up 88% YoY, respectively. But, its revenue fell 16.1% YoY to Rs 1,970.5 crore, while net profit dropped by 9% YoY to Rs 116.3 crore in the quarter, mainly due to a decline in completions.

Kandpal believes that presales were supported by launches being at the highest ever, with new projects totalling 14.6 msf. This included Prestige City Hyderabad, which contributed Rs 2,400 crore to presales with its 12.6msf saleable area. He expects the company to launch its first project in NCR, Prestige Bougainvillea Gardens, in Q1FY25, with a saleable area of 3.1 msf. With Rs 16,330 crore in presales achieved in 9MFY24, the analyst forecasts that the company will surpass Rs 20,000 crore in presales in FY24.

4. Ashok Leyland:

KR Choksey maintains its ‘Buy’ rating on this commercial vehicles company with a target price of Rs 221. This indicates a potential upside of 27.8%. Analyst Unnati Jadhav believes that Ashok Leyland will continue to benefit from the government’s focus on infrastructure, replacement demand, improved freight demand, and a shift towards higher tonnage vehicles. The company’s revenue grew by 6.6% YoY to Rs 11,119.5 crore in Q3FY24, while its net profit increased by 75.6% YoY to Rs 560.2 crore.

Jadhav notes that elections in major states during Q3FY24 led to a slowdown in the company's revenue growth by affecting sales volumes. However, she adds that the gross margin for the quarter expanded by 403 bps YoY and 130 bps QoQ to 27.8%, helped by softening steel prices and pricing discipline leading to improved realizations. She forecasts a revenue CAGR of 8.2% and an adjusted net profit CAGR of 37.3% over FY23-26.

5. HG Infra Engineering:

Geojit BNP Paribas maintains its ‘Buy’ rating on this construction and engineering company with a target price of Rs 1,120, indicating an upside of 19.5%. Analyst Antu Eapen Thomas is upbeat about the company’s growing opportunities in road projects and its significant order book of Rs 9,626 crore, which is twice its trailing twelve month revenue.

In Q3FY24, its revenue grew by 15.1% YoY to Rs 1,368.4 crore, while net profit declined by 22% YoY to Rs 102 crore, mainly due to increased input costs and employee expenses.

Thomas notes the company’s well-diversified order book: 51% from EPC orders, 37% from hybrid-annuity model projects, and 12% from railway projects. He expects a dip in order inflow in Q4FY24 due to the upcoming general elections but expects any shortfall to be compensated in FY25.

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

(You can find all analyst picks here)

The Baseline

17 Feb 2024

A rare opportunity: Can India gain from a fading China? | Screener: Outperforming export stocks

By Tejas MD

India has long been seen as a country with massive “potential”, but far from realizing it. The one with both the talent and the red tape. The top colleges and high unemployment rates. Instead, our neighbour China was the one in the spotlight.

But over the past many months, political and market factors have come together to favour India. Once part of the 'Fragile Five' countries, India is now being endorsed by Goldman Sachs and Morgan Stanley as the primary investment destination for the next decade.

Morgan Stanley even predicts that India’s stock market will become the world’s third-largest by 2030, as FIIs flee China due to its stock market slump and increasingly heavy-handed market controls.

Vikas Pershad, an Asian equities portfolio manager at M&G Investments in Singapore, said. “People are interested in India for several reasons — one is simply that it’s not China. There’s a genuine long-term growth story here.”

However, the old problem of India’s potential not translating into reality, still looms over us. For this opportunity to not fizzle out, India must build up its manufacturing capability and drive exports. India faces stiff competition as a China alternative and global manufacturing hub. Other developing countries are in the race for the same sweet investment money.

High import duties and the difficulties in doing business here could hurt India’s chances. Can we take the steps needed to become the top new manufacturing destination?

In this week’s Analyticks,

The Window of Opportunity: Can India gain from China’s fading popularity?
Screener: Exporters outperforming Nifty 50, with YoY growth in revenue and net profit

Indian stock market in top gear while China stumbles

In professional dance, a key role is that of the ‘understudy’. This is the person who shadows the main performer, and knows the role as well as them. The understudy is there to step in, in case the dancer gets injured.

Now the understudy, India, has a chance as China stumbles. Investors are withdrawing billions of dollars from China's faltering economy and turning to India. Besides Goldman and Morgan Stanley, the $62 billion hedge fund Marshall Wace has positioned India as its biggest net long bet after the US, in its flagship hedge fund.

Nifty50 outperforms Shanghai Composite and Hang Seng over past four years

Despite efforts by China's government to rescue its crashing stock market, the outlook is weak. A monetary stimulus, and the national team (a group of Chinese state funds tasked to support the markets) buying 70 billion yuan ($9.7 billion) of onshore Chinese shares have failed to turn things around. Censorship and recent curbs on Chinese industries like tech and gaming are discouraging investors.

But even as investments are flowing into Indian equities, some economists warn that India faces multiple speedbreakers in becoming a global manufacturing hub.

India’s high import duties and ease of doing business are a major hurdle

The US Ambassador to India, Eric Garcetti, highlights India’s missed opportunities, “Foreign direct investment isn’t flowing into India at the pace it should be. Instead, it is going to Southeast Asia, particularly Vietnam.”

Garcetti criticized India's tax strategy in particular, suggesting that high taxes create a limited market rather than a protected one, by taxing both inputs and outputs.

India’s FDI inflow falls 16.4% to $70.9 billion in FY23

High FDI inflows in FY23 were seen in sectors like computer software & hardware, pharma, chemicals, automobile and auto components, and infrastructure.

Singapore accounts for 24.3% of India’s total FDI in FY23

High taxes have limited big investments from economies like the US. Singapore and Mauritius together accounted for 32.9% of India’s overall FDI inflows, followed by the US and Netherlands.

And despite these inflows, India’s FDI fell YoY in FY23. Meanwhile, Vietnam continues to be a major competitor, offering an alternative to global companies trying to diversify away from China.

Foxconn Technology Group’s recent decision to spend $100 million on a new plant in Vietnam highlights this trend. Mexico, Thailand, Indonesia and the Czech Republic are also in the running to win investments to expand global supply chains in the computer and electronics segments.

Countries competing for FDI typically offer a mix of incentives, including tax breaks, free-trade zones, discounted utilities like water and electricity, free land and commitments to supply workers. However, India stands out here with higher import taxes, This encourages domestic setup for local consumption, but reduces export competitiveness.

India's import duties higher compared to other emerging markets

Data from the ICEA reveals that India faces a 3.6% cost disadvantage compared to Vietnam, due to tariffs on smartphone components. This gap could prompt multinational companies to consider countries like Vietnam as alternative manufacturing bases, potentially posing significant competition to India.

