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

13 Oct 2023

This gems and jewellery major has seen a 2.1% increase in its share price over the past week, trading near its 52-week high of Rs 3,352 with significant volumes. The rise is driven by its recent Q2FY24 business update, where it reported a 20% YoY increase in revenue. As a result, Titan appears in a screener of companies with prices above short, medium and long-term moving averages.

The jewellery segment (which contributes 85% of the total revenue) reported a 19% YoY growth in revenue. Titan says this uptick is from new collection launches, strong gold sales during the harvest season, and a spike in high-value studded purchases during the quarter. According to Trendlyne’s Forecaster, Titan’s revenue is expected to grow by 15.2% YoY in Q2FY24.

The company also expanded its retail presence by opening 81 new stores this quarter, taking its total store count to 2,859. Currently holding a 7% market share in the Indian jewellery market, Titan is focused on expanding its retail footprint.

With the festival and wedding seasons ahead, as well as easing gold prices, analysts predict a surge in Titan's Q3 sales. According to Motilal Oswal, earnings growth visibility for the company remains strong. The brokerage has a ‘Buy’ rating, with a target price of Rs 3,570.

2. Prestige Estates Projects:

This realty company hit its all-time high of Rs 796.4 on Tuesday. The stock rose by 6.7% over the past week. The price rise follows the company’s announcement of record sales of Rs 11,007.3 crore (up by 69% YoY) during H1FY24, aided by a 30% YoY increase in volume to 10.7 million square feet and a 13% YoY rise in collections to Rs 5,380.6 crore.

In Q2FY24 alone, Prestige Estates Projects’ sales rose by 102% YoY to Rs 7,092.6 crore, and collections increased by 1% YoY to Rs 2,639.8 crore. Speaking about future prospects, Chairman and Managing Director Irfan Razack said, “With a promising pipeline of projects, we are poised for growth for the rest of the year.” In FY24, the company expects to achieve annual presales of Rs 18,000 crore, led by high-value launches in Mumbai. It will also launch residential/commercial units worth Rs 27,500 crore and spend Rs 4,000 crore annually on land/stake buyout.

In Q1FY24, Prestige Estates Projects’ profit increased by 30.3% YoY to Rs 266.9 crore, beating Trendlyne Forecaster’s estimate by 115%. It also appears in a screener for stocks with improving book value per share for the past two years.

HDFC Securities maintains a ‘Buy’ call on the firm on the back of its robust supply pipeline, a positive outlook due to decreasing recession probabilities and sustained housing demand. According to Trendlyne Forecaster, 16 analysts have a consensus ‘Buy’ recommendation, with 12 of them indicating a ‘Strong Buy’.

3. PCBL:

This carbon black manufacturer has risen 10.4% over the past week till Friday. This uptrend comes after the firm bagged two patents from the Indian Patent Office on Wednesday, one for specialty-grade and another for surface-modified carbon black. The first patent is for an innovative process of modifying specialty-grade carbon blacks for use in inks and coatings. The second patent focuses on a composition developed by PCBL to improve fuel efficiency and tyre life.

The management has guided its carbon black sales volume to grow by 10-12% YoY in FY24, driven by rising demand for tires. Rising auto sales, the easing of supply chain issues, and an improvement in the tyre replacement market is driving growth. The company estimates tyre demand to grow by 8-9% YoY in FY24. According to Trendlyne’s Forecaster, the firm’s annual net profit is expected to climb by 30.3% YoY in FY24. The company also shows up in a screener of stocks with good valuation, high RoE, and strong momentum scores.

Although the firm did not see a slowdown in global demand in Q1FY24, it remains cautious about the export market. SBI Securities believes that PCBL is well-placed to benefit from American and European companies diversifying their supply chain away from Russia.

4. Zomato:

This food delivery services provider touched its 52-week high of Rs 113.2 per share on Thursday after brokerages increased its target price. Kotak Institutional Equities has revised its target price to Rs 125 from Rs 110, citing growing profitability from higher order intensity, improved demand trends in non-metro cities, and better volumes.

However, SoftBank Vision Growth Fund sold a 1.2% stake in the company for Rs 947 crore on August 30, while Tiger Global divested its remaining stake for Rs 1,124 crore on August 28. But the company still appears in a screener of stocks with high FII holdings.

