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19 Aug 2023

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The Baseline

18 Aug 2023

Thisshipbuilding firm is making headlines due to the government’s plans to tender six Air Independent Propulsion (AIP)-capable diesel submarines worth around Rs 43,000 crore. It's the only Indian firm capable of building destroyers and conventional submarines. According toTrendlyne Technicals, the stock has risen by 8.8% in the past month. The firm’s order book at the end of June 2023 was pegged at Rs 39,117 crore, which is executable till FY27. However, the peak revenue recognition is expected in FY25 if no new major orders are bagged.

Mazagon Dock Shipbuilders’ Q1FY24 revenue increased marginally by 1.6% YoY, but net profits surged by 39.5% YoY. The bottom-line growth was driven by the faster commissioning of the P15-B destroyer ship. The management has given a revenue guidance of 10-12% for FY24, with margins at FY23 levels. Mazagon Dock has planned a capex of Rs 500 crore towards a floating dry dock.

The firm has tied up with ThyssenKrupp Marine System (TKMS) to participate in the bidding for P75I submarines (6 numbers), with an expected order value of around Rs 43,000 crore. Mazagon Dock Shipbuilders and L&T (along with Spain-based firm Navantha) have been shortlisted for the bidding process. The firm is also expecting an extension of the P75 submarine (3 numbers) valued at around Rs 22,000 crore. Apart from this, periodic refit and life certification projects are in the pipeline.

ICICI Securities says that despite Mazagon Dock’s strong execution capability, uncertainties around ordering timelines for P75I and P75 and its depleting order book pose a risk to revenue growth. The brokerage maintains its ‘Sell’ rating.

2. Kalyan Jewellers India:

This gems and jewellery retailer has risen by 18.2% in the past week, reaching a 52-week high of Rs 228.4 on Thursday. The increase comes after the company announced a 33.3% YoY improvement in its Q1FY24 net profit to Rs 143.9 crore, beating Trendlyne Forecaster’s estimate by 16.9%. Its revenue also grew by 31.3% YoY to Rs 4,387.4 crore, beating the estimate by 3.7%. This revenue surge was driven by robust store expansion and high momentum in footfall.

For FY24, Kalyan Jewellers has plans to open 52 new stores in India under the FOCO model (franchise owned while the company operates). This approach will reduce capex costs and contribute to margin expansion. The management also aims to convert its digital platform Candere into an omnichannel model by launching 25 new stores in FY24. This rapid expansion may lead to further top-line growth. In Q1FY24, Kalyan Jewellers’ operating profit margin stood at 7.8%, while its peer Titan’s was 11.2%.

But the jewellery maker needs to absorb and train employees much before the store openings, leading to increased employee cost expenses. It already added nearly 600 employees in Q1. The company also features in a screener for stocks with growing YoY costs for long-term projects.

Along with the expansion push, Kalyan Jewellers may also benefit from the rising share of organised jewellery retailers. These organised retailers are expected to claim over 40% of the market share by FY25 from 32% in 2020.

ICICI Securities maintains a ‘Buy’ call on Kalyan Jewellers and foresees revenue and profit CAGR of 21% and 28% respectively by FY25. It retains its stance based on the company’s execution performance capabilities, which it expects to sustain in the future. According to Trendlyne Forecaster, the company has a consensus recommendation of ‘Strong Buy’ from 6 analysts.

3. Jindal Steel & Power:

This metals & mining stock has been on the decline since Monday following its announcement of a 15% decrease in net profit to Rs 1,691.8 crore in Q1FY24 on August 11 post-market hours. Its revenue also fell by 3.3% YoY to Rs 12,588.3 crore due to a fall in pellet production and delays in the commissioning of key steel manufacturing facilities. These caused the company to appear in a screener of stocks with declining quarterly revenue and net profit (YoY). While its revenue was in line with Trendlyne’s Forecaster estimates, net profit beat estimates by 111.1%.

Despite the dip in net profit, Jindal Steel & Power's EBITDA margin expanded by 560 bps YoY to 21.6%, owing to a reduction in the cost of raw materials due to lower iron ore and thermal coal prices. It has managed to conclude the mining lease of Utkal C and Gare Palma IV/6, along with the commissioning of a 6 MTPA pellet plant at Angul, despite a delay in the commissioning of steel plants. This will bring down the cost of thermal coal. The delay in the commissioning of the steel plants was due to the hold-up in environmental approvals. Bimlendra Jha, Managing Director of the company, said, “The mining lease for the two thermal coal mines will lead to consistent availability of coal for our thermal coal requirements in DRI Kilns, Coal Gasification and Power Plants at lower costs.”

Following the results, ICICI Securities has maintained its ‘Buy’ rating on the stock with an upgraded target price of Rs 810 per share. This indicates a potential upside of 26.4%. The brokerage believes that the delay in the steel mining activities in Angul will affect revenue growth in the near term. However, it expects the company’s EBITDA margin to improve on the back of the captive coal mining and pellet plants. The brokerage expects its revenue to grow at a CAGR of 3.6% over FY22-25.

4. Tejas Networks:

This telecom services company rose nearly 7% in intraday trade on Wednesday after winning a contract worth Rs 7,492 crore from TCS. The contract involves supplying radio access network (RAN) equipment for BSNL's 4G/5G network project. As per the deal, the firm will supply RAN equipment across 1 lakh sites and the project is expected to be executed during 2023 and 2024.

This deal seems to have accelerated the recovery of Tejas Networks' share price. The stock had declined by nearly 10% after the announcement of its Q1FY24 results on July 21. Its net loss widened nearly 4X YoY to Rs 26.3 crore due to sharp increases in raw material costs and employee expenses. The firm's revenue growth of 49.5% YoY was not enough to offset the effects of rising input costs. It shows up in a screener for companies with net profit declining sequentially over the past three quarters.

However, Tejas Networks has not lost its positive momentum entirely. It achieved robust top-line growth in its domestic and international segments. The company's order book for the wireless business at the end of Q1FY24 stood at Rs 1,909 crore, with 86.5% of the orders coming from the Indian market. Arnob Roy, the Chief Operating Officer of Tejas Networks, said, “Around 50-60% of the company’s total order book will be executed by the end of FY24.” In addition, the recent deal win from TCS adds to the already healthy order book. However, the focus falls on order execution to bring the firm back to profit from loss.

5. FSN E-Commerce Ventures (Nykaa):

This internet and catalogue retail company plunged over 8% on Monday after reporting a 27.4% fall in its Q1FY24 net profit, missing Forecaster estimates by 83.2%. The net profit decline can be attributed to increased costs of raw materials, finance, and employee benefits. The slowdown in discretionary spending also dragged the net profit down during the quarter. However, its revenue has improved by 23.8% YoY, driven by the beauty & personal care (BPC) and fashion segments.

During the quarter, Nykaa’s GMV (gross merchandise value) grew by 24% YoY. Specifically, the GMV of the BPC segment (constituting 63.7% of the total GMV) rose by 24%, while the fashion segment’s GMV (24.5% of the total GMV) increased by 12% YoY. Nykaa’s BPC business has remained strong despite a slowdown in discretionary spending, while the fashion segment saw muted growth. Falguni Nayar, the CEO, said, “During the quarter, growth in fashion has been below our long-term expectation. I think it was a particularly tough quarter for fashion and the industry is hoping for a revival." She has also highlighted that the company remains focused on its own brands as it is key to profitability. Own brands now constitute 14% of Nykaa’s overall Fashion GMV, up from the earlier 12%, and they achieved a 30% YoY growth in Q1.