Elon Musk has also raised the issue of high import taxes. Tesla has expressed willingness to invest up to $2 billion for an electric vehicle factory in India, if the government cuts import duties on its vehicles to 15% for the first two years of operation.

It’s just not Asian countries that India is competing with. Mexico replaced China as the top exporter to the US in 2023.

India needs to take measures to boost exports and attract foreign investors. It looks like the Centre is keeping a close eye on this. On January 31, the Indian government reduced tariffs on a range of imported components, including battery covers, lenses, antennae and mechanical parts, to 10% from 15% to attract global manufacturers.

In addition, India is also close to finalizing a first-of-its-kind trade deal that could bring in up to $100 billion in investment from a group of European nations over the next 15 years.

These measures indicate a commitment to attracting foreign investment. But India still has a long way to go to position itself as a leading manufacturing alternative to China. Relaxing FDI rules, setting up special economic zones, and a relook at import duties on key raw materials are essential.

To become, as the government says, “the growth engine of the world”, India has to tackle the political and legislative roadblocks businesses currently face. The logo of Make in India is a lion; these moves are essential to ensure that the reality is not a pussycat.

Screener: Exporters outperforming NIFTY 50 with YoY growth in revenue and net profit

Cummins leads in Nifty 50 outperformance and revenue growth among top exporters

With exporters in the spotlight, we look at a screener that finds export-focused stocks which are outperforming the Nifty 50 in month change, with growth in revenue and net profit. The screener consists of sectors like automobile & auto components, pharmaceuticals, general industrials and consumer durables.

Major stocks in the screener are Cummins India, Blue Star, Sun Pharmaceutical Industries, Lupin, Hero MotoCorp, Cipla, Bajaj Auto and Voltas.

Cummins India has surged the most over the past month, outperforming the Nifty 50 index by 26.4 percentage points. The general industrials company’s revenue grew by 16.3% YoY to Rs 2,509.8 crore in Q3FY24, owing to an increase in sales and services in the engines segment. Meanwhile, its net profit improved by 20.6% YoY to Rs 498.9 crore, helped by reduced raw material costs.

Sun Pharmaceutical Industries’ stock price has risen by 16.2% over the past month, outperforming the Nifty 50 index by 15.5 percentage points. This pharma company’s Q3FY24 revenue grew by 10.1% YoY to Rs 12,156.9 crore on the back of higher sales from its India and US formulations, and global specialty segments. Its net profit rose by 16.5% YoY to Rs 2,523.7 crore, thanks to lower raw material and finance costs.

You can find more screenershere,

The Baseline

16 Feb 2024

Five Interesting Stocks Today

1. Aster DM Healthcare:

This healthcare facilities company has risen by 6.7% over the past week, touching its all-time high of Rs 478.3 per share on Thursday. The company announced its Q3FY24 results on February 8, with its net profit growing by 28.6% YoY to Rs 179.2 crore due to expanding EBITDA margin from cost optimisation efforts. This marks a turnaround, as the stock's net profit had been falling YoY for the last five quarters. Its revenue also increased by 16.2% YoY to Rs 3,710.6 crore. This rise in net profit and revenue helped the company beat its Forecaster estimates by 157.5% and 4.4% respectively.

The revenue growth came from improvements in the hospitals, clinics and retail pharmacies (including optical) segments. The hospitals segment, which contributes to 57.3% of the company’s total revenue, saw a 17.7% YoY growth, owing to an increase in the number of beds in India and the GCC.

Aster’s board approved the sale of its Gulf business, Aster DM Healthcare FZC, to Alpha GCC Holdings for $1 billion (approximately Rs 8,330.1 crore) on November 28, 2023. Commenting on this in the company’s earnings call, Alisha Moopen, Deputy Managing Director, said, “After closing the deal, we plan to distribute 70% to 80% of the upfront consideration of $903 million as dividends to shareholders. This dividend is expected to be within the range of Rs 110-120 per share.”

The remaining portion of the sale will be used for expansion into North India. The company aims to add 1,700 beds to bring the total capacity to 6,600 by FY27.

2. PI Industries:

This agrochemicals company has risen by 5.5% over the past week following its results. Its Q3 net profit increased by 27.5% YoY to Rs 448.6 crore, beating Trendlyne’s Forecaster estimates by 22.9%. This was driven by a favourable product mix and a deferred tax credit of Rs 20.4 crore. Its revenue was up 17.6% YoY, driven by growth in its CSM (custom synthesis business) and pharma segments. Due to the rise in share price, PI Industries features in a screener of companies with prices above their short, medium, and long-term moving averages.

During the quarter, the CSM segment’s revenue (which accounts for around 93% of its total revenue) increased to Rs 1,770.2 crore (up 9.7% YoY). The segment's export revenue also rose 13% YoY, led by volume growth and new product launches. However, the domestic business saw a 6% YoY decline due to the delayed and erratic monsoon.

Meanwhile, the firm’s pharma business revenue climbed to Rs 127.3 crore, accounting for around 7% of total revenue, up from 3% in Q2. PI Industries entered the pharma segment in Q1 through acquisitions in the API (active pharmaceutical ingredients) and CDMO (contract development and manufacturing organisation) spaces. According to Mayank Singhal, Vice-Chairman & Managing Director, “In the coming 4-5 years, we expect 20-25% of revenue to come from the non-agchem space, which includes pharma and non-agchem CSM exports.”

For FY24, the management has maintained its revenue growth guidance of 18-20% YoY. It also plans to add 4-5 products per year. Following the company’s results, Motilal Oswal maintains its ‘Buy’ rating with a target price of 4,350. The brokerage is optimistic about PI Industries’ long-term growth, driven by its product launches and a strong order book.

3. Tata Power:

This electrical utility firm has fallen 7.6% over the past week after reporting tepid earnings. Its revenue increased by 3% YoY to Rs 14,841 crore, while its net profit rose by 2.2% YoY to Rs 1,076 crore. The firm’s Q3 profit was driven by higher realizations in the transmission and distribution business and better capacity utilization at the Mundra thermal power plant. The stock has delivered 45.2% returns in the past quarter and 83.3% in the past year.

The Indian government's recent initiative to launch a rooftop solar scheme for one crore houses is good news for Tata Power’s new solar module manufacturing unit, which has 4.2 GW capacity and is expected to be operational by Q4FY24. IIFL Securities notes that renewable energy capacity additions are likely to pick up, supported by multi-year low solar module prices and the government’s push for rooftop solar installations, in which the firm has a 17% market share.

Clean energy constituted 39% of Tata Power's total installed capacity of 14,453 MW in Q3FY24, and the firm aims to produce around 70% of its capacity from renewable sources by 2030. This is in line with the government's aim to boost renewable power generation.

