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05 Jun 2024

Chart of the Week: Financial firms witness growth in Q4, while chemical industries suffer

By Sunday last week, exit polls almost unanimously predicted that the Bharatiya Janata Party (BJP) would win the 2024 Lok Sabha elections with a clear majority. This sent the Nifty 50 up by 3.3% and to an all-time high of 23,338.7 on Monday.

But the forecasts turned out to be pretty hollow when actual vote counting began, with the BJP losing 63 seats to end up with a total of 240, failing to secure a single-party majority. This led to the most volatile day for Indian equity markets since the pandemic, with indices falling sharply. However, the Nifty and Sensex recovered some of its losses by market close on June 5.

A coalition government can impact some industries as capital allocation can change due to differences in investment preferences between coalition parties. We look at Trendlyne’s Q4FY24 results dashboard to identify industries that have been top performers, as well as those who struggled. We also examine the drivers of positive or negative industry sentiment.

This edition of Chart of the Week looks at YoY growth in net profit and revenue for Q4FY24 across industries, and the biggest contributors to this industry growth.

Rising investor interest drives revenue growth for exchanges and capital markets

The capital markets industry registered an overall net profit and revenue growth of 123.2% YoY and 75.4% YoY, respectively, in Q4FY24. Companies such as Motilal Oswal Financial Services (MOFSL), ICICI Securities, Angel One, and IIFL Securities contributed significantly to this surge.

MOFSL’s capital markets segment rose 74% YoY, while its asset and wealth management segment grew by 55.3% YoY in Q4FY24. The treasury investments segment witnessed a turnaround amid high interest rates, with the company reporting a net profit of Rs 285.7 crore compared to a loss of Rs 146.4 crore in Q4FY23.

Angel One’s revenue grew 64.4% in Q4. However, this did not fully translate into net profit growth, where there was a moderate gain of 27.4%. This was because the company ventured into the asset management and insurance businesses which led to higher employee costs, coupled with expenses of Rs 22.7 crore for sponsoring IPL in March quarter. Angel One’s CFO Vineet Agarwal in Q4 earnings call said that the company’s committed cost for IPL for the next four years is Rs 82.5 crore annually, excluding advertisement cost. He added that for the IPL season gone by, the company spent around Rs 143 crore, out of which Rs 23 crore was accounted for in Q4, and the remaining Rs 120 crore will be accounted for in the current quarter.

The Bombay Stock Exchange (BSE) and Multi Commodity Exchange of India (MCX) were significant contributors of the exchange industry with average net profit rising by 57.6% YoY and revenue growth of 69.5% YoY in Q4.

MCX India posted a net profit of Rs 87.9 crore in Q4FY24, a 16x increase compared to the same quarter the previous year, driven by the launch of its commodity derivatives platform in October last year. Meanwhile, BSE’s revenue doubled YoY in Q4 to Rs 548.4 crore, following the relaunch of Sensex and Bankex derivative contracts, and increased transaction charges on Sensex near-expiry options.

Realty firms get a boost from luxury real estate, while demand for loans drove banking firms higher

Realty companies saw an average revenue growth of 25.3% YoY in Q4, with net profit growth of 18.6%. Key contributors included DLF, Oberoi Realty, and Brigade Enterprises, with their net profits up 61.5%, 64.1%, and 197.6% YoY respectively. This was fueled by demand for luxury residential properties. For example, DLF announced that its luxury residential project, 'DLF Privana West,' valued at approximately Rs 5,590 crore, was sold out within just three days.

Meanwhile, the banking industry posted revenue growth of 25.9% and net profit growth of 45.2% YoY in Q4FY24. All 41 banks reported positive revenue growth, thanks to rapid growth in loans, stable margins, and lower provisions. According to Trendlyne’s Bank Operations Report, banks in Q4 saw a loan growth of 28.5% YoY, which outpaced deposit growth of 20.6% showing higher spending by Indians which boosted demand.

Two Tata Group firms, Titan and Tata Steel saw revenues moderate in Q4

The gems and jewellery industry saw a net profit decline of 5.5% YoY in Q4, with revenue down 14.7% YoY. Gold and synthetic diamonds player Rajesh Exports was a major laggard, with revenue declining 20.6% YoY to Rs 91,649.3 crore and a net loss of Rs 31.6 crore compared to a profit of Rs 366 crore a year ago. The company has struggled with high operating costs. Meanwhile, Titan’s revenue grew 20.6% in Q4, with a moderate net profit growth of 5.6% YoY. Its jewellery segment, contributing 87% of Q4 revenue, saw margins decline due to higher consumer discounts and an 11% YoY surge in gold prices.

The iron and steel industry on the other hand, saw a sharp decline of 39.3% YoY in net profit, while revenue fell 2.7% YoY. This was driven by Tata Steel and JSW Steel, whose net profits declined 64.1% and 64.5% YoY respectively in Q4 owing to their ongoing expansion plans.

Agrochemicals & commodity chemicals industry suffer due to weak monsoon and Chinese dumping across the globe

In Q4FY24, the agrochemical industry’s revenue declined 12.5% YoY with net profit declining 52.7% YoY. UPL and Bayer CropScience saw their net profit decline 95% and 39.4% respectively in Q4FY24 due to a slump in demand for agrochemicals, as monsoons grew erratic in the past year. Another contributing factor was a sharp decrease in price realisation because of higher supplies from Chinese competitors.

Meanwhile, the commodity chemicals industry, which was impacted the most, saw its average net profit plunge 96% YoY with an 11.2% YoY fall in revenue during the quarter. Industry leader, Tata Chemicals was hit by quarterly revenue decline of 21.2% YoY, with a net loss of Rs 850 crore compared to a profit of Rs 709 crore in the same period last year. The company faced challenges due to the weak demand-supply scenario for soda ash in Europe which led to lower realisations. This can be attributed to inventory destocking, coupled with an oversupply situation in the European markets.

The Baseline

03 Jun 2024, 04:53PM

5 stocks to buy from analysts this week - June 3, 2024

By Abhiraj Panchal

1. J Kumar Infraprojects:

Axis Direct maintains a 'Buy' rating on this construction and engineering company with a target price of Rs 845, indicating a potential upside of 9%. The company’s revenue grew 25.4% YoY to Rs 1,433.7 crore in Q4FY24, and its net profit rose 34.9% YoY to Rs 99.7 crore.

Analyst Uttam K Srimal highlights the company’s order book of Rs 25,711 crore, which is 5X its FY24 revenue. He believes that its order inflow of Rs 11,810 crore will ensure revenue visibility for three to four years across diverse sectors and geographies.

The analyst emphasizes the company's bidding pipeline of Rs 20,000 crore, which targets metros, elevated corridors, road tunnels, and buildings. Srimal is upbeat about the company’s aim to diversify its project profile by bidding for irrigation projects as well. He says, “J Kumar Infraprojects remains one of the most established EPC contractors and will continue to benefit from its healthy order book position, strong execution capabilities, and healthy financial position.” He expects a revenue CAGR of 16.9% in FY25-26, buoyed by order inflows and expanded operational efficiencies in infrastructure projects.

2. NTPC:

ICICI Direct maintains a ‘Buy’ call on this electric utilities company with a target price of Rs 455, indicating an upside of 16.1%. The company’s net profit rose by 26.9% YoY to Rs 6,168.7 crore in Q4FY24, while its revenue increased 9.1% YoY.

Analyst Chirag Shah expects the company’s growth momentum to sustain as he says, “NTPC has been the only company that has added coal-based capacities over the past five years and reached an installed base of 73,000 MW.” He expects an 11% power generation growth, after the commissioning of the under-construction 9,300 MW of coal-based plants in FY26.

Shah is optimistic about NTPC’s aggressive approach to expanding its renewable energy portfolio, including green hydrogen. The company says that it is working to ensure that 45-50% of its capacity comes from non-fossil fuels by 2030. Shah believes that the company will also see growth in the conventional thermal portfolio. He estimates profit to grow at a 26% CAGR over FY25-26.

3. ITD Cementation India:

Edelweiss retains a ‘Buy’ call on this construction and engineering company with a target price of Rs 475. This indicates an upside of 12.7%. ITD’s net profit improved by 136.9% YoY to Rs 89.5 crore (12.5% higher than the brokerage's estimate) in Q4FY24, while its revenue grew 39.1% YoY (10% higher than the brokerage's estimate).