ICICI Securities highlights that the company’s EBITDA margins have expanded at a slower pace than expected. Nykaa’s EBITDA margin improved 120 bps YoY to 5.2%, largely driven by lower marketing & advertising expenses. However, the management foresees margin expansion through the scaling up of its eB2B business and the optimisation of marketing spends. The brokerage has downgraded its rating to ‘Add’ with an unchanged target price of Rs 165. As a result, Nykaa makes it to a screener of companies with broker downgrades in price or recommendation in the past month.

The Baseline

17 Aug 2023

As Russia and Saudi Arabia cut production, where are oil prices headed?

By Shreesh Biradar

Oil is not a dependable bet. Like other commodities, its price seesaws in unpredictable ways, and many analysts who tried to predict the future price of oil have got their fingers burned (remember the $200 price per barrel predictions in early 2022?)

Oil-producing nations have also taken a hit recently from the price volatility.

For a time, things were good. The OPEC countries saw windfall profits from April 2022 to January 2023 due to the Russia-Ukraine war. But the trend has since reversed. Excess supply is sloshing around in the market, and the unexpected slowdown of China's economy has hit oil prices hard.

in response, OPEC cut oil production, which drove oil prices higher by 18% since June 2023. But the cuts didn't have the full price impact they had hoped for. The S&P had projected that oil prices would be around $90 in 2023, but the ramp-up in Iranian oil production has cut short the rally, pushing prices down to $84 from a recent peak of $88.

In the meantime, India and China have benefited from cheap Russian Ural. But the price gap between Russian Ural and Saudi crude on delivery has narrowed, from a $20 difference in the first quarter of 2023 to $8 in August.

In this week’s Analyticks:

Oil price dynamics: Oil prices are defying analyst predictions
Screener: Commodities stocks with the highest revenue and net profit growth in Q1FY24

Let’s get into it.

As oil consumption slows, OPEC makes production cuts to keep prices up

GDP growth hasslowed down for most countries this year, resulting in lower crude oil consumption. China, the largest crude oil importer, and other developed nations are consuming less oil than expected. The increasing adoption of electric vehicles across Europe, the US, and China has also limited the demand for crude.

The slowdown in consumption has resulted in higher inventory levels over the past four quarters.

Production cuts will lower inventory levels in the second half of 2023

To improve their revenue streams and get a better price for their oil, the OPEC cartel collectively reduced oil production by 1.2 million barrels per day. They are now looking to extend these cuts beyond September 2023.

Saudi Arabia faces a potential budget deficit

Saudi Arabia depends on oil and petroleum for nearly 75% of its budget revenue. The surge in oil prices in 2022 gave the Saudis a fiscal surplus of $27.7 billion. The country used the money to increase its defense spending. It also spent around $6 billion to acquire famous football players for its sports teams - including Portugal's Cristiano Ronaldo and Brazil's Neymar.

However, with oil prices below $80 in the first half of 2023 and exports falling to a 19-month low, Saudi Arabia has had to pause its spending spree. Now the country is staring at a possible fiscal deficit. It already saw a budgetary deficit of roughly $2.2 billion in the first half of 2023.

Saudi Arabia saw budget surplus in 2022, after eight years of deficit

According to the IMF, Saudi Arabia needs oil prices to be above $81 in 2023 to break even in its budget spending. TheIMFhas cut the Saudi economy's GDP growth forecast for 2023 from 3.1% to 1.9%, owing to lower oil prices and production cuts.

Saudi Arabia’s breakeven price of crude to meet its expenses stands at $81 per barrel in 2023

As India and China turn to Russian Ural, Europe has replaced Asia as the top destination for Saudi crude oil. But Europe has not entirely compensated for Asia’s demand decline. To boost oil prices, Saudi Arabia inJune 2023 announced a voluntary production cut of 1 million barrels per day till September, on top of OPEC’s production cut of 1.2 million barrels per day.

Russia's cash crunch is also forcing it to cut oil production

The other big oil producer, Russia finds itself in a tough spot due to its expensive military campaign in Ukraine, and price caps on Ural exports imposed by the US and its allies. The Russian Ural, which is trading at a significant discount to crude, is being snapped up by India and China.

But higher volumes sold have not been able to make up for the revenue loss due to the price cap. This has led to a fiscal deficit of $28.3 billion fir Russia in the first half of 2023.

Russia is expected to have a budget deficit of 2.6% in 2023

Russia sold its oil for around $50-55 per barrel in the first half of 2023, but higher Ural prices in the second half of 2023 (around $60) are expected to reduce its deficit. To increase its revenue, Russia raised taxes on oil exports by 8% in August 2023.

Russia is taking steps to raise its oil price. It has pledged to reduce its crude exports by 5,00,000 barrels per day in August and an additional 3,00,000 barrels per day in September. A recent drone attack by Ukraine on a Russian oil tanker has also raised concerns about Ural supply, causing Ural prices to breach the $60 cap.

India walks the line, buying Russian oil at rates above price caps

China and India have been vocally against the price cap on Russian oil. They argue that since they aren't involved in the Russia-Ukraine conflict, their economies shouldn’t suffer. Finance Minister Nirmala Sitharman insisted that India will buy Russian Ural above the $60 price cap as long as it is cheaper than the market rate.

Right now, there are ways to get around the price cap. Unlike the free on board (FOB) basis, India’s crude import price is decided on a delivery basis (which includes the price of crude, insurance, shipping and other handling charges). This limits the transparency on the final price India is paying to Russia.

India’s on-delivery price of Russian Ural for June stood at $68.2, while for Saudi crude oil it was $81.8. However, the latest data from Argus Media suggests that August's Ural crude delivered to India’s west coast is around $82.

Russian Ural prices are at a discount of 16.6% compared to Saudi crude on a delivery basis

With the Ural price now significantly above the $60 per price cap, freight cost adjustments will be too large to go unnoticed. India and Russia need to find financiers, insurance providers, and shipping lines unaffected by Western sanctions. China, on the other hand, can substitute Russian Ural with Iranian oil. For India discounted Russian oil is the only way out to soften the blow of rising crude prices.

India is now limiting its Russian imports

India depends on imports to fulfill 85% of its crude consumption, with Russian crude accounting for about 45% of these imports. India cannot buy more Russian oil because it has limited storage space (strategic reserves), which can hold only 9.5 days' worth of crude. And due to India's minimum purchase agreements with other traditional suppliers, it can't replace all of them with Russian imports.

As the discount on Russian oil narrows, it becomes less appealing to export refined oil to Europe. This and India’s limited refining capacity for Russian Ural has restricted Ural imports to 2 million barrels per day.

Russian oil imports to India peak at 2 million barrels per day

While India has maintained a steady supply of refined oil exports to Europe so far, rising Ural prices could pose a challenge in India avoiding sanctions. As Western scrutiny intensifies, it remains to be seen whether India will persist in purchasing Russian Ural above the $60 cap.

Screener: Oil, cement, utilities stocks with the highest revenue and profit growth in Q1FY24

HPCL shows strong growth in QoQ revenue and operating profit margin

As prices of raw commodities soften, margins for companies in key sectors have improved, resulting in increased profits. This screener shows stocks from the oil & gas, cement & cement products and utilities sectors with the highest growth in revenue and net profit in Q1FY24, along with an expansion in operating profit margin.

Significant stocks that appear in the screener are GMR Airports Infrastructure, Tata Power, Hindustan Petroleum Corp, JSW Energy, Bharat Petroleum Corp and ACC.