IIFL Securities predicts that the firm’s debt-to-equity ratio may inch up to 1.5x (currently 1x) due to new capacity additions, and expects its borrowing costs to be competitive at 7.8-8%, given the Tata Group parentage. Morgan Stanley has upgraded Indian power utility companies to ‘Overweight’, expecting the country’s energy security to require a capex of over Rs 4,500 crore in the next decade.

4. Birla Corp:

This cement products manufacturer has risen by 15% following its Q3FY24 earnings announcement, reaching a 52-week high of Rs 1,770 on February 9. In Q3FY24, it reported a net profit of Rs 109.1 crore, as against a loss of Rs 49.9 crore in Q3FY23. It beat Trendlyne Forecaster’s net profit estimate by 4.7%. The firm’s revenue grew by 15% YoY to Rs 2,328.3 crore. It achieved 85% capacity utilisation during the quarter, up from 74% last year.

Birla reported a 13% YoY volume growth due to increased real estate and infrastructure activity. Additionally, the Mukutban plant, launched in Q4FY22, has now reached 60% capacity utilisation, contributing to the overall increase. However, unseasonal rains in Uttar Pradesh, Madhya Pradesh, Rajasthan and Maharashtra affected volumes.

Managing Director and Chief Executive Officer Sandip Ghose says that Mukutban has significantly boosted the company’s profitability, and is expected to increase its capacity going ahead. They are also counting on the plant to give better access to untapped markets in Western India. The company aims to increase its production capacity to 30 mtpa by 2030 from the current 20 mtpa.

EBITDA margin improved by 9.2% points YoY to 16.4%, with EBITDA/tonne rising 132% YoY to Rs 901. The margin improvement was led by better realization and lower operating expenses. Chief Financial Officer Aditya Saraogi says, “We are maintaining our EBITDA per tonne guidance of around Rs 850 for FY24.” Input cost fell by Rs 140/MT, owing to efficient raw material sourcing. The firm also improved its fuel mix by leveraging renewable sources and waste heat recovery systems.

ICICI Direct recommends a ‘Buy’ for Birla Corp, forecasting significant improvements in margins and profitability over FY24-26. The brokerage estimates the firm’s PAT to grow at a 174% CAGR over the same period, driven by EBITDA expansion. Margins are expected to increase by 300 bps by FY26 from FY24 levels. The company appears in a screener for stocks with recommendations or target price upgrades by brokers in the past three months.

5. Zydus Lifesciences:

This pharma company hit its all-time high of Rs 893.8 on Friday, with a 10.3% rise in the past week. This rise was driven by a 26.8% YoY growth in its Q3FY24 net profit, beating Trendlyne’s Forecaster estimate by 14.5%. Its revenue also increased by 3.2% YoY. Additionally, the company announced a share buyback worth Rs 600 crore, representing 0.59% of total shares at Rs 1,005 per share, with the record date set for February 23, 2024. Zydus Lifesciences appears in a screener for stocks with high EPS growth in the past twelve months.

Zydus’s EBITDA margin improved by 408 bps YoY to 24%, led by a better product mix and higher price realization. A reduction in raw material costs further helped the bottom line. The growth was driven by a 16% rise in the Indian formulations business, which constitutes 29% of its total revenue. The European and emerging markets business, contributing 11% to its total revenue, also grew 30.5%.

Zydus acquired UK-based LiqMeds in Q3FY24 for 68 million euros (approx. Rs 690 crore), aiming to boost its oral liquids portfolio in the UK and other international markets. LiqMeds is a major player in the global oral liquid products market, offering a portfolio of 100+ products.

However, US formulation sales, constituting 43% of the top line, declined by 4.2% due to lower-than-expected sales of Revlimid and a planned inventory reduction. The management expects a rebound in US sales in Q4FY24, led by price stabilization and the launch of new products like Zituvio and Metformin IR. Zydus is poised for expansion in the next 3-5 years, with the launch of vaccines and biosimilars for emerging markets including India, and complex generics for the US.

HDFC Securities maintains its ‘Buy’ call on Zydus Lifesciences as they expect steady growth in the US and India to improve margins in FY25-26 due to its R&D assets such as injectables, biosimilars and new chemical entities. With a target price of Rs 920, the stock has a potential upside of 4.3%.

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

The Baseline

15 Feb 2024, 01:12PM

The buyback effect: EPS growth outpaces profit growth for companies post-buyback

By Bhavani Eswar

In recent decades, share buybacks have become a more popular way for companies to return value to shareholders, compared to dividends. Unlike dividends, a share buyback can change a company’s capital structure, by altering metrics like the number of shares outstanding, earnings per share (EPS), and debt-to-equity ratio.

Warren Buffet says, “When stock can be bought below a business’s value, it is probably the best use of cash.” Firms tend to buy back their shares when their shares seem undervalued or when there are no other attractive investment opportunities.

Another advantage of buybacks is that they incur a flat tax rate of 23.3% on the distributed income, while dividends can be taxed up to 37% for shareholders in higher tax brackets, excluding surcharge. This difference makes buybacks more attractive for distributing cash to shareholders.

Buybacks are also an easy way to increase the earnings per share (EPS of companies, due to the lower number of shares outstanding, making this a key reason for companies to choose buybacks over dividends.

In 2023, 45 Indian companies bought back shares worth Rs 47,932.27 crore, marking a 4X increase since 2021. In this edition of the chart of the week, we will look at how EPS has changed for companies that have bought back more than 5% of their equity share capital since 2020.

Significant outperformance in growth of EPS vs net profit for MOIL, HGS and Engineers India

Since 2020, three Indian companies have repurchased over 10% of their equity shares. In January 2022, MOILbought back shares worth Rs 693 crore, representing 14.3% of its total paid-up equity share capital. After the buyback, the mining firm’s net profit grew by 5.8%, and its EPS increased by 13.5% in Q4FY22. This shows a clear outperformance of EPS growth over net profit growth by 7.6 percentage points.

Hinduja Global Solutions and Engineers India announced a buyback of 11.4% and 11.1% of their existing equity capital, respectively. Hinduja’s Rs 1,020 crore buyback in May 2023 resulted in EPS outperforming net profit growth by 6.6 percentage points in Q1FY23.

Consulting services firm Engineers India completed a Rs 586 crore buyback in June 2021, and its net profit dropped by 71.6% in Q1FY21. However, the fall in its EPS (68.3%) was 3.2 percentage points better than the net profit drop for the same period.

Triveni Engineering & Industries and HPCL also saw EPS growth outperforming net profit after their buybacks. Triveni’s Rs 800 crore buyback (9.4% equity) in February 2023 led to a 29% and 32.8% growth in net profit and EPS, respectively, in Q4FY23.