Analyst Mehul Mehta is optimistic about the company’s focus on the expansion of its bridges, marine and tunnel business overseas. It aims to balance its order inflow in the marine segment between overseas and domestic markets.

The analyst believes that the management’s focus on bidding for higher average ticket size orders across its projects should accelerate revenue growth and profitability for the company.

The company’s management says that the bid pipeline stood at Rs 28,000 crore at the beginning of FY25. According to Mehta, the current order book translates into revenue visibility of 2.6x of the FY24 revenue.

4. Ahluwalia Contracts (India):

IDBI Capital gives a ‘Buy’ call to this construction and engineering company with a target price of Rs 1,412, indicating an upside of 15.8%. In Q4FY24, the company’s profit increased 176.9% YoY to Rs 199.8 crore, while revenue grew 34.9% YoY. However, its EBITDA margin fell by 3.8 percentage points to 9%. Analysts Vishal Periwal and Shubham Shelar say, “The company’s EBITDA came in lower than our estimates as it was impacted by an increase in sub-contract expenses, due to a shortage of labour.”

Periwal and Shelar are upbeat about Ahluwalia Contracts’ order book, which currently stands at Rs 11,200 crore as it won orders worth Rs 5,500 crore in FY24. The management has guided to close FY25 with an order inflow of more than Rs 7,000 crore. The analysts expect revenue and profit to grow at a CAGR of 44.7% and 18.8%, respectively over FY25-26.

The company's current order book is divided in a ratio of 65:35 between the government and private sectors. The analysts are optimistic about the company’s plan to further improve private orders and maintain the ratio at 50:50.

5. ITC:

KR Choksey maintains a ‘Buy’ rating on this food and tobacco products company with a target price of Rs 517, indicating a potential upside of 20.1%. In Q4FY24, the company’s revenue increased 10.3% YoY to Rs 20,130.3 crore, while its net profit fell 1.1% YoY to Rs 5,120.6 crore. Analyst Unnati Jadhav notes that the decline in net profit was due to higher tax expenses and depreciation costs. She says, “ITC reported an in-line performance in terms of overall earnings.”

Jadhav says that the growth was led by improved volumes from cigarettes and strong performance in its hotel business. However, she is cautious as the paperboard and agribusiness continued to slacken during the quarter.

Going forward, the analyst believes that the FMCG business will see stable growth due to the company’s focus on new and innovative launches and will see further improvement as consumption sees an uptick. She also expects the pipeline of upcoming properties in the hotel segment to drive growth. Jadhav sees ITC’s profit and revenue growing at a CAGR of 8.6% and 7.3%, respectively, over FY25-26.

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

(You can find all analyst picks here)

The Baseline

31 May 2024

Five Interesting Stocks Today - May 31, 2024

1. InterGlobe Aviation (IndiGo):

This airlines company fell by 3.3% on May 24 after announcing its Q4FY24 results. InterGlobe Aviation's (IndiGo) net profit missed Trendlyne’s Forecaster estimates by 25.9%, despite growing by 106.1% YoY to Rs 1,894.8 crore. The rise in profit was due to healthy demand for air travel, and also due to a deferred tax return of Rs 124.2 crore. However, the company highlighted that FY24 saw headwinds in the form of aircraft groundings. IndiGo currently has 70-80 aircraft grounded due to engine issues.

During the quarter, revenue grew by 26.7% YoY to Rs 18,505.1 crore, thanks to improvements in passengers carried and higher capacity.IndiGo’s passengers carried grew by 14% YoY to 2.7 crore people over the quarter, while the seating capacity increased by 14.4% YoY.

The company’s share price declined following its results announcement. Over the past year, however, its share price has risen 76.7%. During Indigo’s earnings call, Petrus Elbers, the CEO said, “New travel trends are emerging, such as experiential travel, growth in the spirit of tourism, and increasing demand for international travel”. To keep up with these changing trends, the company announced plans to unveil business-class services by the end of the year. Currently, IndiGo offers only economy class, with a fleet size of 367 as of FY24.

The airline, which has a dominant 60% market share in the domestic market, is now focusing on expanding its long-haul international operations. In April, it announced plans to foray into the wide-body aircraft space, and placed an order for 30 Firm Airbus A350-900 aircraft. Currently IndiGo has a pending order book of around 1,000 aircraft to be delivered up to 2035, offering long-term visibility. IndiGo has also planned partnerships and loyalty programs to boost its international presence. With this expansion and its move towards becoming a full-service airline, it will compete both with Air India and Vistara (whose merger is in progress) and with international carriers.

Morgan Stanley has an ‘Overweight’ rating on IndiGo with an upgraded target price of Rs 5,142. The brokerage believes the company is set to change over the next few years, with loyalty programs, business class, and long-haul international plans. However, it expects near-term cost pressures but says the company has the right strategy, as travel trends are changing.

2. Samvardhana Motherson International (Motherson Sumi):

This auto parts maker hit a new 52-week high of Rs 157 on Friday after surging 10.3% over the past week following its Q4 and FY24 results announcement. The company reported operating revenue growth of 20.4% YoY to Rs 27,058.2 crore for the quarter, beating Trendlyne’s Forecaster estimates by 3%. Its net profit rose 109.8% YoY to Rs 1,371.8 crore, beating estimates by an astonishing 70%.

The surge in net profit is mainly due to the compensation the company received for hyperinflation in Argentina. The finance cost also decreased by 16.3% YoY to Rs 63.8 crore. Motherson received board approval to raise Rs 5,000 crore through NCDs.

The company has announced six new greenfield projects in India, China, and Poland, adding to the 12 announced previously. It plans to invest Rs 2,000 crore in FY25 for these greenfield projects, with 70% allocated to non-automotive businesses such as aerospace, consumer electronics, as well as health and medical. Samvardhana’s aerospace subsidiary, AD Industries, has become a key supplier of structure and engine components to Boeing and Airbus.

Chairman Vivek Sehgal said, “The majority of growth capex is in emerging markets, and our 18 greenfields are on track to come onstream in FY25 and FY26.” He noted that the company is investing in future growth while still reducing its debt. In the past quarter, the company reduced its debt by Rs 1,800 crore, bringing the current total to Rs 17,351 crore.

Morgan Stanley maintains an ‘Overweight’ rating on Samvardhana Motherson with a higher target price of Rs 176, indicating a potential upside of 16.4%. The brokerage highlights that earnings support is likely to come from its acquisitions, sharp non-auto growth, and improvement in the balance sheet.

3. Torrent Pharmaceuticals:

This pharma stock surged for three consecutive sessions to touch its all-time high of Rs 2,795 per share on Monday after its net profit grew by 56.4% YoY to Rs 449 crore in Q4FY24 on the back of price hikes. Revenue increased by 11% YoY to Rs 2,776 crore, helped by improvements in the Indian, Germany, and Brazil markets. But net profit missed Trendlyne’s Forecaster estimates by 3%. The company’s board of directors approved raising Rs 5,000 crore by issuing equity shares through a qualified institutional placement (QIP). It features in a screener of stocks with increasing return on equity (RoE) over the last two years.

Growth in the Indian market (50% of total revenue) was driven by new launches in chronic therapies, an expanded field team, and increased sales from brands on the prescription side (Shelcal 500, Unienzyme and Tedibar) and over the counter segments. The Brazil market (16% of total revenue) witnessed growth on the back of price hikes, higher sales volume and new drug launches. Lastly, the German market (10% of total revenue) grew on account of higher tender wins and new product launches.

Speaking after the results, the company’s CFO and Executive Director, Sudhir Menon, said, “We expect EBITDA margins to improve by 50-100 bps in FY25, on the back of higher traction in the branded generics segment and better operating leverage. We are also planning eight launches in the next year for the US market and are aiming to hit a revenue target of $250-300 million (approx. Rs 2,000-2,500 crore) in the next 3-4 years.” For context, the US market generated a revenue of Rs 1,078 crore in FY24, so this implies a two-fold increase in the next 3-4 years.