Hindustan Petroleum Corp’s revenue grew by 10.3% QoQ to Rs 1.2 lakh crore in Q1FY24, while its net profit improved by 87.5% QoQ to Rs 6,765.5 crore compared to a loss in Q1FY23. The oil & gas company has also posted an operating profit margin of 8.1% during the quarter. This was aided by a decline in the cost of raw materials due to an 8.7% decline in Brent crude oil to $72.7 per barrel.

Another oil & gas company, Bharat Petroleum Corp, also gained from the decline in crude oil prices. Its operating profit margin increased by 17.1% QoQ in Q1FY24. This contributed to a 54.9% YoY increase in net profit to Rs 10,644.3 crore during the quarter.

Cement company ACC’s revenue improved by 8.6% QoQ to Rs 5,278 crore in Q1FY24. Its net profit improved by 97.8% QoQ to Rs 466.1 crore, aided by a reduction in power & fuel and employee benefit expenses. This led to an improvement in margins, with the operating profit margin rising 5.3 percentage points to 14.8%.

You can find more screeners here.

The Baseline

16 Aug 2023

Five analyst picks with high net profit and revenue growth in Q1FY24

By Abhiraj Panchal

This week’s analyst picks look at stocks with high net profit and revenue growth in the recent Q1FY24 results.

1. Tata Motors:

Geojit BNP Paribas upgrades its rating on this automobile company to a ‘Buy’ with a target price of Rs 737. This indicates an upside of 19.1%. In Q1FY24, Tata Motors reported a profit of Rs 3,202.8 crore, as against a loss of Rs 5,006.6 crore in Q1FY23. Its revenue has also grown by 42.3% YoY to Rs 1,03,596.6 crore. Analyst Saji John says, “Tata Motors reported strong profitability, driven by robust demand for luxury cars and continued growth in the commercial vehicles and private vehicles segments.”

The analyst believes that Tata Motors’ Indian business is steadily recovering, and anticipates sustained growth in the near term. He expects the company’s continuous efforts to minimise cost, especially in the Jaguar-Land Rover (JLR) division, and the favourable product mix to drive margin expansion in the coming quarters. John is optimistic on the stock, given JLR’s robust order backlog, rising demand, awareness of electric vehicles and favourable industry trends.

2. Maruti Suzuki India:

KRChoksey maintains its ‘Buy’ call on this vehicle manufacturer with a target price of Rs 11,170, indicating an upside of 18.6%. In Q1FY24, the company’s net profit grew by 143.7% YoY to Rs 2,525.2 crore, while its revenue increased by 25.3% YoY to Rs 33,316.9 crore. Analyst Ashvath Rajan says, “Maruti Suzuki outperformed the industry and the management expects the demand momentum to continue on the back of a good model lineup.”

The analyst believes that the growth in Q2FY24 will be impacted due to a high base effect, but absolute sales will continue. He also believes that the company has seen consistent improvement in its product mix due to the growing share of utility vehicles and new launches, which has led to better realizations. Rajan expects margin expansion to be led by stable commodity costs, a better product mix, better realizations and cost-saving efforts. He expects the company’s revenue and profit to achieve a CAGR of 14.9% and 25.7%, respectively, over FY24-25.

3. APL Apollo Tubes:

ICICI Securities maintains its 'Buy' rating on this iron & steel products company with a target price of Rs 1,740, indicating an upside of 10.4%. Analysts Aman Dixit, Mohit Lohia and Pritish Urumkar hold a positive outlook due to the management's commitment to achieving a capacity of four metric tonnes per annum (MTPA) by the end of FY24 and five MTPA by the close of FY25. In Q1FY24, the company's profit surged by 80.8% YoY to Rs 193.6 crore, while revenue witnessed a 32.2% YoY increase.

The analysts believe that the company is resolute in its growth trajectory, focusing on capacity expansion, geographical diversification, and enriching the product mix. They project the company achieving a 10 MTPA capacity by FY30. Additionally, the management plans to raise the share of value-added sales to 70% by the end of FY25, compared to 57% in Q1FY24. The analysts see potential for a stock rally, given the management's growth plans and the expectation of improved profitability through value-added products and the advantages of scale in the short term.

4. Indigo Paints:

Sharekhan maintains its ‘Buy’ rating on this paint manufacturer with a target price of Rs 1,850. This implies an upside of 21.8%. In Q1FY24, the company’s net profit surged by 57.2% YoY to Rs 31.3 crore and revenue grew by 23.7% YoY. Analysts at Sharekhan point out that the firm’s YoY revenue growth rate has outperformed the industry rate by nearly three times. They attribute this to “the company’s special focus on Tier-1 and 2 cities, along with various initiatives. Growth in Tier-1 and 2 cities is ahead of Tier-3 and 4, and rural areas. The management expects the trend to continue”

The analysts believe that the company’s strategy of focusing on Tier 1 & 2 cities will help it outperform the industry’s growth rate over the next 2-3 years. They also view Indigo’s entry into the construction chemicals and waterproofing segments as an additional growth driver. Also, the analysts see the firm’s capacity expansion in water-based paints as a positive indicator for the coming quarters. They expect the company’s revenue to grow at a CAGR of 21.7% over FY23-25.

5. Max Healthcare Institute:

Edelweiss keeps its ‘Buy’ rating on this healthcare facilities company with a target price of Rs 680, implying an upside of 27.8%. In Q1FY24, the firm’s net profit grew by 38.9% YoY to Rs 240.1 crore and revenue increased by 20.5% YoY to Rs 1,285 crore.

Analysts Thakur Ranvir Singh and Harsh Shah say that the company’s healthy Q1FY24 performance was “driven by higher average revenue per operating bed (ARPOB), healthy occupancy, increased revenue from international patients, and a rise in operating beds.” They add that the firm’s ARPOB grew by 13% YoY.

The analysts are optimistic about the stock, given its focus on capacity expansion, scaling up in its asset-light business, and scouting for potential acquisitions. They also highlight the firm’s healthy balance sheet, which positions it to expand organically and inorganically without taking on too much debt. The analysts expect the hospital chain’s revenue to grow at a CAGR of 19.9% over FY23-25.

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

(You can find all analyst picks here)

The Baseline

14 Aug 2023

Which stocks did superstar investors sell in Q1FY24?

By Suhas Reddy

Investors pay close attention to the changes in superstar investors’ portfolios, as they provide valuable insights into which stocks and sectors the big guns are bullish and bearish on.

Previously, we looked at the key superstar buys in Q1FY24. Now, let's analyse their sells.

Rakesh Jhunjhunwala/RARE Enterprises reduces stakes in BFSI and pharma stocks

Rakesh Jhunjhunwala’s portfolio, which is currently managed by Rekha Jhunjhunwala (his wife) and Rare Enterprises, cut its stake in 15 companies in Q1FY24. The late big bull’s portfolio grew by 21.6% QoQ to Rs 38,885.3 crore.

The portfolio scaled down its holdings below 1% in three companies - Prozone Realty, a small-cap realty firm, (from 2.1%), Karur Vysya Bank (from 4.7%) and Edelweiss Financial Services (from 1.3%).

However, the biggest sell in the late Big Bull’s portfolio was in Metro Brands, where the stake in the footwear retailer was lowered by 4.8% from 14.4% to 9.6%, reducing its holding value in the firm from Rs 3,111.3 crore in Q4FY23 (March 31 closing price) to Rs 2,859.3 crore in Q1FY24. In the April-June quarter, the stock gained 17.9%.

The Rare Enterprises managed portfolio also sold 2.55% and 1.44% stakes respectively in Rallis India (an agrochemicals company) and Autoline Industries (an auto parts & equipment maker), bringing its holdings in the companies down to 7.75% and 2.52% respectively. The portfolio also sold a 0.2% stake in Geojit Financial Services, bringing its holding to 8.2%.