Oil refining firm HPCL announced an 8.7% equity buyback in November 2020, aiming to “improve return on equity by reducing the equity base.” After the open offer, the firm’s net profit in Q1FY22 fell by 34.5%. But it's EPS decreased by only 32.3%.

IIFL Securities’ open offer to buy back 5.2% of its equity capital in H2FY21 led to a 52.3% and 54.4% increase in net profit and EPS in Q4FY21, with EPS outperforming net profit. Gujarat Narmada Valley Fertilizers & Chemicals’ 5.5% equity buyback in December 2023 also resulted in slightly higher EPS growth (0.5 percentage points).

Piramal Enterprises reported a 90.5% decrease in net profit after its 5.9% equity buyback in Q2FY24. However, the fall in EPS is marginally lower at 90.4% a slight (0.1 percentage points) outperformance.

The outperformance in EPS growth compared to net profit growth post-buyback is significant for companies that repurchased more than 5% of their equity shares without issuing any new shares in the period. IT companies like Infosys, Wipro, and TCS have done buybacks of less than 1.5% of their equity capital and have also issued new shares, which partly offsets the EPS growth outperformance

The Baseline

13 Feb 2024

5 analyst picks in the PE buy zone this week

By Abhiraj Panchal

This week, we look at stocks trading in the PE ‘Buy’ zone, as identified by analysts. These stocks are in the 'Buy' zone if their current PE is low compared to the range they have historically traded in.

1. Affle (India):

Axis Direct maintains its ‘Buy’ recommendation on this internet software & services company with a target price of Rs 1,350, indicating an upside of 21.6%. The stock is currently trading in the PE Buy Zone. In Q3FY24, the company’s net profit improved by 11.4% YoY to Rs 76.8 crore, while its revenue increased by 29.6% YoY to Rs 508.9 crore. Analyst Omkar Tanksale believes that the company’s EBITDA improvement was led by a sharp recovery in its international business.

Tanksale says, “From a long-term perspective, Affle has strong device and client additions. We also believe that the company has superior penetration in the international business and strong revenue growth potential going ahead.” The management is confident that demand will increase in the medium-term due to deals secured in previous quarters. The analyst expects margin improvement and forecasts net sales and profit of Rs 2,118 crore and Rs 599 crore for FY24.

2. Lemon Tree Hotels:

HDFC Securities maintains a 'Buy' rating on this hotel company with a target price of Rs 152, indicating an upside of 15.2%. The stock is currently trading in the PE Buy Zone. In Q3FY24, the company's revenue improved by 24.3% YoY to Rs 290.9 crore, though net profit dipped by 11.4% YoY to Rs 35.4 crore. Analyst Amit Kumar attributes the profit decline to lower occupancy at Aurika, Mumbai, (opened in October 2023) and ongoing renovations in the Keys portfolio.

Despite a drop in occupancy by 163 bps YoY to 65.9%, Kumar remains positive due to a 10% growth in average room rate (ARR). He expects the company to reduce its Rs 1,950 crore debt periodically to become debt-free in the next four years.

Kumar says, “Lemon Tree has a strong expansion plan to build a portfolio of 13,433 rooms in 155 hotels by FY27.” He sees growth in ARR from renovations in the Keys portfolio and increased occupancy at Aurika as key growth drivers. He expects an EBITDA CAGR of 20%, supported by an increase in occupancy to 73-75% over FY24-26.

3. Manappuram Finance:

Motilal Oswal maintains its ‘Buy’ call on this finance company with a target price of Rs 230, indicating an upside of 31.4%. The stock is currently trading in the PE Buy Zone. In Q3FY24, its net profit grew by 34.7% YoY to Rs 428.6 crore. Analysts Abhijit Tibrewal, Nitin Aggarwal, and Gautam Rawtani see profitability in the gold and microfinance businesses as the major driver of the firm's net interest income growth. NII grew 33% YoY to Rs 1,450 crore. They say, “Despite a 20bps increase in the cost of borrowings in Q3, the consolidated Net interest margin (NIM) expanded by 35bps to 15.3% due to healthy expansion in yields across product segments.”

The analysts are positive about the company's future, highlighting its active diversification into non-gold segments to reduce its cyclical dependency on gold loans. In Q3FY24, non-gold products accounted for 49% of the AUM mix, a 7% point YoY increase. They forecast a 9% CAGR in gold loan AUM over FY24-26 and expect net profit to grow at a 27% CAGR over the same period, leading to a consolidated RoE of 20% by FY26.

4. InterGlobe Aviation (Indigo):

Geojit BNP Paribas maintains a ‘Buy’ rating on this airline company with a target price of Rs 3,624, indicating an upside of 18.3%. The stock is currently trading in the PE Buy Zone. Analyst Anil R says, “Healthy demand from leisure and corporate travel continues to aid revenue growth. Average aircraft utilization was healthy at 85.8%.”

In Q3FY24, Indigo’s net profit jumped 110.8% YoY to Rs 2,998.1 crore, while revenue increased by 30.3% YoY to Rs 19,452.2 crore. The analyst believes that Indigo was able to beat revenue estimates due to a 23.7% YoY surge in the number of passengers and a strong pricing environment.

Anil expects the phased removal of Pratt & Whitneyengines in 2024 to impact operations. However, he is upbeat about the management’s risk mitigation plans through secondary market leasing. With a market share of 63.4%, he foresees the earnings momentum to continue, led by strong demand and cost efficiencies.

5. State Bank of India:

Bob Capital Markets maintains its ‘Buy’ call on this bank with a target price of Rs 842, indicating an upside of 19.1%. The stock is currently trading in the PE Buy Zone. In Q3FY24, the bank’s net profit fell by 28.5% YoY to Rs 11,064.1 crore, while its net interest income grew by 5% YoY. Analyst Ajit Agrawal attributes the fall in net profit to a one-off pension and ex-gratia provision totalling Rs 7,100 crore.

The analyst believes that the 14% YoY growth in advances was enabled by robust growth in SME loans, retail book, and express credit. Meanwhile, deposits grew 13% YoY, driven by term deposits. He says, “We pencil in a credit and deposit CAGR of 15% and 13%, respectively, over FY24-FY26.” Agrawal expects the bank’s healthy business growth, stable margins, and asset quality to boost profitability. He forecasts the bank to maintain its NIM at 3% and deliver an RoE of 17% by FY26.

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

(You can find all analyst picks here)

The Baseline

11 Feb 2024

The sector winners of the FY25 Budget | Screener: stocks FIIs and MFs bought more of

By Shreesh Biradar

One expects an election year budget to focus on sops for key vote banks, rather than on long-term thinking. But Finance Minister Nirmala Sitharaman surprised everyone by going the other way.