Zomato turned a profit for the first time in Q1FY24 on the back of a 64.2% YoY revenue growth. Although it posted a pre-tax loss, a deferred tax credit of Rs 17 crore resulted in a net profit of Rs 2 crore. For Q2FY24, Forecaster estimates its revenue and net profit to improve by 8.4% and 990% QoQ respectively. In the Q1FY24 earnings call, Chief Financial Officer, Akshant Goyal said, “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.”

ICICI Securities maintains its ‘Buy’ rating on the stock with an upgraded target price of Rs 160 per share. This indicates a potential upside of 43.6%. The brokerage expects its profitability to improve over the next four quarters on the back of increased revenue from advertising, Zomato Gold and the introduction of platform fees. It also projects the company’s revenue to grow at a CAGR of 39.9% over FY22-25.

5. NCC:

This construction & engineering company’s stock price rose 3.6% on October 3 after winning three orders amounting to Rs 4,200 crore. It includes a major transport order from the Mumbai Municipal Corporation. Additionally, Larsen & Toubro and NCC are competing for the Hyderabad Airport Metro Rail project, having submitted bids for the Rs 5,688 crore tender. According to Trendlyne’s Technicals, the stock has climbed 3.3% in the past week, earning its spot in a screener for affordable stocks with good momentum and RoE.

The company’s Q1FY24 net profit increased by 33.9% YoY to Rs 653.1 crore. Order inflows have also improved by 83% YoY, taking the total order book to an all-time high of Rs 54,110 crore. The management foresees a 20% YoY revenue growth for FY24, driven by strong execution. Also, EBITDA margin is expected to expand by 20 bps in FY24, aided by lower input costs.

The arbitration with Sembcorp over the construction of a thermal power plant in Telangana has concluded, and NCC foresees a payout of Rs 606.2 crore in Q3FY24. The company’s gross standalone debt rose by 33.7% QoQ in Q1FY24, aided by higher working capital requirements for faster executions.

Geojit has raised its FY24 and FY25 EPS estimates by 5% and 10%, respectively, due to robust order execution, a record-high order book, and improved margins. The broker maintains a ‘Buy’ rating on the stock.

The Baseline

12 Oct 2023

The big winners: Five stocks expected to stand out in the Q2FY24 results season

By Tejas MD

People woke up to shocking headlines on Saturday - an attack by Hamas within Israel that left more than a thousand people dead and several thousand wounded. It has led Israel to declare war on Gaza and cut off food, electricity and water supplies to the Palestinian region. The spiralling tensions have pushed oil prices higher, reminding us how interconnected global markets are.

The conflict has also raised fresh concerns about US and Iran being pulled into a Middle East fight, especially when the world is already struggling with rising interest rates and sticky inflation. Brent crude oil futures soared by over 4.5% on Monday on the news, with fears about potential disruptions to Iran's oil supply.

The surge in crude oil prices comes even as inflation has been more stubborn than expected globally. This has revived worries of a recession in the US, and Bloomberg Economics has predicted a 100% chance of an American recession in the next twelve months.

And when the US sneezes, the world catches a cold.

Neelkanth Mishra, Axis Bank’s chief economist, highlighted this link in an October 7 interview,saying, “If the US sees a recession, India’s IT services industry and business services exports could be hit. Services make up 10% of India's exports. If they fall by a lot, we could lose 1% in GDP growth."

But in the near term, analysts are positive about India’s growth story as we head into the Q2FY24 results. According to a report by Motilal Oswal, Nifty 50 companies’ net profit is set to rise 21% YoY on average in Q2FY24.

In this week’s Analyticks,

Q2FY24 pre-results special: Five companies set to zoom with high revenue growth
Screener: Companies expected to post the highest revenue and net profit growth for Q2FY24

The big winners: Five stocks expected to stand out in the Q2FY24 results season

Heading into the Q2FY24 results, we shortlisted five stocks from the Nifty 500 that are predicted to post the highest revenue and net profit growth YoY in Q2FY24, according to Trendlyne’s Forecaster. What’s more? These companies already set the bar high with strong results in Q1FY24.

Growth stocks in focus are from five different industries

All five stocks in focus, Godrej Properties, KPIT Technologies, Craftsman Automation, Angel One and CCL Products India, are from different industries. They have not only risen sharply over the past year but have also outperformed the Nifty 50.

Godrej Properties, KPIT Tech and Angel One trade near their 52-week highs

Trendlyne’s Momentum scores for these companies range from neutral to high, indicating buying interest in the market. However, low Valuation scores for Godrej Properties, KPIT Technologies and CCL Products India are a signal that they may be expensively priced.