It cut a 0.1% stake each in Raghav Productivity Enhancers, Jubilant Pharmova and Agro Tech Foods, reducing its holdings in these companies to 5.1%, 6.7% and 8.1% respectively. The investment company also made minor stake cuts in Wockhardt, Jubilant Ingrevia, Aptech, Star Health & Allied Insurance Co and Federal Bank bringing the holdings to 2.04%, 3.12%, 43.7%, 17.3% and 3.5% respectively.

Sunil Singhania drops stake in a microcap company to below 1%

Sunil Singhania’s Abakkus Fund pared stake in nine companies in Q1FY24. The Fund’s net worth fell 2.3% QoQ to Rs 2,115.6 crore in Q1. It sold its stake in Tracxn Technologies, an IT platform, to below 1%. It held a 1.3% stake in the company in the previous quarter. The fund also sold 1.3% and 0.4% stakes respectively in Rajshree Polypack and Technocraft Industries (India), both commercial services and supplies companies. It now holds 6.2% and 2.8% stakes in the respective companies.

Over the past year, Abakkus has gradually reduced its stake in The Anup Engineering, an industrial machinery company. It now holds a 3.8% stake, against 5.7% in Q1FY23. It sold a 0.2% stake in the latest quarter. Similarly, it cut 0.2% stake each in Carysil (consumer durables manufacturer) and Siyaram Silk Mills (textile company) to now hold 5.9% and 1.9% respectively.

The fund now holds a 1.7% stake in AGI Greenpac and a 1.5% stake in HG Infra Engineering after selling a 0.1% stake in both. It also cut a minor stake in Dreamfolks Services and now holds 1.8%.

Ashish Kacholia reduces stakes in five companies to below 1%

Ashish Kacholia sold stake in 11 companies in Q1FY24. During the quarter, his net worth increased by 22.4% QoQ to Rs 2,028.4 crore. He reduced his stakes in Creative Newtech (internet catalogue company), Megastar Foods (food products manufacturer), United Drilling Tools (industrial goods company), Goldiam International (apparels and accessories manufacturer) and D-Link (India) (IT company) to below 1%. He held 2.7%, 1.1%, 2.8%, 1% and 2.1% in them respectively in the previous quarter.

The next biggest sell Kacholia made was in plastic products company Shaily Engineering Plastics. He sold 1% and now holds 9.6%. He cut his stake in Likhitha Infrastructure (engineering company) to 1.8% by selling a 0.2% stake.

The ace investor also trimmed 0.1% stake each in Repro India and SJS Enterprises (auto parts manufacturers) and now holds 3.5% and 4.3% respectively. He also slightly reduced his stake in Safari Industries (India) to 2.3% and in Carysil to 3.7%.

Vijay Kedia cuts stake in loss-making company to below 1%

Vijay Kedia cuts stake in five companies in Q1FY24. His net worth increased by 65.3% QoQ to Rs 985 crore. He has been reducing his stake in Ramco Systems for six consecutive quarters and now holds below 1% of the company. The IT company has reported losses for nine consecutive quarters.

Kedia cut his stake in Repro India to 6.8% by selling 0.3% in the publishing company. He sold 0.2% and 0.1% stakes in Elecon Engineering and Talbros Automotive Components, respectively. He now holds 1.8% and 1.2% in them respectively. He also cut his stake in Tejas Networks (a telecom company) to 2%.

Dolly Khanna slows down after heavy offloading in the previous quarters

In Q1FY24, Dolly Khanna reduced her stakes in only five companies and the value of her portfolio increased by 37.1% QoQ to Rs 308.9 crore. Among her sells, she took her holdings below 1% in only Ajanta Soya (from 1.3%), an edible oils company. The stock fell by 4.2% in Q1FY24.

She trimmed a 0.6% stake in KCP, a cement manufacturer, taking it to 1.7%. The ace investor also pared her stake in Chennai Petroleum Corp by 0.3% to 1.8%. She sold 0.16% and 0.1% stakes in Simran Farms and Tinna Rubber and Infrastructure, respectively, reducing her holdings in them to 1.88% and 1.3%.

Porinju V Veliyath pares holding in only one stock in Q1FY24

Porinju V Veliyath sold his stake in only one company in Q1FY24, while the value of his portfolio grew by 9.7% QoQ to 151.3 crore. He reduced his holding in TCM, a micro-cap agrochemicals company, from 1% to below 1%. The company gained 17.2% during Q1FY24.

This analysis by Trendlyne is meant for investor education - to help understand companies and make informed investment decisions on their own. It should not be considered an investment recommendation.

The Baseline

11 Aug 2023

Five Interesting Stocks Today

Dixon Technologies (India) Ltd: Thisconsumer electronics manufacturer is expected to sign new contracts following new government restrictions on importing laptops, tablets, and servers. The stock rose 7.5% on the day of the announcement. Dixon Technologies’ CFO, Saurabh Gupta, commenting onthe news, said, “The company’s IT hardware segment turnover could rise by Rs 3,000-4,000 crore in the next two years due to the government policy.”

In Q1FY24, Dixon’s revenue increased by 14.6% YoY, driven by higher sales in the mobile division. However, TV and LED light sales have been muted. Lower raw material costs led to a 55 bps expansion in gross margins. Dixon’s EBITDA margin improved by 53 bps YoY and is projected to increase by another 30 bps in FY24. New client acquisitions in mobile manufacturing, as well as incremental orders from existing clients are expected to drive revenue growth. The firm aims to improve margins by adding more products through original design manufacturing and backward integration, with a planned capex of Rs 400 crore for FY24. The stock shows up in thescreener for growth in quarterly net profit and profit margin.

Dixon has partnered with China-based mobile companies Xiaomi and Itel to manufacture smartphones in India. Production is expected to start in September 2023. There are also recentreports that Dixon is in talks with Google to produce Google Pixel Phones in India. Dixon started the production of 4G phones for Jio in May 2023.

BOB Capitals says Dixon Technologies has the ability to deliver revenue and PAT growth of 45% and 60% respectively in FY24. However, the stock’s recent run-up discounts the near-term positive outlook. The brokerage has revised its rating from ‘Buy’ to ‘Hold’.

Samvardhana Motherson International: This auto parts & equipment manufacturer fell 2.9% on Thursday as its revenue marginally missed Trendlyne’s Forecaster estimates by 0.9% in Q1FY24. However, its net profit jumped 2.3x YoY to Rs 600.9 crore in Q1 but fell 8.1% QoQ.

Despite the initial fall in share price after the result announcement, it recovered on Friday and closed 1.9% higher. The company's Q1 revenue improved by 27.7% YoY to Rs 22,280.3 crore, aided by an increase in revenue from the wiring harness, modules & polymer products, vision systems and emerging businesses segments. The rise in net profit and revenue helps the company show up in a screener of stocks with good quarterly growth in the recent results.

In terms of geography mix, sales in North America, Europe and China have witnessed YoY growth, but North American and European sales dipped QoQ due to declining demand. According to the management, “Macroeconomic factors are stabilising at elevated levels, while wage bills and interest rates continue to pressure profitability on a QoQ basis.”

Post results, Motilal Oswal maintains its ‘Buy’ rating on the stock with an upgraded target price of Rs 115 per share. This indicates a potential upside of 17.8%. The brokerage remains positive about the company’s future based on the overall recovery of the industry, , strong order book execution for Samvardhana Motherson Automotive Systems Group BV (SMRPBV), receding cost inflation, and capacities in place for growth.