The subsidy cuts and lower fiscal deficit emphasis in the “Viksit Bharat (Developed India)" Budget, suggests that the Finance Minister was not paying attention to the usual crowd. Sitharaman seemed to be talking to international investors rather than Indian voters, when she emphasized spending discipline.

The message was happily received: the yield on India's 10 year bond immediately dropped by 11 bps, lowering borrowing costs. A lower deficit and debt level will boost India’s credit rating outlook, and make Indian bonds a lot more attractive to foreign investors ahead of India’s inclusion in global bond indexes in June.

So June is what seems to be on the FM's mind, rather than the election months of April/May.

The government has also focused on capital expenditure, particularly on manufacturing and infrastructure, by raising the capex allotment by 11.1% to Rs 11.1 lakh crore for FY25. This budget aims for short-term utilization, a shift from the previous 2-3 year long capex plan.

Half of FY25 budget capex dedicated to railways and roads

Although the capex increase has been criticized as being too modest, especially when compared to the substantial hikes in FY22 (40%), FY23 (24%), and FY24 (37%), Sitharaman pushed back, stating that capex levels are already high, and that the current increase was generous.

Despite the upcoming elections, the government has chosen not to open its wallet to please key vote constituencies. The government seems confident about retaining power without the usual populist measures like tax breaks for the middle class, or schemes for the rural economy. The budget instead focuses on boosting important sectors.

In this week’s Analyticks:

Budget impact: FY25 Budget focuses benefits on key sectors
Screener: MFs and FIIs buying stocks that got a Budget boost in auto parts, pharma, oil, defence and electric utilities sectors

Let’s jump in.

Government wants to get out of the red zone, with an eye on cutting deficits

This government is not a fan of debt. A focus on reducing the fiscal deficit has become a hallmark of the Modi years (except for the Covid-19 period). The government has targeted the fiscal gap by limiting budgetary spending.

For FY25, the fiscal deficit is expected to decrease to 5.1% of GDP (FY24RE at 5.8%) and drop further to 4.5% in FY26.

India’s fiscal deficit narrows in post-Covid recovery

The budget estimates for FY25 predict an 11.7% increase in total receipts to Rs 30.8 lakh crore, with spending set to rise by 6.1% to Rs 47.6 lakh crore. A lower increase in spending will reduce the deficit.

The government has scaled back spending in areas like fertilisers (-13.1%), education & literacy (-7%), food and public distribution (-3.4%), and roads & bridges (-1.6%). Most of the budgetary cuts have targeted departments that provide subsidies, but generate low revenue.

Traditional sectors have seen lower allocation in FY25

Emerging sectors like semiconductors, telecommunications, renewable energy, defence and EV manufacturing have been rewarded, and received significant investment. The manufacturing sector overall is expected to boost the economy and create more jobs.

Sectors like automobiles, defence, telecom, oil & gas, utilities and pharmaceuticals have seen increased allocation.

Increased allocation to PLI scheme to benefit Auto and Auto OEMs

The government has cut FAME subsidies for electric vehicles (EVs), and instead increased allocation to the EV ecosystem, favoring EV batteries and auto OEMs. The government has been vocal about the benefits of the production-linked incentive (PLI) scheme and has increased allocation for it by Rs 3,500 crore.

To date, auto and auto component manufacturers have been allocated Rs 25,938 crore (FY23-27) under the PLI Scheme. The increased PLI spending by the government has attracted investments of around Rs 67,390 crore in the sector till December 2023.

Tata Motors jumps in week post-budget

Firms like Motherson Sumi Wiring, Exide Industries and Hero MotoCorp are in line to benefit from the PLI Scheme. Despite delays in shortlisting, these firms are likely to gain post-allotment. Tata Motors, for instance, received the eligibility certificate for the PLI scheme only in December 2023. This comes at a time when auto sales have been encouraging. Meanwhile, smaller firms are postponing their capex plans to maximise their benefits from the scheme post-approval.

Defence sees higher budgetary allocation

The defence industry’s allocation has increased by 9% in the FY25 budget, with nearly 23% (Rs 40,777 crore) earmarked for aircraft and aero engines. While most of this spending will be in buying foreign-manufactured fighter aircraft, the defence-offset policy requires foreign firms to invest a portion of their deal value within India, a boost for domestic manufacturers.

Domestic firms often establish joint ventures (JVs) with these foreign counterparts to manufacture parts for these systems. These JV firms also export parts to foreign buyers.

Astra Microwave Products has formed a JV with Israel’s Rafael Defence to manufacture communication systems, and has won orders for satellite sub-systems, airborne radar, etc from DRDO, ISRO and Defence PSUs.

Astra Microwave sees sharp gains post-budget

Bharat Dynamics has also inked pacts with Thales to manufacture 70 mm laser-guided rockets in India. India is pursuing the sale of Tejas aircraft (developed by HAL) to smaller nations like Cairo, Egypt and Argentina.

Energy stocks rise with increased support for OMCs and renewable energy

The oil & gas industry has been taking advantage of Russian sanctions and India’s strategic shifts in oil procurement. However, with the volatile global scenario and tensions in the Suez Canal, the government has increased capital support for oil marketing companies by Rs 15,000 crore.

This move has led to significant gains for Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation post-budget.

Oil marketing companies rise post-budget

The index of industrial production (IIP) for electricity has increased by 6.9% YoY from April to December 2023, a figure expected to double by 2045. Previous budgets increased allocations for thermal projects to ensure 24-hour electricity supply. However, many projects are still being implemented.

To meet India’s growing energy needs and fast-track energy generation, the FY25 budget has raised the allocation for renewable energy like solar from Rs 7,623 crore to Rs 12,602 crore.

This budgetary focus is set to benefit electrical utilities and allied firms. Major beneficiaries include electricity producers like Adani Green, NTPC, and Coal India; transmission and distribution firms like Power Grid Corporation of India); and finance firms like Power Finance Corporation.

Screener: Stocks bought by MFs and FIIs, that got a Budget boost in the auto parts, pharma, oil, defence and electric utilities sectors

Mankind Pharma, Inox Wind lead in MF and FII holding QoQ change

Here we take a look at companies that mutual fund and foreign institutional investors (FIIs) bought in the latest quarter. These companies are also from five industries that should benefit from the FY25 budget –auto parts & equipment, pharmaceuticals, electric utilities, refineries/petro-products and defence.

Major stocks that appear in the screener are Mankind Pharma, Inox Wind, Lupin, KPI Green Energy, Pricol and Ami Organics.

Mankind Pharma leads with a 3.7 percentage point QoQ rise in MF holdings to 9.8% in Q3FY24.Invesco India Focused Fund Regular Growth bought a 4.2% stake in the company during the quarter. FIIs also bought a 2.6% stake in the company during the same period.