Angel One leads with ‘Good’ Durability and Momentum scores

These companies have high durability scores, thanks to strong financials and management stability.

Godrej Properties surges amid a revival in residential real estate

The realty industry has had a pretty good year. Nifty Realty went up by 34.9% in 2023, driven by companies posting record pre-sales and rising realisations, mainly in the residential segment.

Indians are snapping up homes at an impressive rate - consulting firm CBRE says that residential sales grew 4% YoY (6% HoH) to over 150,000 units in H1CY23. By the end of 2023, they expect this number to cross 300,000, which would be the highest sales in 10 years.

Godrej Properties is riding this wave, and its Q2FY24 revenue is expected to jump 141.5% YoY, and net profit by 163.8%.

Godrej Properties’ Q2FY24 revenue expected to jump 141.5% YoY

In the Q1FY24 earnings call, Gaurav Pandey, MD and CEO of Godrej Properties, had said that they plan to achieve pre-sales of Rs 15,000 crore in FY24E.

Godrej Properties’ pre-sales to grow at a CAGR of 23% over FY23-25E

Motilal Oswal expects the company’s pre-sales to rise by 18,900 by FY25. After the acquisition of multiple projects over the last few quarters, the management’s focus will now shift towards execution.

Outperformer in a weak sector: KPIT Tech to shine despite muted outlook for tech

This IT consulting and software company has risen by around 66.3% in the past year, outperforming the Nifty IT by 47 percentage points. KPIT Technologies provides engineering solutions for firms in the CASE (Connected Autonomous Shared and Electric) auto segment. KPIT Tech’s revenue and net profit are expected to rise both YoY and QoQ in Q2FY24.

KPIT Tech to post QoQ revenue growth for the 11th consecutive quarter

A report by HDFC Securities suggests diverging revenue trends among IT companies for Q2FY24. While tier-1 IT firms might see sequential growth ranging from -1.4% to +2.2%, mid-tier companies like KPIT are likely to register a more positive 0.9% to 3.8% growth.

Notably, KPIT Tech’s top line has been rising QoQ for the past 10 quarters, and is expected to rise 5.5% in Q2FY24 despite the tech slowdown. This is because of a 20% surge in engineering spending by auto OEMs over the past year. KPIT’s heavy investments in autonomous and electric technologies have cemented its leadership position in this segment.

Craftsman Automation’s aluminum push to boost Q2 results

Thisauto parts and equipment manufacturer’s revenue and net profit is projected to rise an impressive 44.3% and 58.9% YoY, respectively, in Q2FY24.

Revenue from auto-aluminum products to drive Craftsman’s top line in Q2

Sometimes, a new product segment significantly alters a company’s fortunes. Over the past two years, Craftsman has strategically diversified its revenue sources - while it previously manufactured ferrous casting products like cylinder blocks and cylinder heads for commercial vehicle powertrains, the company has been expanding aggressively into the more profitable passenger vehicle and two-wheeler industry since FY22. The entry point was through the aluminum products segment.

ICICI Securities expects revenue contribution from aluminum products to rise from 25% in FY22 to 48% by FY26, while powertrain revenue share should fall from 52% to 35%.

Craftsman Automation to significantly expand aluminium products revenue share by FY26E

The brokerage has a positive outlook on Craftsman on the back of continued growth in the passenger vehicles (PV) market, especially utility vehicles (UVs), a revival in two-wheeler production, and an improved focus on the industrial and farm equipment segments.

Angel One’s market share in NSE active clients continues to rise

With the Nifty 50’s bullish trend in 2023, the number of demat accounts added has increased for the fourth consecutive month in August.

Number of demat accounts added rises for four months straight

Angel One enjoys the third-highest market share among brokerages, with 4.7 million active clients, after Zerodha and Groww. Angel One’s broker market share rose by 3.3 percentage points YoY to 14.2% in August.

The company is expected to post strong results in Q2FY24, aided by healthy growth in net broking revenues and net interest income. Trendyne’s Forecaster estimates the broker’s revenue to rise 43.7% YoY, while its net profit is projected to grow by 32.6% YoY in Q2.

However, HDFC Securities expects staff costs to stay elevated due to the company's effort to invest in more tech talent, leading to margin pressure. Notably, the stock hit a new 52-week high last week, ahead of its results announcement on October 12.