Post results, ICICI Direct retains its ‘Buy’ call on the stock with an upgraded target price of Rs 3,080 per share. This indicates a potential upside of 15.9%. The brokerage believes that the company’s ability to market drugs of acquired business brands (Elder, Unichem and Curatio) will drive growth. It expects the company’s revenue to grow at a CAGR of 11.3% over FY25-26.

4. Hindalco Industries:

This aluminium products manufacturer rose 6.1% in the past month and hit its all-time high of Rs 713.5 on Wednesday. Its net profit grew by 31.7% YoY to Rs 3,174 crore in Q4FY24, in line with estimates, while revenue increased marginally. The profit growth was due to decreased inventory costs and raw material expenses, as global aluminum prices in Q4 remained flat and copper prices fell 5.4% YoY.

The company’s India aluminium volumes (downstream and upstream) rose 17% YoY and 4% YoY, respectively, on the back of higher beverage packaging shipments to the Americas. The copper segment reported an all-time high sales volume, rising 15% YoY.

Analysts expect domestic demand for aluminium to double to 9 million tonnes (MT) in the next 10 years, on the back of the infrastructure, packaging, electric vehicle and renewable energy spaces. The management hopes to ride this growth, with plans to spend Rs 6,000 crore in capex in FY25. Most of the allocation will be towards aluminium downstream capacity and specialty alumina domain, focusing on value-added products.

In Q4FY24, Hindalco’s debt to EBITDA reduced to 1.2x from 1.5x. The management expects to maintain a low debt ratio despite the high capex. MD Satish Pai says, “All our strategic capex in India is mapped to the cash flow generation in the businesses, and are in line with our capital allocation policy.”

Management highlights increased competition in specialty products such as container foils due to higher exports from China. However, this may be mitigated with the government sanctions on imports of low grade aluminium, copper, and nickel from December 2023.

In other news, the company’s promoter Birla Group Holdings acquired a 1.2% stake in the company and now holds an 11.4% stake. The company also appears in a screener for stocks where mutual funds have increased their shareholding over the past two months.

Axis Direct maintains a ‘Buy’ call on Hindalco Industries due to its expansion plans such as the Bay Minette, Copper Inner Grooved Tubes and Aluminium downstream projects. The brokerage is optimistic as these expansions will increase EBITDA per tonne after commissioning in FY27.

5. RITES:

This construction & engineering company declined by 6.9% over the past week and announced its results on May 29. The firm missed Trendlyne Forecaster estimates for Q4FY24 for revenue by 16.4% and net profit by 9.2%. The Q4FY24 numbers were disappointing – the company’ net profit declined by 9.2% YoY to Rs 126.1 crore, while its revenue declined by 5.4% YoY due to a fall in domestic leasing and export revenue. The stock shows up in a screener for stocks in the sell zone.

RITES is mainly into infra projects consultancy, turnkey construction, and export of railway vehicles. The company caters to a diverse range of clients across various sectors, including government agencies like Indian Railways, private companies, and international organizations. The company’s order book stands at Rs 5,690 crore as of Q4FY24, out of which a large part worth Rs 2,600 crore is from the consultancy vertical and Rs 2,050 crore worth of orders are from turnkey construction projects.

Analysts predict that the company’s export segment will pick up by H2FY25. After a prolonged period without export activity, the company recently won two export orders amounting to Rs 1,200 crore. These orders were secured through agreements for the provision of 10 locomotives to CFM Mozambique and 200 locomotives to Bangladesh Railways. Analysts expect the company to grow its revenue at a CAGR of 23% over FY25-FY26E.

Rahul Mithal, Chairman and Managing Director, RITES said: ”From getting export orders of Rs 1,200+ crore after a gap of more than 4 years, and diversifying our Quality Assurance business portfolio, we are on the right track and we will capitalize aggressively on this momentum in the coming FY.” He also guided a capex target of Rs 100-140 crore for FY25 and expects to maintain at least 40% of the order book from the consultancy business.

Axis Direct has given a "Hold" rating on Rites with a price target of Rs 715. The brokerage values the company at 24x FY26 EPS to arrive at a TP of Rs 715/share, implying no upside from the CMP. The brokerage awaits for a better entry point as it notes that higher competitive intensity may impact margins.

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

The Baseline

30 May 2024

China is trying to win the global EV race | Screener: Auto stocks outperforming their sector

By Tejas MD

Recently, Donald Trump made headlines in the media when he warned that there would be a ‘bloodbath’ if he lost the US elections. The bloodbath Trump was referring to? The threat American car companies face from Chinese auto players. Trump promised a 100% tariff on auto imports if he was elected.

Foreign companies are convenient villains for politicians running for election. US President Biden and Donald Trump have been trying to outdo each other in sounding tough on China in particular. So Biden in response, imposed new tariffs on Chinese products on May 14, including a 100% tariff on Chinese electric vehicles (EVs).

Biden said, “The competition hasn’t been fair. For years, the Chinese government has poured state money into Chinese companies. This is not competition, it's cheating”.

It is not just the US that is worried about cheaper, technologically advanced Chinese EV cars. In Europe, almost a fifth of the EVs sold last year were made in China, a share expected to reach 25% in 2024. The Chinese presence is being felt in India as well. Two major Chinese EV players, BYD and MG Motors are among the fastest-growing EV manufacturers in India.

Will high import taxes by the US shift China’s EV plans to India and heat up the competition in this segment? Let’s dive in.

In this week’s Analyticks,

Chinese cars come for everyone: Can China's EV makers disrupt the global auto industry?
Screener: Auto stocks outperforming the sector with the highest revenue and net profit growth in Q4FY24

US decides ‘prevention is better than cure’, limits Chinese EVs before they grow

On May 14, US President Joe Biden imposed a big tariff hike on Chinese products, expected to affect around $18 billion in yearly imports from China. The highlight was tariffs on Chinese EVs quadrupling to 100% to protect domestic auto companies.

US raises tariffs on Chinese EVs to 100%

When it comes to pricing, it's very hard to beat Chinese EV makers. China's EV edge is not just about low wages - it dominates the supply chain for a key, critical technology, lithium-ion batteries. China holds 85-95% of production capacity for major battery components. And subsidies by the Chinese government significantly helps bring down costs.

These advantages have helped China corner the market: it dominates the global electric vehicle industry, accounting for 60% of EVs sold worldwide

One example of a value-for-money EV is BYD’s sub $10,000 Seagull electric car. The car undercuts the average price of an American EV by more than $50,000. Even with tariffs, Seagull will be the cheapest EV in the US.

India is no different when it comes to the threat of Chinese EVs. India already has two Chinese EV makers selling here: BYD, which imports from China, and MG Motors, which manufactures with a local partnership with the JSW Group. With the US imposing high tariffs, analysts are worried about China trying to storm the Indian market.

The Indian government had previously reduced the import duty of EVs to 15% from 100%, and required that companies make a minimum investment of $500 million to start local manufacturing. Chinese companies can avoid tariffs completely if they manufacture locally via joint ventures.

One example of this is Chinese EV startup Leapmotor partnering with the third-largest carmaker Stellantis, which owns several brands including Citroën, Fiat and Jeep. Stellantis is considering manufacturing electric vehicles from its Chinese joint venture partner Leapmotor at its Tamil Nadu plant.

The company is planning a small EV, T03, and an SUV, C10. If launched, the price of T03 would be below Rs 6 lakh while that of SUV C10 would be below Rs 15 lakh.

Chinese players offer EVs across price segments

At less than Rs 6 lakh, T03 can easily undercut MG Motor’s popular MG Comet, which is priced at Rs 7 lakh (ex-showroom New Delhi). And the SUV C10 will give tough competition to top-selling EV models from Tata Motors and Mahindra & Mahindra.

Currently, Tata Motors holds over 70% of the EV market, followed by MG Motors, Mahindra & Mahindra, Citroen and BYD. Analysts expect Chinese players to give Indian EV makers like Tata Motors a run for their money.

One factor that has been helping EV sales in India is the FAME subsidies, which reduces the prices for an EV buyer. But this can change with the new budget allocation in place.