The stock has a consensus estimate of ‘Buy’ from 13 out of 18 analysts. However, it is in ‘the Sell’ zone based on the time it has spent below its current PE.

Trent: This retailer rose by over 6% in trade on Thursday and touched its all-time high of Rs 1,915. This uptrend follows the release of its Q1FY24 results on Wednesday. The company’s net profit has risen by 32.9% YoY to Rs 173.5 crore and revenue grew by 45.8% YoY, beating Trendlyne’s Forecaster estimates by 19.7% and 14.7% respectively. This growth comes despite a slowdown in discretionary spending, and subdued market conditions. In addition to exceeding Forecaster estimates, Trent has also outperformed its peers. For instance, Aditya Birla Fashion & Retail posted a net loss of Rs 141.4 crore in Q1FY24, while Shoppers Stop’s net profit fell by 36.5% YoY to 14.5 crore.

The company’s progress was driven by a 40% YoY growth in store count, reaching a total of 609 fashion stores. The company added seven Westside stores in Q1, taking the total to 221, and added 40 Zudio stores (also closed 4 stores), bringing the total to 388. The firm plans to add 200 Zudio stores in FY24. Noel N Tata, Chairman of Trent, says, “We will further expand our reach, aiming to be even closer and more convenient for customers, reinforcing our brand commitment.”

Despite its healthy performance, the fashion retailer’s gross margins have contracted by 479 bps YoY to 44.5%. According to ICICI Securities, the fall in margins is due to an increasing mix of Zudio, which has a relatively lower margin profile. While Westside serves as the company’s flagship brand, Zudio represents its value-fashion brand. Also, a 70.2% YoY rise in rental expenses increased pressure on its margins.

Overall, the company’s balance sheet is healthy despite its expansion strategy. Trent plans to aggressively increase its store count in key markets and expand its digital presence to drive growth in the coming quarters.

Zomato: This food delivery services provider reported its first-ever profit in Q1FY24 on the back of a 64.2% YoY revenue growth. Despite a loss before tax, a deferred tax credit of Rs 17 crore has resulted in a net profit of Rs 2 crore, beating Trendlyne Forecaster’s estimated loss of Rs 168.5 crore. Post results, Zomato touched a 52-week high of Rs 102.9 on Monday and has risen by 7.9% in the past week. It also features in a screener for stocks with the highest recovery from 52-week lows.

Temporary store closures in Delhi and reduced traffic of delivery partners in April-May (summer season) impacted Blinkit’s (quick commerce segment) gross order value, resulting in muted growth. Yet, its average order value improved. On the other hand, the Hyperpure platform saw a 27% YoY growth in revenue as Zomato increased the minimum order value.

Easing competitive pressures in the quick commerce segment, driven by a lack of funding for smaller players, is expected to contribute to future growth. Zomato dominates the food delivery market and boasts an increasing user base. Chief Financial Officer Akshant Goyal says, “We expect our business to remain profitable and continue to deliver over 40% YoY top-line growth for at least the next couple of years.”

Given improved visibility of profitability and sustained improvement in underlying operating metrics, ICICI Securities maintains a ‘Buy’ call on Zomato, and expects Blinkit to turn profitable by FY25 and Hyperpure by FY26. According to Trendlyne’s Forecaster, the company has a consensus recommendation of ‘Buy’ from 25 analysts, of which 17 are ‘Strong Buy’.

Emami: This personal products company has risen around 15% since Monday and is trading near its 52-week high of Rs 524 after reporting healthy Q1FY24 results. As a result, the company’s share price has outperformed its sector by 21.7% in the past month and features in a screener of stocks with strong momentum.

The company’s net profit surged by 86.5% YoY to Rs 137.7 crore, driven by a fall in the cost of inventory, and beat Trendlyne’s Forecaster estimates by 12.3%. Its revenue also rose by 6.8% YoY, due to healthy growth in both domestic and international businesses. Its gross margins also improved by 240 bps on the back of easing input costs and a better product mix.

In Q1FY24, FMCG companies saw their operating margins expand YoY, thanks to the cooling of inflation over the past few months and a gradual recovery in rural demand. Mohan Goenka, Vice-Chairman and Whole-Time Director of the company, says, "Going forward, we expect a steady recovery in rural demand, led by the easing of liquidity pressure, forecast of near normal monsoon and moderation of inflation.”

Despite a rise in revenue, the company’s summer product segment has witnessed a 5% decline in sales due to erratic summer and monsoon conditions across the country. Meanwhile, sales across the non-summer portfolio (which consists of Zandu pain management, BoroPlus and Kesh King ranges) grew by 16%.

ICICI Securities maintains its ‘Add’ rating post Emami’s Q1 results, but raises the target price to Rs 520. The brokerage has a positive outlook on the FMCG company, noting its distribution expansion plans and new product launches. Emami makes it to a screener of stocks where brokers have upgraded recommendations or target prices in the past month.

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

The Baseline

10 Aug 2023

Chart of the Week: HDFC AMC and Timken India top in promoters selling shares in the June quarter

By Akshat Singh

Promoters, being the driving force behind a company, have a clearer view of its operations, strategies, and potential. Their level of ownership reflects their confidence in the company's growth prospects.

So high promoter holdings can signify strong ownership and confidence in the company., The high stake aligns their interests with shareholders and provides management stability. Fluctuations in promoter holdings can indicate potential risks, impacting market sentiment, and raising concerns about minority shareholders' interests. It can also signal strong buying interest from an outside investor, which compels promoters to sell some stock. So while promoter selling can be a negative signal for the company, it has to be viewed in context of the company’s overall performance and the size of the promoter’s current holding.

In this edition of Chart of the Week, we will analyze companies from a screener which shows the percentage QoQ change in promoter holdings.

Major sectors that appear in the screener are general industrials, banking & finance and automobile & auto components. Notable stocks include MTAR Technologies, HDFC Asset Management Company and Craftsman Automation.

We begin with the companies where promoters have the highest holdings, but are reducing their stake. Topping this list is HDFC Asset Management Company, which has a promoter holding of 52.6% in June 2023. The firm has seen its promoter holding reduce by 10.2 percentage points QoQ. HDFC AMC’s promoter Arbdn Investment divested a 10.2% stake and exited as a promoter just before the HDFC merger. This ended the JV it had formed with Housing Development Finance Corp to form HDFC AMC. The sold holdings have been acquired by foreign institutional investors (FIIs) and mutual Funds (MFs), which have invested 5.5% and 4.3% stakes respectively. A notable FII that invested is SmallCap World (0.4% stake), and MFs are SBI Mutual Fund (7% stake) and Nippon Life India (1.8% stake).

Now, we move on to the auto components major, Craftsman Automation with a promoter holding of 55% in June 2023. Its promoter divested a 3.8% stake in the June quarter. The divestment was compensated by a 3.3% investment from FIIs. Among the major investors, Goldman Sachs (1.2% stake) stands out. This interest by FIIs in the stock aided its price to grow by 44.8% over the past quarter.

In the general industrial sector, RHI Magnesita India and Timken India have a promoter holding of 55.5% and 57.7% in June 2023.They have seen their promoter holdings decrease by 4.66 percentage points and 10.1 percentage points QoQ respectively. For RHI Magnesita, this was compensated by investments from FIIs and MFs, accumulating to 1.5 and 5.3 percentage points respectively. A major MF investor in this case is Axis Mutual Fund (0.2% stake).