Growth is brewing for CCL Products, as it boosts capacity

CCL Products India is engaged in the production, trading and distribution of coffee, mainly in India, Vietnam and Switzerland. Its Q2FY24 revenue and net profit are expected to rise by 34% YoY and 42.2%, respectively.

CCL Products India’s net profit to rise by 42.2% YoY in Q2

The company posted strong revenue growth in Q1FY24 as well, on the back of 18-20% volume growth, driven by an additional 16,000 metric tonnes capacity expansion in its Vietnam plant end-FY23. The management expects the volume growth trend to continue for the next 3-4 years. However, high coffee bean prices are a major risk to the company’s profitability.

The management has also increased its debt guidance to Rs 2,000 crore for FY25, due to rising capex, with plans to expand the production capacity to approx 77,000 metric tonnes (MT) by FY25 in Vietnam and India.

Screener: Companies expected to post the highest YoY revenue and net profit growth for Q2FY24

Jindal Stainless, MTAR Tech among the highest revenue growth estimates in Q2FY24

In the earlier section, we covered five of the stocks which are likely to outperform in Q2FY24. The relevant screener tracking these companies has a full list of 99 stocks from the Nifty 500. These stocks are expected to have the highest YoY revenue growth and QoQ net profit growth % in Q2FY24. These stocks have already delivered YoY growth in both revenue and net profit in Q1FY24.

The list is diverse, featuring stocks from several sectors, including auto parts & equipment, IT consulting & software, pharmaceuticals and packaged goods sectors. Major stocks in the screener are Jindal Stainless, MTAR Technologies, Central Depository Services India, Tata Motors and CE Infosystems.

Jindal Stainless’ revenue grew by 86% YoY to Rs 10,227.2 crore in Q1FY24, aided by improved sales volumes of stainless and carbon steel. Trendlyne’s Forecaster estimates its revenue to rise by 83.4% YoY in Q2FY24. ICICI Securities believes that the acquisition of Jindal United Steel will aid the iron & steel producer’s revenue and profitability.

MTAR Technologies’ Q2FY24 revenue is expected to improve by 49.7% YoY, according to Trendlyne’s Forecaster. Its revenue grew by 67.6% YoY to Rs 156.7 crore in Q1FY24. According to Edelweiss, the defence company’s revenue is expected to grow in line with the management’s guidance of 45-50% in FY24 on the back of a strong order book and client additions in the global aerospace and clean energy segments.

Trendlyne’s Forecaster estimates Central Depository Services of India’s revenue to grow by 38.2% YoY in Q2FY24. This is an improvement from the 6.8% YoY increase in revenue in Q1FY24. HDFC Securities expects a recovery in the investment company’s revenue growth, aided by recovery in the beneficiary owner (BO) account addition, higher revenue from the transactions segment and growth in revenue from the annuity segment.

You can find more screeners here.

The Baseline

11 Oct 2023

Chart of the Week: Banking, IT and general industrials stocks are the highest contributors to Nifty 500’s gain over past year

By Akshat Singh

In this edition of Chart of the Week, we look at the top 15 stocks that drove the Nifty 500’s rise in the past year. These stocks were responsible for 25.3% of the Nifty 500’s 14% gain. This translated to an overall 3.6 percentage point contribution.

Over the past year, the Nifty 500 has risen 14%. To understand which were the top stocks that drove this surge, we analysed the change in market capitalisation for stocks in the index, and divided it by the total change in market cap across all index members.

NBFCs and public sector banks lead gains in banking & finance

Six of the 15 stocks in our list are from the banking & finance sector. Within the sector, the non-banking financial company (NBFC) industry is represented by Indian Railways Finance Corp, Power Finance Corp, and REC. These three stocks drove 3.5%, 2.2%, and 2.2% of the Nifty 500’s gains, registering impressive one year returns of 250%, 191%, and 199%, respectively.

The top public sector banks in the list include Indian Overseas Bank, UCO Bank and Union Bank of India, contributing Nifty500 gains of 2%, 2%, and 0.2% respectively. They delivered multibagger returns of 161%, 262%, and 135% in the past year.

The public banking sector’s PE TTM ratio stands at 8, compared to the overall banking industry's 19.2, indicating potential for further growth in PSU bank stocks. Several growth drivers like the RBI's decision to remove the incremental CRR (Cash Reserve Ratio) mandate of 10% for scheduled banks and the inclusion of Indian sovereign bonds in the JP Morgan Government Bond Index are at play.