Inox Wind comes next with a mutual fund holding increase of 2.9 percentage points to 10% in Q3FY24. The electric utilities company’s FII holding also grew by 6 percentage points during the quarter. Smallcap World Fund bought a 2.3% stake in the company over the past quarter, while East Bridge Capital Master Fund I Ltd bought a 1.5% stake.

You can find more screenershere,

Signing off this week,

The Trendlyne Team

The Baseline

09 Feb 2024

Five Interesting Stocks Today

1. Can Fin Homes:

This housing finance company has risen by 1.8% in the past week, following the Finance Minister’s announcement to build two crore homes under the PM Awas Yojana and introduce a scheme for middle-class home buyers. In Q3FY24, the firm’s net profit increased by 32% YoY to Rs 2,001 crore due to a 236 bps YoY decrease in operating margin to 14.7%. The transition to centralized disbursement in October 2023, prompted by fraud detection at its Ambala Branch in Haryana, led to a 23% YoY fall in Q3 disbursements to Rs 1,879 crore and moderate AUM growth of 13% YoY to Rs 34,053 crore.

The outlook for FY25 is positivefor housing financiers due to potential rate cuts and strong GDP growth. The management aims to double the loan book size (currently Rs 34,000 crore) over the next four years, expecting monthly disbursements to shoot up to Rs 1,000 crore by Q4FY25 from Rs 700 crore currently.

The firm’s Net Interest Income (NII) grew by 30.6% YoY to Rs 329 crore, and its Net Interest Margin (NIM) expanded 30bps YoY to 3.9% in Q3. The gross NPA ratio worsened by 31bps YoY to 0.91% in Q3 due to one-time loan restructuring of around Rs 90 crore. However, asset quality is expected to improve by FY24, thanks to the financier’s low-risk customer profile (72% salaried professionals and 26% self-employed).

Axis Securities foresees high margins in the near term, as they expect reduced loan refinancing rates from the National Housing Bank. A recent credit rating upgrade by ICRA is also expected to benefit the firm's cost of funds.

2. Bharat Petroleum Corp:

This refineries/petro-products stock has surged by 20.8% over the past week, touching its all-time high of Rs 635.3 per share on Thursday. This rise comes after the company posted a 82.1% YoY growth in net profit to Rs 3,181.4 crore for Q3FY24 on January 29. Despite a 2.5% YoY decrease in revenue to Rs 1.3 lakh crore, it beat Trendlyne’s Forecaster estimates by 14.3%. Its net profit also exceeded Forecaster estimates by 5.5%. The company shows up in a screener of Trendlyne’s high-return, technically strong value stocks.

The decline in revenue is on account of lower demand, despite a 5% YoY increase in crude oil production volume to 9.9 MMT during the quarter. Its EBITDA margin has expanded by 170 bps YoY to 5.1%, owing to lower raw materials and finance costs. Brent crude prices fell by 10.4% in 2023, helping margin expansion and boosting the company’s stock prices. The company has given a dividend yield of 5.5% over the past year.

The government has allotted Rs 15,000 crore to oil marketing companies in the FY25budget. The oil refiner and marketer has also planned a capex of Rs 1.5 lakh crore for the next five years. G Krishnakumar, the Chairman and Managing Director, said, “Of this Rs 1.5 lakh crore, we have earmarked Rs 75,000 crore for refineries and Petchem ventures, about Rs 32,000 crore in the upstream business (oil exploration and production), and Rs 25,000 crore each in gas and marketing infrastructures.”

Post-results, Yes Securities maintains its ‘Buy’ rating on the stock with a target price of Rs 620 per share. The brokerage is optimistic about BPCL's strategic debt reduction, its targeted capex and enhanced refining efficiency.

3. Trent:

This retailing company has risen by 23% in the past three days, touching an all-time high of Rs 3,937.4 on Thursday following strong Q3 results. Trent’s net profit more than doubled by 152.3% YoY to Rs 374.4 crore, beating Trendlyne’s Forecaster estimates by 41.7%. As a result, it features in a screener of stocks with consistently increasing profits for the past three quarters.

Revenue grew by 50.5% YoY, led by store expansion and increased footfall. During the quarter, it opened five Westside stores and 50 Zudio stores, taking the total store count to 227 and 460 respectively.

The company’s Star business (which contributes around 19% to total revenue) reported a 26% YoY revenue increase, led by strong LFL (like-for-like) growth of 24% and volume growth. Noel N Tata, Chairman of the company, said, “Star business is attracting more customers, becoming an essential growth driver.”

Additionally, the share of Trent’s own brand in Star's sales increased from 57% in Q3FY23 to 69%, driving margin growth. Trent’s EBITDA margin expanded by 336 bps to 18.8% during the quarter.

After the company’s earnings announcement, Motilal Oswal reiterates its ‘Buy’ rating on Trent with an upgraded target price of Rs 4,200. The brokerage is optimistic about the company’s long-term growth prospects, driven by LFL growth, retail expansion, and scale-up within Zudio.

4. Cipla:

This pharma company hit its all-time high of Rs 1,457.7 on Thursday, with a 13.2% increase in the past month. This rise was driven by a 31.8% YoY growth in its Q3FY24 net profit to Rs 1,055.9 crore. Cipla’s revenue also increased by 14.6% YoY, aligning with Trendlyne Forecaster estimates. The company appears in a screener for stocks with improving RoCE over the past two years.

Cipla’s EBITDA margin improved by 225 bps to 26.5%, led by a better product mix, price hikes in the US, and easing of cost inflation. The North American market led this growth, reporting a 19.8% YoY increase in revenue on the back of high volume in Lanreotide, which holds a 20% market share in the US. The drug is used to treat patients with endocrine and gastric tumors. Lanreotide’s US sales, around $470 million, are projected to grow at a CAGR of 4.1% by 2032.

Despite price hikes by Indian manufacturers in the US, Indian drugs remain cheaper than their US counterparts, leading to higher purchases by US distributors. Also, drug shortages in segments like asthma, cancer and chronic diseases have seen higher price realisation. The company’s 9MFY24 EBITDA margin stands at 25.4%. Chief Financial Officer Ashish Adukia said, “FY24 EBITDA margin is expected to be higher than the earlier guidance of 23-24%.”

Going forward, the management plans to prioritize the Indian market, which accounts for 44% of its total revenue, by strengthening its portfolio offerings. Meanwhile, the North American vertical will focus on executing the existing portfolio. According to the management, “Research and development spending is largely directed toward the US market and could represent around 6% of revenue in the near to medium term.”

BoB Capital Markets retains its ‘Buy’ call on Cipla. It expects strong margins and a healthy profit CAGR of 20% over FY24-FY26 on the back of new launches in North America, a recovery in Africa and the API business, and ongoing momentum in the Indian market.