India cuts EV subsidies, while the Chinese government pumps money into EV manufacturers

In the interim budget 2024, the Centre cut the allocation for its FAME scheme by 44% to Rs 2,671 crore. FAME 2, which ended on March 31 was extended through a new scheme, the Electric Mobility Promotion Scheme (EMPS), to promote the sale of electric two-wheelers and three-wheelers in the country. Notably, four-wheelers were left out of the list. Car makers will have to rely on the Auto PLI scheme (outlay of Rs 25,938 crore) to reduce their costs.

In India, the Income Tax department allows the buyer to claim tax savings of up to Rs 1.5 lakh ($1,800) on interest paid on a loan made to purchase an electric car. This is small potatoes compared to the US, which gives consumers a $7,500 (Rs 6.2 lakh) clean-vehicle tax credit while China offers $4,180.

China is also doubling down on EV subsidies. China spent roughly $173 billion in subsidies to support the new energy-vehicle sector between 2009 and 2022.

There have also been instances of the Chinese government pumping money into struggling companies—in one case, giving the equivalent of $27.5 million to a company that had sold fewer than 2,000 cars in the first quarter of 2024.

With such generous government subsidies, Chinese automakers may even be competitive with the tariffs in place. Research firm Rhodium Group says that Chinese EVs can extract higher profits in Europe, as price wars back home push their margins to the floor. The Seal U model makes BYD a $15,300 profit in the EU, but a mere $1,400 profit in China. So the expected EU tariff (15% to 30%) isn’t going to deter automakers from shipping to the EU.

Given all these moving parts, the Indian government may have to rethink its strategy regarding EV subsidies and tariffs. This will become especially important once JVs from Chinese companies pick up.

While the option to form JVs with Chinese companies is also available to Tata Motors and M&M, this route may not go down too well with Indian consumers as sentiment towards Chinese companies has soured. We will have to wait and see if the Centre will put the brakes on Chinese EVs, and how the competition will pan out.

Screener:Auto stocks outperforming the sector with the highest revenue and net profit growth in Q4FY24

Auto parts & equipment stocks have the highest revenue and net profit YoY growth in Q4

As we enter the final leg of the Q4 results season, we take a look at the automobile & auto components stocks with the highest YoY growth in revenue and net profit. This screener shows automobiles & auto components stocks that have outperformed the sector over the past month, and had the highest revenue and net profit YoY growth in Q4FY24.

The screener is dominated by stocks from the auto parts & equipment and commercial vehicles industries. Major stocks that appear in the screener are Jupiter Wagons, JBM Auto, UNO Minda, Samvardhana Motherson International, TVS Motor, Endurance Technologies, TVS Holdings and Gabriel India.

Jupiter Wagons has the highest YoY growth in revenue and net profit at 56.7% and 168.2%, respectively in Q4FY24. Revenue rose on the back of the commercial vehicles company’s order wins worth Rs 1,530 crore in the railways, defence and auto equipment manufacturing segments. The sharp increase in net profit was mainly due to a 95.7% YoY reduction in deferred tax.

TVS Motor’s Q4FY24 revenue rose by 25% YoY to Rs 9,998.9 crore, while its net profit grew by 15.1% YoY to Rs 387 crore. Its revenue increased on the back of a jump in sales volumes and the introduction of new products (iQube e-scooter in India and Ronin motorcycle in Colombia) to its portfolio. The 2/3-wheeler company’s net profit rose due to the company’s price hikes during the quarter, and as raw material costs fell.

You can find more screeners here.

The Baseline

29 May 2024

Chart of the Week: Companies that outperformed their industry this year in ROCE and ROE

By Satyam Kumar

Investors often are on the lookout for companies with a high return on capital employed (ROCE), as this indicates how efficiently the company is able to generate profits from the money it spends.

While ROCE tells us how effectively a company utilises its debt and equity funds, the return on equity (ROE) metric tells us how effectively a company creates value for its shareholders. By focusing on companies with both high ROCE and ROE, investors can identify firms that are good at generating profits and in creating substantial value for shareholders.

In this edition of Chart of the Week, we take a look at companies that have outperformed their industry peers in ROCE and ROE in FY24. We have selected the top eight stocks from a screener of Nifty 500 companies with the highest ROCE.

FMCG companies have the highest return ratios among Nifty500 stocks

Colgate-Palmolive (India), a personal products company, outperformed its industry ROCE of 31.3% by delivering an ROCE of 92.3% for FY24. The company posted an ROE of 70.6%, higher than the industry average of 28.4%. Colgate aims to build value for its shareholders by focusing on premiumisation as the growth strategy.

Similarly, packaged foods company Nestle India exceeded its industry ROCE of 63.6% by delivering an ROCE of 82.7% for FY24. The company posted an ROE of 117.7%, higher than the industry average of 78.3% driven by growth in its instant noodles and chocolate products. To maintain its impressive returns, Nestle India plans to launch its high-margin premium coffee brand Nespresso by the end of 2024. The company has also formed a joint venture with Dr. Reddy’s to bring nutraceutical products to Indian consumers.

Finance companies gain from rising investor interest in the Indian economy

Capital markets company ICICI Securities outperformed its industry ROCE of 46.1% by delivering an ROCE of 70.4% for FY24. The company also posted an ROE of 43.3%, higher than the industry average of 29.9%. Buoyed by the rising investor interest in the Indian markets, the company witnessed growth in its broking business and investment banking arm.

Public infrastructure finance company REC outperformed its industry ROCE of 41.4% by delivering an ROCE of 68.6% for FY24. However, the company posted a lower ROE of 20.4%, as its debt capital is eight times more compared to its shareholder's capital as of March 2024. The company in FY24 reported its highest-ever loan sanctions at over Rs 3.6 lakh crore, up 33.7% YoY. Loan disbursements in the previous fiscal also rose 66.7% YoY, with a significant portion allocated to the renewable energy sector at Rs 1.4 lakh crore, up 539% YoY.

Part of the Murugappa Group, Cholamandalam Financial Holdings outperformed its industry ROCE of 24.1% by delivering an ROCE of 50.3% for FY24. The company posted an ROE of 17.3%, higher than the industry average of 13.6%.

Metals & mining companies reduce their debt and plan to fund their capex through internal accruals

Despite belonging to a capital-intensive industry, mining company Lloyds Metals & Energy, outperformed its industry ROCE of 38.9% by delivering an ROCE of 58.7% for FY24. The company also posted an ROE of 44.2%, higher than the industry ROE of 26.3%. The miner’s share price has posted gains of 110% in the past year. The company incurred a capex of Rs 1,690 crore in FY24, primarily funded through internal accruals. In a bid to further boost its operational efficiency, Lloyds is constructing an 85 km slurry pipeline to reduce its freight costs.

Coming to an iron and steel products company, Jai Balaji Industries outperformed its industry ROCE of 14.2% by delivering an ROCE of 55.9% for FY24. The company posted an ROE of 58.5%, significantly higher than the industry ROE of 12.1%. Jai Balaji created more value for equity holders by significantly reducing its debt from over Rs 4,000 crore as of March 2022 to Rs 1,502 crore in March 2024. In addition, total shareholders’ funds have tripled compared to a year ago to Rs 1,504 crore in FY24.

Tata Consultancy Services (TCS), an IT consulting and software company, outperformed its industry in terms of ROCE despite the headwinds in the IT sector. For FY24, TCS achieved a ROCE of 63.5%, higher than the industry average of 42.9%, driven by 32 bps rise in operating profit margin after falling for two consecutive years. Their banking and financial services segment which contributes most (37.7%) to their revenue posted a growth of 5.6% YoY to Rs 90,928 crore. The company posted a ROE of 50.7%, surpassing the industry average of 34.4%. The IT firm has been consistently improving the value it generates for its shareholders with ROE CAGR of 10.6% in the past three years.

The Baseline

28 May 2024

5 stocks to buy from analysts this week - May 28, 2024

By Satyam Kumar

1. Bank of Baroda:

Geojit BNP Paribas maintains its ‘Buy’ rating on this bank, raising its target price to Rs 294, indicating a potential upside of 8.7%. In Q4FY24, the company reported revenue growth of 15.2% YoY to Rs 33,774.9 crore, with net profit rising 2.3% YoY to Rs 4,886.5 crore. Analyst Vinod T P attributes the muted profit growth to higher interest expenses, which rose 24.1% YoY to Rs 17,791 crore.