Engineering stocks surge on budget boost and lower input costs

Larsen & Toubro and Rail Vikas Nigam from the cement & construction sector have contributed 3.9% and 1.9% respectively to Nifty 500’s yearly gain. Their performance got a lift from the government’s 33% capex hike to Rs 10 trillion in the FY24 budget. The sector's growth can also be attributed to the declining prices of input materials like steel, which have fallen by 22% since their peak in Q4FY22. These prices are further expected to drop by 9-11% in FY24. This decline is expected to have a positive impact on operating profitability, especially for companies with fixed-price contracts, which typically constitute 25-30% of their total revenue.

Larsen & Toubro’s stock price rose by 62% in the past year. According to the company's Chief Financial Officer, R Shankar Raman, its order book increased by 57% YoY to Rs 65,000 crore in Q1FY24. The management expects it to surge to Rs 2 lakh crore by Q4FY24.

Rail Vikas Nigam, with a 368% rise in the past year, has reaped the benefits of the government’s Rs 2.4 lakh crore allocation to the railways in the FY24 budget. As of Q1FY24, the company's order book is at Rs 65,000 crore, including Rs 30,000 crore from the railways. The management aims to grow it to Rs 75,000-1 lakh crore by the end of the fiscal year.

Meanwhile, IT major Tata Consultancy Services contributed 3.3% to Nifty 500’s gains, thanks to a 17% annual share price growth. The company has multiple transformational deals in its pipeline, including projects with NEST for digital scheme administration services. According to Sharekhan, TCS sustains strong deal momentum, averaging $8.9 billion from Q1FY23 to Q1FY24. Notably, contracts with JLR (Jaguar-Land Rover)/NEST and BSNL, valued at $1 billion, $1.1 billion, and $1.8 billion, are expected to boost revenue growth estimates.

Strong order books and inflows drive general industrials and shipping stocks

Suzlon Energy, a heavy electrical equipment company, added 1.5% to the gains of Nifty 500, thanks to a 280% rise in its stock price in the past year. The company currently holds a 33% market share in the wind energy space, with an order book of 1.5 GW in the domestic market. According to ICICI Securities, its revenues are expected to achieve a CAGR of 37% during FY23-25.

Mazagon Dock Shipbuilders, a shipping company, contributed 1.6% to Nifty 500’s gains. With multibagger returns of 261% in the past year, the company’s order book consists of defence orders amounting to Rs 50,000 crore as of August 2023. The firm is also competing with a joint venture of Larsen & Toubro and Thyssenkrupp, Germany, in the bidding of P75 submarines.

Other significant contributors to Nifty 500’s gains are ITC, NTPC and The Fertilisers and Chemicals Travancore. ITC, with a 31% annual growth, contributed 2.5%, while NTPC’s 45% annual stock price increase added another 1.5%. The Fertilisers and Chemicals Travancore contributed 1.8%, with a remarkable 366% rise in its share price over the same period

The Baseline

10 Oct 2023

Five analyst picks this week

By Abhiraj Panchal

1. Birla Corp:

ICICI Direct maintains a 'Buy' rating on this cement manufacturing company with a target price of Rs 1,540, indicating an upside of 23.2%. Analyst Vijay Goel is optimistic about the company's efforts to enhance capacity utilisation and operational efficiency, which are expected to boost margins and profitability.

Goel is upbeat about the recently commissioned 3.9 million-tonne cement facility in Muktaban, Maharashtra. He foresees robust sales volume growth as Birla Corp expands in the west while maintaining a strong footprint in the northern, central, and eastern parts of India. He projects a strong CAGR of 8.2% in sales volume over FY23-25.

The analyst notes the company's efforts to improve operational efficiency through streamlined raw material sourcing, increased utilisation of coal from its captive mines, and a shift towards captive power, including solar and waste heat recovery. Goel also highlights government incentives for the Muktaban facility, lower fuel costs, and a strategic focus on premium product sales as key contributors to potential margin and profit growth in FY24-25.

2. Federal Bank:

Sharekhan maintains its ‘Buy’ rating on this private bank with a target price of Rs 170, implying an upside of 14.8%. Analysts at the brokerage expect the bank to sustain its healthy operational performance, with strong loan growth, healthy fee income, and lower credit costs, despite net interest margin (NIM) pressure in the near term. They add, “The bank saw an impressive loan growth of 20% YoY and 5% QoQ in Q2FY24. This growth was broad-based across retail (22% YoY) and wholesale (17% YoY) segments.”