5. Varun Beverages:

This non-alcoholic beverage firm rose by 3.4% on Tuesday after its Q4CY23 earnings announcement, where net profit surged by 76.5% YoY to Rs 132 crore on increased sales volumes. The company’s EBITDA margin also improved by 180 bps YoY due to lower raw material expenses. The company appears in a screener of stocks with improving return on equity over the past two years. According to Trendlyne’s Technicals, the stock has risen by 7.9% in the past month, outperforming the food and beverage sector, which fell 3%.

In Q4CY23, revenue increased by 21% YoY to Rs 2,670 crore, driven by an 18% YoY growth in volume and a 2% YoY hike in realization per case to Rs 171. The volume growth in soft drinks and juices was at 25% and 14% YoY, respectively. However, net debt increased by 38.7% YoY to Rs 4,730 crore by the end of Q4CY23.

The management anticipates robust growth in Gatorade (sports drink), juice, and value-added dairy segments, with plans to increase production capacity by 200%. The energy drink market in India, led by Sting, now accounts for 15% of the company's volume mix, well above the industry average of 6%. The India business saw a 13% YoY increase in sales volumes, thanks to an improved sales mix.

International markets, on the other hand, had a revenue growth of 16% YoY in Q4CY23, benefitting from better realization. The company plans to boost its capex by 71.4% to Rs 3,600 crore in 2024 and expand the number of outlets in India by 14.3% to 40 lakh by Q4CY24.

Motilal Oswal foresees a 23% CAGR in revenue, EBITDA, and PAT until 2025, driven by increased market penetration in India and Africa, higher product acceptance, ongoing capacity and distribution expansion, rural refrigeration growth, and scaling up of international operations. The brokerage maintains its ‘Buy’ rating on the stock.

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

The Baseline

08 Feb 2024

Which stocks did superstar investors sell in Q3FY24?

By Melissa Koshy

Tracking changes in the portfolios of superstar investors offers valuable insights into market trends and strategies. The investment choices of these seasoned investors reflect their bullish or bearish stances on various stocks and sectors, and gives other investors a roadmap on potential investing strategies.

All superstar investors see their net worth rise in Q3FY24

Previously, we looked at the key superstar buys in Q3FY24. Now, let's analyse their sells.

Biggest sells by superstars in Q3FY24

RARE Enterprises reduces its stake in Nazara Technologies

Rakesh Jhunjhunwala’s portfolio, currently managed by his wife Rekha Jhunjhunwala and investment firm Rare Enterprises, reduced stakes in two companies in Q3FY24. The portfolio’s net worth grew by around 22% QoQ to Rs 48,186.3 crore during the quarter.

In the October-December quarter, the late big bull’s portfolio cut a 1% stake in the software & services company, Nazara Technologies. This sale reduced the portfolio’s holding to 9%, down from a steady 10% held since Q1FY23. Over the past quarter, its share price has risen by 8.4%.

Jhunjhunwala’s portfolio pares stakes in two companies

Rare Enterprises also trimmed 0.1% from its stake in banking major Federal Bank, taking its holding to 3%. This is the second consecutive quarter where it has reduced its stake in the bank. Federal Bank has seen a 3.5% increase in its stock price over the past quarter.

Sunil Singhania pares stake in a micro-cap company to below 1%

Sunil Singhania’s Abakkus Fund saw its net worth rise by 19.2% QoQ to Rs 2,838.9 crore in Q3FY24. The fund reduced its stake in Rajshree Polypack to below 1% during the quarter, after holding a 4.3% stake in the containers and packaging company in Q2FY24. Rajshree’s stock price rose 50.3% in the past year.

Singhania trims his stake in Rajshree Polypack to below 1%

The fund also trimmed its stakes in Ion Exchange (India) and EMS (prices increased by 78.9% and 174.5% in the past year) by 0.64% and 0.36% It now holds 2.14% and 1.35% stakes in the utilities companies. It also sold a 0.3% stake in AGI Greenpac and now holds 1.1% of the diversified consumer services company.

Abakkus cut 0.1% each in Ethos (specialty retail company), Technocraft Industries (India) (iron and steel products manufacturer) and Siyaram Silk Mills (textile company) to now hold 1.2%, 2.7% and 1.8% respectively. It also cut a minor stake in Sarda Energy & Minerals and IIFL Securities, now holding 2.2% in the iron and steel products manufacturer and 3.3% in the capital markets company.

Ashish Kacholia scales back stakes in three companies to below 1%

Kacholia sells a 1.54%% stake in ADF Foods

Ashish Kacholia’s net worth rose by 8.8% QoQ to Rs 2,764.2 crore in Q3FY24. He reduced his stakes in SJS Enterprises (auto parts & equipment company) and TARC (realty company) to below 1% from previous stakes of 3.2% and 2.2% in Q2FY24. SJS Enterprises and TARC rose by 32.5% and 308.1% over the past year. He also cut his stake in IT training services company NIIT to below 1% from 1.9% in Q2. NIIT’s stock price fell by 59.4% in the past year.

The ace investor also sold 1.54% of his stake in ADF Foods, leaving him with a 1.21% holding in the packaged foods company. He cut his stake in Best Agrolife, an agrochemicals company, to 1.4% by selling a 0.9% stake.

Vijay Kedia cuts stake in a hotels company to below 1%

Vijay Kedia’s net worth increased by 6.3% QoQ to Rs 1,475.6 crore in Q3FY24. During this period, he slashed his stake in Mahindra Holidays & Resorts India to below 1%, down from a 1% stake held in the hotels company in Q2FY24. The company's stock price rose by 62.9% in the past year.

Kedia cuts a 0.2% stake in Talbros Automotive Components

Kedia also sold a 0.2% stake in Talbros Automotive Components during Q3FY24. He now holds a 1% stake in the auto parts manufacturer. The company rose by almost 3x in the past year. He also cut his stake in Elecon Engineering Company to 1.5% by selling a 0.1% share of the industrial machinery company.

Mohnish Pabrai sells stake in a petrochemicals company

Pabrai cuts a 2.6% stake in Rain Industries

Mohnish Pabrai’s net worth fell by 0.5% QoQ to Rs 1,358.7 crore in Q3FY24. During the quarter, he reduced his holding in Rain Industries to 4.4% by selling a 2.6% stake. This marks the second consecutive quarter of reduction in this petrochemicals company, whose stock price has risen by 13.5% over the past year.

Dolly Khanna reduces stakes in multiple companies

Dolly Khanna pares stakes in multiple companies

Dolly Khanna actively reduced her holdings in Q3FY24, trimming her stake in 11 companies, including four where her stake fell below 1%. Despite these sales, her net worth increased by 17.5% QoQ to Rs 422.9 crore during the quarter.