Vinod says, “The bank’s interest income rose 14.4% YoY to Rs 29,583 crore, driven by expansion in the retail loan segment which increased 20.7%.” He is upbeat about BoB as their asset quality improved in Q4, buoyed by a decline in gross non-performing assets (GNPA) and net non-performing assets (NNPA) to 2.9% and 0.7% respectively.

Analyst Vinod is optimistic as the bank has guided deposit growth in the range of 10-12% for FY25. He is also positive as Bank of Baroda aims to lower its GNPA and NNPA further, to 2.5% and 0.5% in FY25.

2. Astral:

Edelweiss maintains a ‘Buy’ rating on this plastic products manufacturer with a target price of Rs 2,476, indicating a potential upside of 13.9%. In Q4FY24, the company’s revenue increased 8.1% YoY and 18.8% QoQ to Rs 1,635.3 crore while its net profit decreased 11.7% YoY (but rose 60% QoQ) to Rs 181.6 crore. He notes that the decline in net profit was due to a decline in EBITDA due to higher employee cost (up 39% YoY) after the ramp up of new plant locations.

Analyst Nikhil Shetty attributes the quarterly improvement to growth in plumbing volumes, which rose 27% QoQ. He is upbeat as the management plans to set up manufacturing in Central India after the expansion in Hyderabad and Kanpur. He highlights the company’s plans to enter the PVC-O pipes segment, which is a cheaper alternative to iron pipes and is used in fresh water and high-pressure applications. He expects a revenue CAGR of 22.6% in FY25-26, buoyed by lower commodity prices and higher real estate activity.

3. JSW Steel:

ICICI Direct assigns a ‘Buy’ call to this steel products manufacturer with a target price of Rs 1,125, indicating an upside of 24.7%. In Q4FY24, the company’s net profit fell 64.6% YoY to Rs 1,299 crore, while revenue decreased marginally to Rs 46,511 crore. According to analysts Shashank Kanodia and Manisha Kesari, the profit was impacted due to higher raw material costs at its Indian operations and a drop in metal realizations.

However, the analysts are optimistic about JSW Steel’s expansion plan. The company plans to increase its domestic steel production capacity to 42 million tonnes per annum (mtpa) by H1FY28, and gradually expand it to 50 mtpa by FY31. It also plans on increasing its downstream capacities to raise its share of high-margin value-added products. The analysts model a volume growth of 10% CAGR over FY25-26 to 30 metric tonnes in FY26.

Kanodia and Kesari expect the EBITDA per tonne to improve with demand recovery in global markets, improved steel prices, and lower coking coal costs. The analysts conclude, “With strategic capacity expansion in place, favorable steel demand, and improvement in profitability, JSW Steel is poised to deliver a 450 bps improvement in margins in FY25.”

4. Shree Cements:

KR Choksey upgrades its rating on this cement manufacturing company to ‘Buy’ with a higher target price of Rs 30,662. This indicates a potential upside of 20.5%. In Q4FY24, the company reported a revenue growth of 6.4% YoY to Rs 5,582.4 crore, with net profit rising 28.4% YoY to Rs 674.9 crore. Analyst Unnati Jadhav highlights that EBITDA rose 59.9% YoY due to margin expansion led by higher inventory gains, better usage of alternate fuels, lower freight costs and employee expenses. She also attributes the growth in revenue to capacity expansion and higher capacity utilisation.

Jadhav is upbeat as the company intends to fund its capex plans worth Rs 4,500 crore for FY25 through internal accruals and does not intend to raise additional funds. Shree Cements also intends to reduce its logistics costs by investing in their private railway siding and expects to move 25% of their goods via rail in 3-4 years. She expects the firm to post revenue CAGR of 11.8% and adjusted net profit CAGR of 14.2% over FY25-26.

5. Ujjivan Small Finance Bank:

Axis Direct maintains its ‘Buy’ call on this small finance bank with a target price of Rs 64, indicating an upside of 19.7%. In Q4FY24, the bank’s net profit rose 6.5% YoY to Rs 329.6 crore, beating the brokerage's estimates, while its net interest income improved by 26% YoY. Analysts Dnyanada Vaidya and Prathamesh Sawant note that the growth was led by a 24% YoY increase in advances and margin expansion. The bank’s deposits improved 26% YoY while disbursements grew 11% YoY, which the analysts say was driven by strong growth in the non-MFI segments.

Vaidya and Sawant say, “Healthy demand across products, along with a gradual scale-up in new products (gold and vehicle loans), should help the bank sustain its growth momentum over the medium term.”

The analysts expect NIM to remain at 9% in FY25, supported by loan repricing, but expect margins to contract due to a shift in portfolio mix towards secured lending. They also estimate that operating costs will remain elevated as the company plans to invest in technology and human resources to build a better platform.

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

(You can find all analyst picks here)

The Baseline

24 May 2024

Five Interesting Stocks Today - May 24, 2024

1. Info Edge (India):

This internet software & services company has risen by 8% over the past week and touched a 52-week high of Rs 6,545 on Thursday. On May 16, Info Edge (India) reported a net profit of Rs 60.4 crore for Q4FY24, compared to a loss of Rs 272.8 crore in Q4FY23. Its revenue grew 8.7% YoY to Rs 657.4 crore, beating Trendlyne’s Forecaster estimates by 7.2%. EBITDA margins improved by 153 bps YoY to 41% during the quarter.

Info Edge’s recruitment business and cash cow (Naukri), which accounts for 73% of its revenue, grew by 3.4% YoY in Q4. Billings during the quarter were up 7% YoY. Recruitment business growth was slightly slower compared to the other segments due to a slowdown in IT hiring. Hitesh Oberoi, the Managing Director said, “FY24 was a challenging year for the overall recruitment business largely because of the slowdown in IT hiring”. However, he highlighted that there has been an increase in IT job listings and resumes being viewed by hiring managers over the last 3-4 months.

Meanwhile, during Q4FY24, the company’s non-recruitment business verticals, namely 99acres.com (real estate), Jeevansathi.com (matrimony), and Shiksha.com (education) grew by 22.5%, 29.2%, and 22.2% respectively.

In addition to the various lines of online business, the company has invested in several start-up companies. As of March 2024, Info Edge holds 13.6% and 12.7% stakes in Zomato and PB Fintech (PolicyBazaar), respectively. The management reiterated no plans to sell their holdings in these companies, given their growth prospects. Other strategic investments include Nopaperforms Solutions, Ambition Box, and AarogyaAI. The company highlighted that businesses like Ambition Box and Job Hai have begun monetizing in Q4, and have the potential to grow at a faster pace moving forward.

Post Info Edge’s results announcement, JM Financial upgraded its rating to 'Buy' and raised the target price to Rs 7,000. According to the brokerage, billings growth slowdown in the recruitment segment has bottomed out. It expects EBITDA margins to expand from 40.1% in FY24 to 44.7% in FY27.

2. Balkrishna Industries:

This off-highway tyre manufacturer hit a new 52-week high of Rs 3,174.3 on Tuesday after surging 17.5% in the past week, following the release of its Q4 and FY24 results. In Q4FY24, the company reported revenue growth of 20.2% YoY to Rs 2,852.7 crore, surpassing Trendlyne’s Forecaster estimates by 15.4%. During the same period, its net profit went up by 87.4% YoY to Rs 486.8 crore, beating estimates by 29.1%.

The revenue beat was mainly driven by a 13% volume expansion due to market share gains on a YoY basis, and partially passing higher freight tariffs (due to the Red Sea crisis) onto customers. The increase in net profit was supported by improving EBITDA margins, which grew by 460 basis points YoY to 24.9%.

Geographically, 47.1% of the company’s revenue comes from Europe, 26.8% from India, 16.9% from the Americas, and the rest from other regions. On the global front, the company has a market share of 5-6%. Balkrishna aims to increase it to around 10% in the next five years through diversification and better penetration in the OEM segment, particularly in the non-farm tyre category. Currently, sales from replacements account for 71.1% of revenue, while OEMs contribute 27%.

Joint Managing Director Rajiv Poddar said, “The company is considering price hikes in the coming quarter to counter rising raw material prices, especially in natural rubber, and freight costs.” He also emphasized that India will be a focus market for the firm due to significant growth in the replacement market.