The analysts highlight the management’s optimistic outlook on credit growth, which is guided to be 18-20% in FY24, with broad-based traction across asset classes. Federal Bank plans to scale up the share of high-yielding assets in its loan book. The analysts also expect NIMs to bottom out in H1FY24 and gradually pick up in H2FY24. They forecast the bank’s standalone net profit to grow at a CAGR of 17.5% over FY23-25.

3. APL Apollo Tubes:

Motilal Oswal maintains a 'Buy' rating on this iron and steel products company with a target price of Rs 1,930, indicating an upside of 22.6%. Analysts Sumant Kumar, Meet Jain, and Omkar Shintre hold a positive outlook due to the company's well-distributed manufacturing plants, giving it a robust geographic presence and keeping it close to customers.

Analysts at Motilal Oswal see the company's focus on value-added products as a big plus, especially with the addition of the Raipur plant, which has a capacity of 1.2 million tonnes per annum (MTPA). They expect the Raipur unit to produce innovative roofing products designed for better corrosion protection and durability. They believe that these value-added products will boost margins.

Kumar, Jain and Shintre expect that increased capacity, debottlenecking, and the addition of high-margin products from the Raipur unit, will drive volume growth and margin expansion in the future.

4. Navin Fluorine International:

HDFC Securities maintains its ‘Buy’ rating on this commodity chemicals manufacturer with a target price of Rs 5,368, implying an upside of 44.6%. Analysts Nilesh Ghuge, Harshad Katkar and Akshay Mane are optimistic about the firm’s growth prospects despite the resignation of its Managing Director, Radhesh Welling. Their positive outlook is on the back of the firm’s strong earnings visibility, given its long-term contracts, increasing share of high-margin segments in total sales, and rising production capacity. They also add, “The company’s operating model, with individual CEOs leading each business vertical, supported by senior management teams from various departments, will help it maintain its growth strategy.”

Ghuge, Katkar and Mane are positive about the management’s focus on maintaining capex spending, and research & development investments. They believe the company’s focus on expanding its existing capacity will enable it to win bigger projects in the future, thus maintaining the growth momentum. The analysts expect the firm’s revenue to grow at a CAGR of 27.7% over FY23-26.

5. Ujjivan Small Finance Bank:

Axis Direct reiterates its ‘Buy’ call on this bank with a target price of Rs 64, indicating an upside of 9.9%. Analysts Dnyanada Vaidya, Prathamesh Sawant and Bhavya Shah say, “FY23 was characterised by a sharp rebound in the MFI business and a gradual pick up in the non-microfinance book.” The bank’s disbursements have grown by 42% YoY. As the challenges posed by the pandemic fade, the analysts highlight improvements in both asset quality and profitability metrics.

Vaidya, Sawant and Shah expect Ujjivan Small Finance Bank to grow rapidly with these building blocks in place. They are optimistic that the bank will now focus on sustaining growth momentum and improving efficiency. They believe that the bank is well-poised to deliver robust RoA and RoE of 3-3.1% and 25-27%, respectively, supported by improving cost ratios and consistent credit costs.

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

(You can find all analyst picks here)

The Baseline

06 Oct 2023

Five Interesting Stocks Today

1. Bajaj Finance:

This NBFC touched its 52-week high of Rs 8,192 per share and closed 4.1% higher on Friday, a day after announcing its Q2FY24 business update. The company’s board of directors approved the raising of Rs 8,800 crore through qualified institutional placement (QIP) on Thursday, subject to approval from shareholders. Funds from the QIP will be used to reduce the company’s cost of capital and increase its AUM growth, and is a response to rising competition in the sector.

The stock has risen by 11.2% over the past month, outperforming the Nifty 50 index by 10.8 percentage points. This helped the company appear in a screener of stocks with high momentum scores.

The NBFC’s assets under management (AUM) improved by 33% YoY to Rs 2.9 lakh crore for the quarter, aided by increased deposits and new loans. This growth beat Jefferies’ estimates by 300 bps. The company’s customer franchise increased by 3.6 million YoY to 76.6 million, and remains on track to achieve its guidance for 12-13 million growth in users during FY24. Trendlyne’s Forecaster predicts revenue growth of 26.8% YoY in Q2 and 24.8% YoY in FY24.