Khanna cut her stake in textiles, apparels & accessories firm Monte Carlo Fashions to below 1% from a 1.9% stake in Q2. Its stock price has fallen by 13.5% over the past quarter. She also reduced her stakes in textile company Nitin Spinners (a 1.2% stake held in Q2), breweries firm Som Distilleries & Breweries (a 1.1% stake in Q2), and auto tyres & rubber products manufacturer Tinna Rubber and Infrastructure (a 1.3% stake held in Q2) to below 1%.

Further adjustments were made to Pondy Oxides & Chemicals, a non-ferrous metals manufacturer, reducing her stake by 0.63% to 2.44%. Over the past year, this small-cap company has gained 155.2%.

The investor trimmed her stake by 0.4% in packaged foods firm Simran Farms, taking her holding to 1%. Khanna also reduced her stake in an oil & gas stock Chennai Petroleum Corp by 0.3%, bringing her holding to 1.3%.

During the October-December quarter, Khanna brought down her stake in auto parts & equipment manufacturer Talbros Automotive Components by 0.23% to 1.34%. She also slightly reduced her holding in an electrical equipment firm Salzer Electronics (now owns 1%) and plastic products firm Prakash Pipes (now holds 3.1%).

Porinju V Veliyath adjusts holdings in key sectors

Porinju cuts a 0.58% stake in Duroply Industries

Porinju V Veliyath sold his stakes in three companies during the quarter, with holdings in two dropping below 1%. His net worth rose by 8.2% QoQ to Rs 225.9 crore in Q3.

He trimmed his stake in forest products manufacturer Duroply Industries by 0.58% to 6.45%. The company’s share price has risen by 62.8% over the past year.

During the quarter, Porinju reduced his stakes in Shalimar Paints and Singer India to below 1%. He has consistently held a 1.6% stake in furnishing paints manufacturer Shalimar Paints since Q4FY22. Meanwhile, he added consumer durables firm Singer India to his portfolio in Q2FY24, but he reduced his stake to below 1% in Q3.

The Baseline

07 Feb 2024

Chart of the Week: 11 out of 40 wealth destroyers in the past six months are from the chemicals sector

By Akshat Singh

The Nifty 500 has gained 18.1% in the past six months, but the wave did not lift all boats. Some companies’ share prices fell due to their specific challenges, like regulatory probes, rule changes, major business losses, misconduct, or broad sectoral downturns. In this edition of Chart of the Week, we look at a screener of stocks that have been the biggest wealth destroyers in the past six months and one year, and analyze the reasons for the same.

This screener consists of 40 companies from the Nifty 500 index with negative price changes in both the past six months and year. The chemicals & petrochemicals sector features prominently with 11 stocks, followed by the banking & finance, retailing, and textiles, apparels & accessories sectors with five stocks each. The chart represents the top 10 wealth-destroying stocks over the past six months.

Chemicals sector faces margin pressure amid Chinese competition

Starting with the chemicals & petrochemicals sector, we find two wealth-destroying stocks in the top 10 list: Navin Fluorine and UPL. The dip can be attributed to the economic slowdown in the West and easing COVID restrictions in China, which increased competition and put pressure on margins over the past year. According to HDFC Securities, the sector’s overall revenue could fall by 5.7% YoY in Q3FY24 due to destocking and weak demand.

Navin Fluorine declined by 32.4% and 26% in the past six months and year, respectively. In October 2023, the firm saw an 18% decline following the resignation of its CEO, Radhesh R. Welling. This dampened investor sentiment due to Welling's record of doubling the company's net profit and revenue from FY19 to FY23.

UPL also fell by 20.3% and 32.7% during these periods respectively, driven by its Q3FY24 earnings reporting a net loss of Rs 1,217 crore against a profit of Rs 1,087 crore in Q3FY23. It also faced weak demand and inventory pile-up.

Global demand and supply chain disruptions affect textile stocks

Moving on to the textile, apparels, and accessories sector, we have two stocks in the top wealth destroyers: Rajesh Exports, and Lux Industries. The sector has been hit by declining consumer demand in Europe and the US due to economic slowdown and rising inflation. Geopolitical tensions and trade disputes have added to an uncertain atmosphere, and hurt investor confidence.

Rajesh Exports saw its stock plummet by 31.2% and 61.5% in the past six months and year, respectively. This fall was due to issues like incomplete disclosures and a sharp drop in profit and revenue, with analysts suggesting possible misconduct in its financial reporting.

Lux Industries fell by 24.9% in six months and 18.7% over a year. Contributing factors include IT raids at the firm’s Kolkata premises over allegations of tax evasion amounting to Rs 200 crore. Additionally, rising cotton prices have squeezed the company’s margins.

Brightcom and Paytm decline on regulatory lapses

In the software & services sector, the once startup-star One97 Communications (Paytm), and Brightcom Group rank among the top wealth destroyers. Macro-level factors like rising borrowing rates have added pressure in the past year.

Paytm’s stock prices dropped by 38.5% and 12.3% in the past six months and year, respectively. Following regulatory scrutiny and an RBI order to shut down its Paytm Payments Bank services, the stock plunged by 40.5% in just five days (Feb 1 to Feb 6).

Brightcom Group fell by 23.4% and 32.1% in the past six months and year, respectively. It fell due to regulatory concerns over lapses in preferential share issues, resulting in SEBI banning some top executives from directorial posts. This follows previous investigations for overstating profits and fines imposed by SEBI. Additionally, an enforcement directorate probe uncovered significant cash and assets during searches at a key personnel's premises.

Commercial services, retailing and media decline due to slowdown and rising competition

The commercial services sector also had two stocks among the top wealth destroyers: Delta Corp and Polyplex Corp. Delta Corp’s stock tanked by 27.1% and 28.7% over the past six months and year, respectively. The fall was mainly due to the Centre imposing a 28% GST on gambling and online gaming, which led to a GST demand of Rs 23,200 crore on the firm.

Polyplex Corp fell by 21.9% and 33.4% over the same periods. This came after the company’s promoters pledged 100% of their shares and agreed to sell a 24.2% stake to Dubai-based AGP Holdings (AGPH) for Rs 1,380 crore.

The retailing sector had only one stock among the top wealth destroyers: Vedant Fashions. The sector has been falling due to high inflation and economic slowdown. Vedant Fashions’s stock dropped by 22.7% and 18.1% over the past six months and one year, respectively.

Finally, the media sector was represented by, no surprise, Zee Entertainment Enterprises in the list of top wealth destroyers. The firm’s stock fell by 22.1% and 18.4% during these periods, driven by the termination of its $10 billion merger with Sony Entertainment, which incurred a $90 million termination fee. The termination was due to declining profitability, management uncertainties amid SEBI probes, reputation of mismanagement, Russian subsidiary issues, and competition from the upcoming Disney-Reliance merger