Sharekhan upgrades Balkrishna Industries to ‘Buy’ with a target price of Rs 3,195. Analysts are upbeat as the management is looking for volume growth in FY25 with margins stable at current levels. They also expect a revival in demand and are positive about the company’s market share strategies.

3. HG Infra Engineering:

This construction & engineering stock has risen by 46.5% over the last month due to its strong Q4FY24 results on May 8 and two order wins on Wednesday. Its Q4FY24 net profit grew by 11.2% YoY to Rs 190 crore, while revenue increased by 11.1% YoY to Rs 1,713.9 crore. Its net profit missed Trendlyne’s Forecaster estimates by 10.3%, but revenue beats estimates by 12.4%. The company appears in a screener of stocks outperforming their industries in terms of price change over the past month.

HG Infra’s revenue increased on the back of its order book increasingly diversifying with the addition of solar projects to its existing portfolio of road engineering, procurement and construction (EPC), railways and water projects. Despite a rise in revenue, its order inflow for FY24 stood at Rs 4,350 crore, 45.6% lower than the management’s estimate of Rs 8,000 crore on account of a reduction in orders from the National Highways Authority of India (NHAI) due to elections.

However, the election effect is waning, as the company bagged two orders worth Rs 4,142.2 crore from Maharashtra State Road Development Corp (MSRDC) from the Maharashtra government on Tuesday. Road EPC projects accounted for 38% of the total order book of Rs 12,434 crore in FY24, while 40% originated from hybrid annuity model (HAM) road projects, 22% from railway projects, and the rest from other projects.

Post results, the company’s Chairman and Managing Director, Harendra Singh, said, “We have five solar projects which are expected to be completed by H1FY25. We expect to add new projects worth Rs 11,000-12,000 crores in road, railway, solar and water segments to sustain and scale our business. We believe that we will achieve 15-20% growth in the top line in the coming years and maintain a steady margin in the range of 15-16%.”

Post results, Axis Direct maintains its ‘Buy’ call on the stock with a target price of Rs 1,320 per share. Since the release of the analyst call on May 13, the stock has risen by 28.5%, achieving the target price. The brokerage believes that the company’s revenue will grow on the bank of a strong order book position, better order intake, diversification into related sectors as well as the government’s infrastructure focus. It expects the company’s revenue to grow at a CAGR of 15% over FY25-26.

4. Cipla:

This pharma company rose by 10.4% in the past month following multiple announcements. In the past week. The firm received final approval from the US FDA for its Lanreotide injection product, used in tumor treatment. The Lanreotide injection is a generic version of the Somatuline Depot injection. According to IQVIA, Somatuline Depot has annual sales of approximately $898 million.

Cipla also announced its Q4FY24 results this month. Its net profit improved by 80.1% YoY to Rs 939 crore, while revenue increased by 9.2% YoY. It beat Trendlyne Forecaster’s net profit estimates by 10%. The company’s EBITDA grew by 12.1% YoY. The profit growth was due to higher non-operating income as the firm received a Rs 309.7 crore dividend from one of its subsidiaries. The company also appears in a screener for stocks with annual profit growth higher than sector profit growth.

The company plans to incur Rs 1500 crore in capex in FY25. Ashish Adukia, Chief Financial Officer, said, “We expect the EBITDA margin for FY25 to increase by 200 basis points to about 24.5-25.5% compared to FY24.” The management expects to spend 6-7% of revenue in FY25 on research and development.

Meanwhile, four promoters of Cipla sold a total of 2.5% stake (aggregating to 2.1 lakh shares) in the company through open markets. Buyers include global and domestic funds such as ICICI Prudential Mutual Fund, Aditya Birla Mutual Fund, Axis Mutual Fund, Societe Generale, and Morgan Stanley Asia.

Axis Direct maintains a ‘Buy’ call on Cipla due to its better-than-expected results from business in the US. The brokerage believes results were driven by more US distributors buying manufactured drugs from India, a shortage of drugs in a few segments and the launch of products like gSynbicort and Peptide with a market size of $300-400 million.

5. PVR INOX:

This movies & entertainment company declined by 1.4% after it announced its results on May 14. The firm missed Trendlyne Forecaster revenue estimates for Q4FY24 by 29.1% and the net profit estimate by 68.3%. The company’s net loss reduced by 61.2% YoY to Rs 219.8 crore on the back of a 4.9% decline in movie exhibition costs. The stock shows up in a screener for stocks with low PE.

The company’s customer footfall declined by 10.7% QoQ to 32.6 million in Q4FY24 on the back of fewer movie releases and promotional offers. Analysts suggest that the upcoming 2024 general elections and T20 Cricket World Cup may exert pressure on the movie pipeline for Q1FY25, potentially resulting in decreased occupancy levels.

The company’s management anticipates improvements in revenues and costs in FY25. But the effect of streaming platforms on theatre footfalls is a factor that the management does not have a clear answer for. The company plans to reduce losses by cutting annual capital spending, and is exploring options like franchising for its outlets..

The company’s management anticipates a reduction of approximately 25% in total capital expenditure for FY25 compared to the previous year, as it rolls out a new screen portfolio, where its landlord partners will co-invest for most of the screen growth.

Sanjeev Kumar Bijli, Executive Director of the company, said that in FY24 PVR Inox exited 85 underperforming screens and are going to shut down about 70 underperforming screens in FY25. He adds “We will be very selective in adding new cinemas and plan to open about 120 new streams in FY 25, prioritizing expansion efforts in South India.”

The company is prioritizing the southern region due to the considerable success of its new program "PVR passport," which offers customers the opportunity to watch four movies per month at PVR INOX theaters for just Rs 87 per ticket. Southern enrollments in PVR passport lead at 35%, followed closely by the North and West regions at approximately 33% each.

Motilal Oswal has retained its "Neutral" rating on PVR INOX with a price target of Rs 1,400. The brokerage says that maintaining occupancy and traction in ad revenues amid an increasing threat from deep-pocketed OTT players is key. The brokerage values PVR INOX at 13x FY26E EV/EBITDA to arrive at a TP of Rs 1,400.

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

The Baseline

22 May 2024

Should we worry about foreign investors exiting markets?| Screener: stocks where FIIs have cut stake

By Shreesh Biradar

The election this year has come with much nail-biting. It’s not just political parties that are having the jitters – investors are also facing sharp market swings and volatility. The Nifty VIX rose to a 15-month high of 22.3 points as of Tuesday, while the Nifty 50 has been range-bound since the start of the polling season.

Foreign institutional investors in particular have grown wary of the volatility. They are at their most pessimistic level since 2012, shorting Indian stocks significantly, and have withdrawn around $3.5 billion from Indian equities in May alone. For now, foreign outflows have not dented valuations much, as inflows from domestic institutions have jumped.

Rising bond yields in the US have also contributed to FII withdrawal. Bond yields are up as the timing of likely rate cuts by the US Fed keeps getting postponed, shifting from June-July to September-October. And despite tensions between the US and China, cheaper valuations of Chinese and Hong Kong equities (currently trading at 10 PE) have been tempting foreign investors.

Mihir Vora, Chief Investment Officer of Trust Mutual Fund, says, “ FII outflows are on account of election uncertainty. India in the longer term will see FII inflows, as it is one of the fastest growing countries among large economies”.

Historically, FIIs have returned to Indian markets post elections. Will this year be different?

In this week’s Analyticks:

FIIs exit stocks: How is the exodus impacting Indian markets?
Screener: Stocks where FII/FPIs are decreasing shareholding, with falling stock prices over the past month

Let’s get into it.

Election-led volatility, rising US bond yields trigger FII outflows

Volatility – a good measure of risk in the market – has risen significantly over the past month for India. But this is not the first time an election has driven the Nifty VIX up. The volatility index shot up during the 2014 election (a change election), to 38 points. In 2019, when the BJP won reelection, it rose to 29 points. Comparatively, the current rise of the Nifty VIX is on the lower side.

But foreign investors hate uncertainty, and net outflows are likely to persist until the results are announced. If a single party wins, FIIs might return quickly to Indian equities.

Nifty VIX on the lower side so far, compared to the past two general elections

The strengthening US dollar has also fuelled FII outflows since a depreciating rupee eats into investor gains. Another reason for the outflow has been rising bond yields in the US.