On the other hand, Timken India’s reduction in shareholding has primarily been compensated by investments from MFs, aggregating to 5.2%. Prominent MF investors include SBI Tax Advantage Fund (4.7% stake), Nippon Life (0.8% stake) and Aditya Birla Sun Life (1.2% stake).

From the higher promoter holding companies, we move on to the ones with lower promoter holdings with falling stake. MTAR Technologies’ has a promoter holding of 39.1% and has been reduced by 7.5 percentage points in June 2023. Kalpataru Projects International also saw a dip of 6.1 percentage points. Some of the stakes sold by promoters were picked up by FIIs (1.2%) and MFs (3.9%). MFs that invested in the company are ICICI Prudential (1.4% stake) and Aditya Birla Sun Life (2.4% stake).

Central Depository Services’ promoter holding stood at 15% in June 2023, after a decrease of 5 percentage points QoQ. It has a single promoter, BSE (Bombay Stock Exchange). The promoter selling was compensated by an increase in MF stake by PGIM India Trustee (1.4% stake). According to Trendlyne’s Shareholding data, 47.9% stake of the company lies with the public.

Unlike HDFC AMC, other banking & finance majors like PNB Housing Finance and Home First Finance Company India have comparatively lower promoter holdings of 28.2% and 30.2% as of June 2023. PNB’s promoter shareholding fell by 4.4 percentage points QoQ. In March 2023, the company raised Rs 2,494 crore through a rights issue, because of which the promoter shareholding went down to 28%. Similarly, Home First’s promoter shareholding fell by 3.3 percentage points QoQ. This was offset by FIIs and MFs purchasing 1.9% and 2.2% stakes respectively. Notable investors include Invesco India Tax Plan (1% Stake) among MFs and Government of Norway Pension Fund (3.2% Stake) among FIIs.

The sole representative of the software & services sector in our list, Coforge, saw its promoters reducing their holdings by 3.5 percentage points QoQ to 26.6%. This sale was made by its promoter, Baring PE, through a subsidiary, Hulst BV. This was balanced by MFs investing a 4.3% stake. The MFs that invested in the company are Aditya Birla Sun Life (0.1% stake), Motilal Oswal Flexi Cap Fund (2.7% stake), Mirae Asset (1.1% stake) and Invesco India Contra Fund (1.2% stake). Motilal Oswal maintains a ‘Neutral’ rating and says that the company’s robust performance growth and profitable deal wins in FY24 have likely been factored into the stock price, leaving limited potential upside.

Lastly, Sona BLW Precision Forgings’ promoter holding has declined by 3.2 percentage points QoQ to 29.8% in June 2023. As of December 2022, the company’s total promoter holding stands at 53.5%. But with Blackstone selling its entire stake of 20.5% in March 2023, the holding has been lowered to 33%. Again in May 2023, the company’s promoter, Aureus Investment, reduced its exposure by 3.2%.

The Baseline

09 Aug 2023

Generational shift: Four trends are changing the face of the Indian consumer

By Tejas MD

In June this year, the US narrowly escaped a debt default, as its government made the deadline just in time to raise the debt ceiling. Now, the country's infamously high debt level (an eye-watering $32.7 trillion, 121.2% of its March 2023 GDP) is again in the news, after global rating agency Fitch downgraded the US credit rating to AA+ from AAA on August 2.

Fitch flagged concerns over the rising debt burden and the inability among American politicians to reach an agreement to bring down debt.

This rating change had a ripple effect on global equity markets, reminding us that when the US sneezes, the world catches a cold.

But the effect of the downgrade is being felt far less in one country: India. Here, it's a temporary setback. Morgan Stanley just upgraded India’s rating to ‘Overweight’, and raised the country’s market position from sixth to first. The brokerage believes that the country is poised for sustained economic growth with a strong capex and profit outlook.

This upgrade comes just four months after Morgan Stanley raised India from ‘underweight’ to ‘equal weight’ on March 31. It marks how fat we have come - just a decade ago, Morgan Stanley had labelled India one of the 'Fragile Five' and 'risky' for foreign investments.

A key driver for this growth is a big shift in India’s income pyramid. India is projected to change in the next decade from a poor-dominant country to a middle-class dominant one.

Source: ICE360

Such transformation for a country happens only once in several generations. In Europe, this shift happened post World War-II in the 1950s and 1960s, when Europe's economies grew at 6-8% a year. The growth propelled some European businesses into worldwide fame - France's fashion labels, Germany's car makers, Italy's clothing companies went from regional, family-owned businesses to international brands: Chanel, Volkswagen, Gucci. The US saw similar income growth and disruption between 1955 and 1970.

For India, this change will bring many millions of Indians out of poverty, with more than 100 million people moving to middle-income households, and 20 million to rich households. This will lead to a rapid rise in consumption and spending. India's consumers are changing fast.

The winners of this shift? Yet to be decided.

In this week’s Analyticks,

In the midst of change: India’s consumers are seeing four big trends
Deep pockets screener: Stocks with increasing annual operating cash flow, and operating profit margin

Four trends are changing the Indian consumer story

The world is expected to add another billion consumers over the next eight years. The Data Lab defines this 'consumer' as those spending at least $12 per day (measured using 2017 purchasing power parity or PPP prices).

Even as the global consumer class grows, some countries will see a decline due to aging populations and lower fertility rates – a list that includes Japan and several European countries. From 2022 to 2030, Japan is expected to lose 4 million consumers, while Italy’s and Germany’s consumer population could shrink as well.

Asia is projected to contribute around 82% of new consumers in 2024, with India and China jointly accounting for over half of this increase. As China’s population ages, India will surpass it in new additions to the consumer class. Consequently, India is on track to becoming the leading global driver of consumer growth. Given this, we look at four key trends that are reshaping the Indian consumer story.

Trend 1: D2C and local brands are challenging FMCG giants

The Direct-to-Consumer (D2C) market in India is growing fast, and is expected to reach $100 billion by 2025. Several smaller and local players here are competing with the big guns. This ant vs elephant battle has seen some unexpected gains for small competitors, which are stealing market share from big FMCG companies.

Smaller players are doing this by disrupting the traditional distribution channels, and selling lower-priced products without any middleman. Karnataka's Teju Masala for instance, which started off selling spices from a moped in the local market, is growing at 65% annually; Delhi-based, Virat-Kohli backed RageCoffee is in 32 cities and claims to be growing at 3X in demand and production.

The rapid rise in online shoppers is helping D2C businesses. India gained125 million online shoppers in the past three years, with another 80 million projected to join by 2025.

To counter this, FMCG majors like Nestle are now focussing on e-commerce sales. Suresh Narayanan, Nestle India's Chairman and Managing Director said, “E-commerce continues to perform strongly and accounts for almost 6.5% of sales in Q1FY24 with quick commerce driving the growth”. Meanwhile, Dabur is planning to acquire D2C companies to tap into this segment. In the Q1FY24 earnings call, Mohit Malhotra, CEO of Dabur said, “We are scouting for D2C brands. If we come across a company which is synergistic to us, we will evaluate and if it seems financially worthwhile, we will acquire the company.”

Listed FMCG majors also face competition from local brands. Volume growth for local brands (+12.7% YoY in FY23) outpaced national brands(+8.5% YoY in FY23).

During the Q1FY24 Earnings call, Hindustan Unilever's CFO Ritesh Tiwari agreed with the numbers, “Small players are growing faster than the large players - this is evident from the latest quarter’s data."

Trend 2: Rise of the ‘mass’ consumer class

A recent Redseer survey reveals the rise of a mass consumer class (annual income between Rs 2.5-10 lakh), besides the affluent (> Rs 10 lakh) and striver (< Rs 2.5 lakh) classes.