Sticky inflation and a strong American job market have put the US Fed in a tight spot as far as cutting interest rates is concerned. Rate cuts are now expected only in September, and the expected rate cut size has gone down from 90 bps at the start of 2024 to around 44 bpsnow. As a result, US treasury yields shot up from 3.8% at the start of 2024 to 4.7% by the end of April. The rising yield has attracted foreign investors.

Historically, Indian indices fall with a rise in US treasury bond yields, due to FII outflows. Recent DII inflows have buffered the fall, as domestic institutions invested Rs 2,50,903 crores from April 2023 to April 2024.

Rising US bond yields have triggered FII selling

Largecaps impacted by FII outflow, DIIs protect the fall

Since the start of 2024, FIIs have withdrawn nearly Rs 84,318 crore worth of equity from the Indian market. In the same period, DIIs invested around Rs 1,52,620 crore.

DIIs sustain Indian markets amid FII outflows in the past 12 months

The Nifty 50 has risen 3.3% from the start of 2024, while Nifty Midcap 100 and Nifty Smallcap 100 have gained 11.5% and 11% respectively. FII money has mainly been in largecap and midcap stocks, while DIIs have invested in midcap and smallcap.

As a result, the FII outflow from largecaps has been cushioned only a bit by DIIs. The midcap and smallcap rallies have been backed by DII inflows, despite concerns about their expensive valuations.

Telecommunication and consumer services sectors get maximum inflows, while FMCG and financial services see an exodus.

The telecom services sector saw the highest inflows from FIIs in 2024. The inflows were driven by Vodafone Idea’s FPO. The Vodafone issue saw FIIs buying 65% (Rs 11,700 crore) of the Rs 18,000 crore FPO. The sector also saw FII investments in Bharti Airtel, which has gained significant market share in the past year, even as it raised overall tariff rates.

The capital goods (general industrial) sector saw investments in the defence industries. The defence industry was aided by large orders from the government – Indian defence firms won orders of more than $7 billion in FY24. Capital goods firms involved in infrastructure and real estate also saw increased volumes, due to higher election spending by the government and an uptick in real estate activity.

The telecommunication sector has led FPI inflows since January 2024

The financial services sector on the other hand, saw the highest selling in 2024. Most of the selling came in private banks and NBFCs, which have faced liquidity concerns and stiff competition from public sector banks. HDFC Bank – usually an FII favourite – saw the biggest exodus. HDFC Bank’s margins are under pressure, while merger woes continue.

The FMCG sector also saw pressure as rural consumption slowed. The premiumization of products led to lower offtake in price-sensitive rural geography. However, higher consumption in urban areas has offset this a bit.

FIIs may choose India over China in the long run

Chinese stocks are now at at an attractive valuation compared to India. The government stimulus in China (around $138 billion) and the recent pick-up in industrial production have driven foreign inflows up. But the economic woes in the country and the rising threat of a US-China trade war may dent enthusiasm for the Chinese market in the longer term.

The International Monetary Fund (IMF) has guided India’s GDP growth of 6.8% for 2024, which is the highest among emerging economies. In comparison, China is expected to slow down to 4.6% GDP growth in 2024, from 5.2% in 2023. India’s inflation, currently at 4.8%, is also predicted to decline post-monsoons due to an expected fall in vegetable prices.

While most emerging economies are struggling with price rises, slowdowns and geo-political tensions, India has so far not seen a major dent in growth. Increased tariffs on Chinese goods from the US and EU have impacted its growth prospects, and India is being seen by the world as a good alternative.

In this scenario, current FII outflows are not a big worry. DIIs have been actively investing without any signs of slowing down. Foreign investors are expected to return in two phases, first, post-election, and then after the Fed starts rate cuts in the second half of 2024. Until then, DIIs will run the show.

Screener: FII/FPI decreasing shareholding QoQ with falling stock prices over the past month

Banking and finance stocks see highest FII outflows in Q4FY24

As the shareholding data for the final quarter of FY24 has come out, we take a look at stocks that saw a decline in their foreign institutional investor (FII) holdings during the quarter. This screener shows stocks where FII decreased their stake QoQ, where share prices declined over the past month.

The screener is dominated by stocks from the banking & finance, software & services, textiles, apparels & accessories and diversified consumer services sectors. Major stocks that appear in the screener are Aster DM Healthcare, Route Mobile, Kalyan Jewellers, PVR INOX, HDFC Bank, Star Health and Allied Insurance, Indus Towers and Indiabulls Housing Finance.

Aster DM Healthcare’s FII holding contracted the most by 7.5 percentage points in Q4FY24, while its stock price also plunged by 30.8% over the past month. The fall in stock price is mainly due to the company giving out a special dividend of Rs 118 per share on April 23. Olympus Capital Asia Investments was the largest seller in the healthcare stock with a sale of an 8.9% stake in the company. The sold shares were picked up by mutual funds like Nippon Life India Trustee Ltd-A/C Nippon India Small Cap Fund (2.1% stake) and Franklin India Smaller Companies Fund (0.6% stake), and retail investors (1% stake).

FIIs sold a 5% stake in PVR INOX in Q4FY24, the stock has also fallen 5.3% over the past month. Funds like Plenty Private Equity Fund I and Multiples Private Equity Fund II LLP, among others sold a total of 2.3% stake in the movies & entertainment company. The sold stake was picked up by mutual funds like Nippon Life India Trustee Ltd-A/C Nippon India Mul (1.5% stake), HDFC Trustee Company Ltd. A/C Hdfc Capital Builder (3.8% stake and ICICI Prudential Multicap Fund (1.4% stake).

You can find more screeners here.

The Baseline

22 May 2024

Chart of the Week: 13 of the 15 stocks constituting the Nifty Metal index trade near all-time highs

By Satyam Kumar

A week ago, US President Joe Biden imposed a new tariff hike on Chinese products, which is projected to affect around $18 billion in annual imports from China. He accused China of heavily subsidising products, causing Chinese companies to produce more than what the market can absorb and then dumping the excess at unfairly low prices. He said, “When you follow tactics like this, you’re not competing. It’s not competition, it’s cheating.”

Since the tariff hike on May 14, the Nifty Metal index as of May 22 has posted a sharp rally of 9.1%, as Indian exporters stand to gain from a fairer playing field. However, experts caution about US tariffs diverting the dumping of Chinese goods to India.

In this edition of Chart of the Week, we will be looking at the performance of India’s metal index, Nifty Metal, over the past year. As of May 22, the index has risen 76.6%, outperforming the benchmark Nifty 50, which has increased by 24.1%. This rise is mainly due to quick government intervention against Chinese dumping and surging commodity prices globally.

Hindustan Zinc and Vedanta drove index gains in the past quarter

In the past quarter, the metal index rose 24.4%, with approximately 70% of the gains driven by Vedanta and its subsidiary Hindustan Zinc. Since March 28, 2024, Vedanta and Hindustan Zinc have surged by 81% and 154%, respectively. This rally can be attributed to clarifications on debt distribution post-demerger and rising prices of base metals such as zinc, lead and silver.

On September 29, 2023, Vedanta's Chairman, Anil Agarwal, announced the creation of independent verticals through the demerger of Vedanta and Hindustan Zinc. He expects the demerger to be completed by the end of this year. The company also clarified that debt will be divided among demerged entities based on the ratio of assets allocated. In Q4FY24, the company reduced its debt by 10% QoQ to Rs 56,338 crore.

Hindustan Copper is the best-performing stock in the index, with gains of 299% in the past year. The company's shares have consistently risen in line with increased demand and movements in copper prices. Copper, an essential base metal, plays a pivotal role in the energy transition ecosystem, serving as a key component in manufacturing electric vehicles, power grids, and wind turbines. Recently, speculations of a shortage fueled by talks of output cuts by smelters have led copper prices to surge by over 25% since the start of the year.

Commodity trading company Adani Enterprises also gained 59.4% in the past year. On May 22, the company surged 18.9% as the conglomerate received a clean chit from the Supreme Court of India regarding the Hindenburg case. The apex court appointed a six-member committee following allegations of stock manipulation and accounting fraud by U.S.-based short-seller Hindenburg Research.