The Indian retail industry is projected to grow at a CAGR of 10% to reach $2 trillion by 2030. Within this growth story, mass consumers are expected to contribute 65% to the overall retail market by 2030. This segment is also set to grow the fastest, with a CAGR of nearly 12%.

Nearly 60% of these mass consumers are willing to buy unbranded products, if they get the right value. The willingness to switch from big FMCG brands to smaller alternatives is pushing major FMCG companies to rethink their strategies.

Trend 3: Rise of the nuclear family drives premium FMCG demand

One would assume that India’s joint families, which usually consist of around seven people, would spend more compared to nuclear families, which have an average of three people. But it’s the nuclear families that are shelling out more money each month,due to their preference for premium products.

South India leads when it comes to the rise of nuclear families, with 69% of households classified as nuclear in 2022. However, in North India, joint families are still the majority.

Nuclear families make up 50% of Indian households in 2022, a big shift from a 34% share in 2008. This development bodes well for companies following the ‘premiumization’ trend.

Trend 4: Tier 2 and 3 cities drive growth in consumer spends

According to reports, Tier II and III cities drove consumer purchases during the Diwali season, accounting for 64 per cent of all transactions. Almost 125 million customers placed orders across platforms during this period, with a significant boost from Tier II cities.

In addition, rural demand is making a comeback, as inflation eased over the past two quarters.

Sanjay Agarwal, CFO of Jyothi Labs said, “The impact of inflation in rural areas has been much higher than urban. And as inflation has been receding, growth that we are seeing in rural is coming back.”

With all these trends in play amid a fast-growing consumer class, major FMCG companies have some tough decisions to make. Big companies are typically slowwhen it comes to adapting to change, especially when competing with disruptive trends and new-age brands.

However, this disruption is great for Indian consumers - it brings innovation to both sides of the income scale. As families shift towards nuclear structures, product premiumization gains traction; while the rise of the mass consumer class helps value-driven brands.

And as the consumer space sees more competition, a few homegrown Indian brands are likely to become truly big, mirroring the trends we saw in US and Europe half a century ago.

Screener: Stocks with bumper cash in hand, with increasing cash flow and profit margins

Cash flow from operating activities is an important measure for a company - having surplus cash from operations allows it to invest in new projects, repay loans and launch new products. This screener shows stocks that have seen a YoY rise in their annual cash flow from operations and operating profit margin.

The screener has 38 stocks from the Nifty 500 and seven stocks from the Nifty 50 index. It is dominated by stocks from the automobile & auto components, banking and chemicals & petrochemicals sectors. Major stocks that appear in the screener are Chalet Hotels, Indian Hotels, ICICI Lombard General Insurance, Lupin, Fine Organic Industriesand Dr Reddy’s Laboratories.

Chalet Hotels and Indian Hotels lead this pack with a 19.9 and 17.7 percentage points YoY rise in operating profit margin in FY23, respectively. This improvement is compared to a low base in FY21 and FY22, due to the Covid lockdown. Chalet Hotels also saw its cash flow from operating activities improve to Rs 476.9 crore in FY23, compared to Rs 62.2 crore in FY22. The company has implemented cost management processes, resulting in reduced real estate development costs and higher cash flow from operating activities.

Indian Hotels saw its cash flow from operating activities jump to Rs 1,619 crore in FY23 from Rs 671.6 crore in FY22. This was on the back of what the company called a disciplined approach to capital allocation, which reduced provisions and finance costs.

ICICI Lombard General Insurance's cash flow also improved to Rs 2,290.1 crore in FY23from Rs 809.1 crore in FY22. It is the only stock in the screener which turned an operating loss in FY22 into an operating profit in FY23, with an operating profit margin of 7.1%. The insurance company’s rise in cash flow was aided by an increase in premiums and advanced premiums received from policyholders.

You can find some popular screeners here.

The Baseline

08 Aug 2023, 04:42PM

Five analyst picks that outperformed their industry over the past month

By Suhas Reddy

This week we take a look at five analyst picks that outperformed their industry in the past month:

Birlasoft: HDFC Securities initiates a ‘Buy’ call on this IT consulting and software company with a target price of Rs 530, indicating an upside of 17.4%. In Q1FY24, the company’s net profit increased by 22.6% QoQ to Rs 137.5 crore, while revenue grew by 4.3% QoQ. The company’s stock price has improved by 27.3% in the past month, outperforming its industry by 23.2%.

Analysts Apurva Prasad, Amit Chandra and Vinesh Vala initiate this call on the back of large client mining and high deal win momentum. Birlasoft’s revenue per client has increased by 70% over the past three years. Based on the brokerage’s mid-tier IT assessment, the analysts say, “Birlasoft features above the peer median in its services portfolio, above the median in financials and valuation, and below the median in execution and growth framework.” Overall they believe it is well-positioned within mid-tier peers. They also remain optimistic due to the strong momentum in Oracle and SAP Cloud services. They expect a revenue CAGR of 10% over FY24-26.

Hindalco Industries: Axis Direct upgrades this aluminium products manufacturer to a ‘Buy’ with a target price of Rs 515. This indicates an upside of 13.2%. The company’s Q1FY24 net profit fell by 40.4% YoY to Rs 2,454 crore, while its revenue declined by 8.7% YoY. The company has risen by 7.6% in the past month, outperforming its industry by 8.7%. The upgrade comes after the announcement of Q1 results for the company’s arm, Novelis.

Novelis’ shipments have declined by 9% YoY due to destocking, but analyst Aditya Welekar believes that this trend will gradually improve over FY24. The Novelis arm's profit and adjusted EBITDA fell by 49% YoY and 25% respectively, but they were still higher than the brokerage’s estimates.

Welekar remains optimistic about the company on the back of macro headwinds bottoming out as rate hikes near their peak. He says, “We foresee more shipment visibility in the short and long term, and lower raw material costs. The lower Aluminium prices resulting from supply exceeding demand in China and the drop in thermal coal prices create a higher upside for the stock.”

Star Cement: ICICI Direct keeps its ‘Buy’ rating on this cement manufacturer with a target price of Rs 185, indicating an upside of 13.3%. The stock has risen by 9.8% in the past month, outperforming its industry by 6.9%.

Analysts Cheragh Sidhwa and Raghvendra Goyal are optimistic about the company’s plans to gain market share by doubling its production capacity by FY26. They add, “Post the expansion, the company's overall clinker and cement capacity will increase to 5.8 MT and 9.7 MT, respectively, by FY25.” They believe the firm’s healthy operating cash flows will aid in meeting its capex requirements for capacity expansion, thus keeping its debt levels low.

The analysts note that the firm is well-placed to benefit from the Centre’s initiatives to boost infrastructure development in the North-Eastern region, as it already holds a 25% market share. They expect the company’s net profit to grow at a CAGR of 17.2% over FY23-25.

L&T Technology Services: Motilal Oswal maintains its ‘Buy’ rating on this IT consulting & software company with a target price of Rs 4,760, implying an upside of 11.3%. The stock has risen by 8.5% over the past month, outperforming its industry by 4.4%. In Q1FY24, its net profit increased by 0.5% QoQ to Rs 311.1 crore and revenue grew by 22.8% QoQ.

Analysts Mukul Garg, Pritesh Thakkar and Raj Prakash Bhanushali highlight the company's unique positioning in the engineering, research and development (ER&D) sector. Unlike its competitors, L&T Technology Services operates across multiple verticals, enabling it to draw opportunities from various industries. They add, “The firm uses its presence in multiple verticals, strong domain knowledge and technology capabilities to provide differentiated offerings across its client base.”