Selling by FPIs led index to decline in the Sept-Oct 2023 period

Among all the sectors, the metals and mining sector saw the highest FPI outflow of Rs 8,531 crore in FY24. Companies faced major hurdles due to the dumping of steel at cheaper rates and sub-standard imports from China. Between April and July 2023, steel imports from China to India rose 62% YoY, leading to a significant sell-off by foreign portfolio investors (FPI) of Rs 12,009 crore in August and September last year.

In response, the Indian government imposed a five-year anti-dumping duty on specific types of Chinese steel in September 2023. This tax, levied on imported goods priced below fair market value, aims to curb Chinese imports. The industry is also expected to address production gaps in 2024, supported by policy reforms, incentives, and expansion plans by industry giants such as Tata Steel, Vedanta, and JSW Steel.

Expanding manufacturing PMI boosts outlook for the metal sector

Manufacturing activity, which is indicated by the Purchasing Managers’ Index (PMI), is said to be expanding when it is higher than 50. The PMI for India has been above 50 for all of the past year, signifying robust growth in the manufacturing space. Rising PMI is often directly correlated to the higher demand for metals. On April 1, the metal index rose 3.7% after both the US and China posted expansion in their manufacturing activity in March 2024.

The US saw its manufacturing activity expand in March 2024 as it posted a PMI of 50.3 for the first time since September 2022. Although this figure is just above the threshold of 50, which separates expansion from contraction (PMI below 50), it ended a 16-month streak of shrinking activity.

Similarly, China's manufacturing activity expanded in March for the first time since September 2023, as its manufacturing PMI rose to 50.8 from 49.1 in February. The data offered some relief to China’s policymakers, even as a crisis in the property sector remains a drag on the economy.

Higher steel prices & anti-dumping duty help steel makers

In November 2023, the metal index posted a monthly gain of 8.8%. This rise came after steel-producing constituents witnessed a significant uptick in their share prices as they benefitted from the surging steel prices. This rise in steel prices was due to a rapid decline in inventories and a recovery in end-consumer demand. Since November 2023, companies like Steel Authority of India (SAIL), Tata Steel and JSW Steel have risen 110.3%, 49.5% and 27.5% respectively.

Another factor that is playing in their favour is the higher tariff imposed by governments across the globe to curb Chinese dumping. India saw a 62% rise in steel imports from China to India between April and July 2023, compared to the same period last year. The Indian government imposed an anti-dumping duty of $613 per tonne on flat base steel wheels from China for five years. Similarly, the US government on May 14 raised tariffs on some steel and aluminium products to 25%, citing China's "unfair" policies that were harming workers and businesses in the US. The rising anti-China mood in the commodity market has boosted Indian metal stocks, a trend that is likely to continue in the coming quarters.

The Baseline

20 May 2024

Five high-upside stocks from analysts this week - May 20, 2024

By Abhiraj Panchal

Today we take a look at five stock picks from analysts with high upside potential.

1. DLF:

Edelweiss maintains a ‘Buy’ rating on this realty developer with a target price of Rs 1,081, indicating a potential upside of 27%. In Q4FY24, the company reported revenue growth of 47% YoY to Rs 2,316.7 crore, with net profit rising 61.5% YoY to Rs 920.7 crore. Analysts Amit Agarwal and Rishith Shah say, “We are upbeat on the company’s growth story given its robust launch pipeline, brand recall, favourable dynamics in its home turf, improving annuity income, and market consolidation.” DLF’s recent luxury projects in North India have sold out within a few days.

Analysts are optimistic about the company’s steady presales of Rs 14,777 crore, down 2% YoY primarily due to a higher base in the previous year. New launches of around 6 million square feet (msf) constituted 82% of presales, while the remaining 18% came from existing projects.

Agarwal and Shah are positive about the company’s outlook as the management forecasted a launch pipeline of Rs 36,000 crore for FY25. They also forecast a revenue CAGR of 11% for FY25-26 owing to the launch pipeline of Rs 94,000 crore with an additional land bank of 132 msf, for which development plans are yet to be finalised.

2. Safari Industries (India):

IDBI Capital maintains a ‘Buy’ call on this luggage maker with a target price of Rs 2,535, indicating an upside of 20%. The company’s net profit grew by 13.4% YoY to Rs 43.2 crore in Q4FY24, while its revenue improved by 21.3% YoY to Rs 370.5 crore.

Analyst Ajit Sahu says, “Safari Industries Q4FY24 sales were in line with our expectations.” He believes that the growth occurred due to improvements in tourism activities. He also notes, “Over the past two years, Safari has gained market share from its peers”. The analyst states that Safari Industries' sales grew by 21% YoY outperforming VIP Industries’ sales growth of 15% YoY in FY24.

Sahu is optimistic about the company as it sets up a greenfield manufacturing unit in Jaipur. He believes that future growth will come from its initiative to sell premium products like Urban Jungle (the premium luggage collection). He applauds the management’s ability to outperform industry sales growth and also expand operating margins to higher levels. He estimates profit and revenue to grow at a 26.5% and 19% CAGR, respectively, over FY25-26.

3. CreditAccess Grameen:

KR Choksey maintains its ‘Buy’ call on this finance company with a target price of Rs 1,850, indicating an upside of 29.9%. In Q4FY24, the company’s net profit grew by 33.9% YoY to Rs 397.1 crore (1.1% above the brokerage’s estimates), while total revenue improved by 36.9% YoY to Rs 1,459.1 crore. Analyst Unnati Jadhav says, “CreditAccess Grameen reported stellar operating performance during the quarter, but saw deterioration in asset quality led by higher slippages.”

The analyst is optimistic about the company's expansion strategy and expects it to be key to business momentum going forward. The company added 194 branches during FY24, bringing its total infrastructure strength to 1,967 branches. The analyst also says that the NBFC succeeded in controlling its borrowing costs through a cost-effective borrowing mix, and expects it to remain stable and bring predictability to its overall margins in FY25.

Jadhav continues to be positive about CreditAccess Grameen due to its leadership, improving geographical footprint, superior return ratios, consistent operating performance, and industry tailwinds.

4. Sansera Engineering:

Axis Direct maintains a ‘Buy’ rating on this auto parts and equipment manufacturer with a target price of Rs 1,270. This indicates a potential upside of 19.8%. In Q4FY24, the firm reported revenue growth of 19.7% YoY to Rs 745.6 crore, with net profit rising 31.1% YoY to Rs 46.1 crore.

Analysts Shridhar Kallani and Aditya Welekar note, “For FY24, the share of auto components has reduced to 75%, while non-auto & tech and aerospace segment has increased to 20% and 5%, respectively.”

Kallani and Welekar are upbeat on the company’s capex plan of Rs 400 crore in FY25 and Rs 350 crore in FY26, mainly towards electric vehicle components and non-auto products. They expect the company to post a CAGR of around 20.8% for EBITDA and 29.4% for net profit over FY25-26. They attribute this growth to the sales mix tilting towards non-auto components, growth in the export business, and recovery in its its Sweden operations led by improved operational efficiency.

5. NCC:

ICICI Direct maintains its ‘Buy’ call on this construction and engineering company with a target price of Rs 320. This indicates a potential upside of 15.2%. In Q4FY24, the firm’s net profit increased by 25.3% YoY to Rs 239.2 crore, while revenue grew by 31.1% YoY.

Analysts Bhupendra Tiwary and Hammaad Ahmed Ulde are optimistic about NCC’s order book. Its order book stands at Rs 57,536 crore, largely driven by Rs 18,439 crore worth of orders secured in FY24, a growth of 37% YoY. The management has guided for an order book inflow of Rs 20,000-22,000 crore, with ordering likely to be impacted owing to elections in the first half. Considering the order book, the analysts expect a revenue CAGR of 15% over FY25-26. With healthy execution, the analysts estimate EBITDA margins at 10% and 10.5% in FY25 and FY26, respectively, and expect a 26% earnings CAGR over FY25-26.

The analysts say, “NCC is a key beneficiary of the tailwinds in the buildings, roads, water, mining and electrical segments. Given strong order book visibility and improving balance sheet strength, it is poised for healthy growth ahead.”

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

(You can find all analyst picks here)