The analysts believe that digitisation is accelerating spending towards ER&D and expect the firm to capitalise on this, given its strong capabilities and market presence. They estimate the company’s revenue to grow at a CAGR of 18.8% over CY23-25.

Metro Brands: ICICI Securities maintains its 'Buy' rating on this footwear company with a target price of Rs 1,200, implying an upside of 11.9%. The analysts at ICICI Securities hold a positive outlook, supported by the company’s record growth among its peers. It has a retail expansion rate of 27% YoY. In Q1FY24, the company's revenue increased by 14.7% YoY to Rs 582.5 crore, while net profit improved by 35.5% QoQ. The stock has risen by 5.8% over the past month, outperforming its industry by 3%.

The analysts express confidence in the ongoing integration of Metro’s Cravatex brands, projecting a 3% revenue contribution with minimal impact on net profit margins. Additionally, they see a resolution of its inventory issues by the end of FY24. A key highlight is the strong performance of the premium segment ( the Rs 3,000+ price point), which has exhibited a 31% YoY outperformance over the value range. This adds momentum to brand value growth. Outperformance in the women's and kids' wear segments has also sustained.

Despite negative same-store sales growth, the analysts expect momentum to improve from the addition of 27 new stores in Q1FY24 and the potential for further expansion.

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

(You can find all analyst picks here)

The Baseline

05 Aug 2023

Which stocks did superstar investors buy in Q1FY24?

By Abhiraj Panchal

Superstar investors and their portfolio changes give us useful insights into financial markets, and help in identifying interesting, potentially under-the-radar stocks. In this analysis, we take a look at some of the biggest investments made by superstar investors during Q1FY24.

Each superstar has their own investing preferences, as seen in the chart below. It shows the sectors that hold the largest share of each investor’s portfolio.

Rare Enterprises (Rakesh Jhunjhunwala) has a clear preference for textiles, apparels and accessories stocks, while Sunil Singhania favours software and services. Ashish Kacholia and Mohnish Pabrai lean towards chemicals and petrochemicals. Vijay Kedia’s favoured sector is telecom services, while Porinju’s preference lies in diversified consumer services. Dolly Khanna skews towards oil and gas.

Rare Enterprises (Rakesh Jhunjhunwala) makes no new additions to its portfolio

Rakesh Jhunjhunwala’s portfolio grew by 21.6% QoQ to Rs 38,885.3 crore in Q1FY24. Since the big bull’s passing, the portfolio has been managed by his wife, Rekha Jhunjhunwala and Rare Enterprises, which is currently headed by Utpal Sheth and Amit Goela.

The investment firm made very few purchases in the quarter, and increased its stake in only three companies. Also, there were no new stock additions to the portfolio in the April-June quarter.

The portfolio raised its stake in Escorts Kubota by 0.2% to 1.6%. The commercial vehicles manufacturing giant rose by 20.1% in Q1FY24.

Rare Enterprises also raised its stakes in two Tata Group companies. It added an additional 0.1% stake in Titan and a 0.5% stake in Tata Communications, increasing its total holdings to 5.4% and 1.84% respectively. During Q1FY24, Titan rose by 20.1% and Tata Communications gained 27.8%.

Ashish Kacholia adds three new stocks to his portfolio

Ashish Kacholia’s net worth rose by 22.4% QoQ to Rs 2028.4 crore in Q1FY24. He added Venus Pipes & Tubes to his portfolio, buying a 2% stake in the steel pipes manufacturer. He also added finance companies Ugro Capital and SG Finserve by purchasing 1.6% and 1.2% stakes in them, respectively.

The marquee investor bought a 0.9% stake in Aditya Vision, a specialty retailer, and now holds 2% of the company. He purchased a 0.3% stake in Knowledge Marine & Engineering Works (a marine port and services provider), increasing his holding to 2.8%. He increased his stake in chemical companies Yasho Industries and Agarwal Industrial Corp to 4.2% and 3.9% respectively by buying 0.2% and 0.1% stakes.

Kacholia bought minor stakes and increased his holdings in Beta Drugs and Fineotex Chemical to 12.5% and 2.8%, respectively.

Sunil Singhania’s Abakkus Fund makes minor portfolio adjustments

Sunil Singhania’s Abakkus Fund’s net worth fell by 2.3% QoQ to Rs 2115.6 crore in Q1FY24. It made minor changes to the portfolio, with selective purchases and additions. It purchased a 0.1% stake in Dynamatic Technologies, taking the holding up to 2.9%. The industrial machinery company’s stock price grew by 43.3% in the past quarter. It also bought a 0.1% stake in HIL, a cement products manufacturer, and now holds a 3.2% stake in the company.

Abakkus also purchased minor stakes in IIFL Securities (capital markets company), ADF Foods (packaged foods player) and Sarda Energy & Minerals (steel manufacturer). It now holds 3.2%, 1.5% and 2.2% stakes in the companies, respectively.

Dolly Khanna increases holdings in nine companies

Dolly Khanna’s portfolio grew by 37.1% QoQ to 308.9 crore in Q1FY24. After a few consecutive quarters of conservative purchases, the superstar investor is back on a buying spree. She increased her stakes in nine companies during Q1. The superstar investor’s purchases were spread across various sectors and industries such as metals and mining, textiles, auto parts and equipment, plastic products, fertilizers, and breweries and distilleries.

The ace investor raised her stake in the other non-ferrous metals company, Pondy Oxides & Chemicals, by 0.6% to 3.7%. She added another 0.5% stake each in Deepak Spinners and Talbros Automotive Components, taking her holdings to 1.7% and 1.5% respectively.

Khanna increased her holding in Monte Carlo Fashions by 0.3% to 2.4%. She also raised her holdings in Control Print, Mangalore Chemicals & Fertilizers and Prakash Pipes by 0.1% to 1.2%, 1.3% and 2.8% respectively. The superstar investor purchased minor stakes in Nitin Spinners and Som Distilleries & Breweries, taking her holdings to 1.4% and 1.3% respectively.

Porinju Veliyath diversifies portfolio with two new companies

Porinju V Veliyath’s net worth grew by 9.7% QoQ to Rs 151.3 crore in Q1FY24. He added two new companies, Centum Electronics (an electronic components manufacturer) and Kokuyo Camlin (stationary products and art materials company), to his portfolio by purchasing a 1% stake in each of them.

The ace investor also increased his stake in four companies in Q1. He raised his stake in Aurum Proptech by 1.4% to 3.4% and Kerala Ayurveda by 1.3% to 3.2%. He added a 0.2% stake in Duroply Industries, taking his holding to 7%. The superstar investor also added a minor stake in Kaya, taking his holding to 3%.

Vijay Kedia almost doubles his stake in a small-cap company

Vijay Kedia’s net worth increased by 65.3% QoQ to Rs 984.9 crore in Q1FY24. He bought a 6.5% stake in Atul Auto and now holds a 14.9% stake in the auto components manufacturer. The investor bought a 0.4% stake in Patel Engineering during the quarter and now holds 1.7% of the company.

Kedia also bought a 0.1% stake in Precision Camshafts (auto components) and Neuland Laboratories (pharma) each. He now holds 1.2% and 1.3% in them respectively.

Mohnish Pabrai increases stake in Edelweiss for third consecutive quarter

Mohnish Pabrai’s net worth in Q1FY24 marginally increased by 3.1% QoQ to Rs 1086.41 crore. He increased his stake in Edelweiss Financial Services for the third consecutive quarter and bought an additional 0.6% stake in the company. Except for this financial services company, he made no changes to the portfolio.