Post the business update, BOB Capital Markets maintains its ‘Buy’ rating on the stock with a target price of Rs 9,105 per share. This indicates a potential upside of 16%. The brokerage believes that the company’s strong AUM growth, diverse product mix and efficient execution will help it keep up with competitors and improve its asset quality. It expects the company’s net interest income to grow at a CAGR of 20% over FY22-25.

2. Kaynes Technology India:

This electronics manufacturing services (EMS) company has risen 13.6% over the past week till Friday, riding on the back of a healthy business outlook. The Indian EMS industry is expected to benefit from the global shift in supply chains, positioning Kaynes to profit from its presence across various industrial segments. The company provides manufacturing services to firms in the automotive, railways, aerospace, defence, medical and information technology sectors.

As the company mostly caters to other industrial businesses, its primary exposure is to the business-to-business (B2B) segment. According to reports, Morgan Stanley expects EMS companies with high B2B exposure to outperform their peers due to reduced competition and higher margins. It adds that this will enable companies to spend more on research & development and increase the scope for backward integration.

The management states that the firm has a low customer concentration, with the top five clients making up 44% of the total revenue. Kaynes also added one large multinational client in Q1FY24.

Trendlyne's Forecaster estimates the firm’s revenue to surge by 33.5% QoQ and 99% YoY to Rs 396.7 crore in Q2FY24. It shows up in a screener for companies with net cash flows improving over the past two years.

With ambitions to foray into semiconductor manufacturing, Kaynes signed an MoU with the Karnataka Government on August 24. The agreement involves an investment of Rs 3,750 crore to set up a Semiconductor Assembly and Testing (OSAT) facility and a Printed Circuit Board (PCB) manufacturing plant. The management plans to start production in both plants by the end of 2024 and expects the benefit to flow in from H2FY25.

3. South Indian Bank:

This bank’s stock price fell by 1.5% on Thursday, following its business update. The decline was likely due to the rising cost of funds for the bank, due to a falling CASA (current account savings account) ratio and slowing credit growth. The stock had jumped by 11.2% over the past month, according to Trendlyne’s Technicals. The company was also recently in the news for the appointment of P R Seshadri as its new CEO & MD following RBI’s approval.

SIB’s provisional Q2FY24 update has recorded a 10.3% YoY surge in gross advances to Rs 74,975 crore. Similarly, total deposits climbed by 9.8% YoY. By the end of Q2FY24, CASA deposits stood at Rs 31,162 crore. The bank's credit growth in FY24-25E is expected to be around 12-13%. Moves to stabilise the liability mix, adjust interest rates on 65% of deposits, launch new retail products, and improve yields are expected to boost profits by 10-20 basis points. The stock appears in a screener of companies with high interest payments compared to earnings.

The management expects net interest margins to rise by 20 bps to 3.5% by Q4FY24, partly from growth in high-yielding loans. The bank also aims for a 1% return on assets (RoA) by the end of FY24.

ICICI Securities says that the qualification of the new MD & CEO will be critical to the stock’s rerating. They see RBI’s approval for the appointment of P R Seshadri as a key positive for the bank. According to the brokerage, he played a crucial role in improving risk management at Karur Vysya Bank and achieving credit growth despite profitability pressures from rising NPAs. The broker maintains a ‘Buy’ rating on the stock.

4. TVS Motor:

This two/three-wheeler manufacturer has fallen by 2.3% since announcing its September business update on Tuesday. The decline is on account of lower quarterly three-wheeler wholesales, which contracted by 15.7% YoY in Q2FY24.

In September 2023, the company’s total wholesales rose by 6% YoY to 4 lakh units, and its electric vehicle (EV) wholesales surged 4X YoY to 20,356 units. TVS has also been seeing an increase in exports, registering an 8% growth in September despite a high base.

Taking note of the healthy response to EVs, TVS Motor launched its second electric scooter, TVS-X, for Rs 2.5 lakh. The recent launch of Apache RTR 310, priced at Rs 2.4-2.6 lakh, also indicates the company’s interest in catering to the premium lifestyle segment market. The company aims to gain market share by introducing multiple products in numerous segments. It is also expected to launch electric three-wheelers in the coming quarters, and has started exporting EVs to Nepal with plans to expand to other markets.

In Q1FY24, the automobile manufacturer’s net profit grew by 42.2% YoY to Rs 434.3 crore, beating Trendlyne Forecaster’s estimate by 6.9%. Its revenue also increased by 24.4% YoY. Even though TVS’ EBITDA margin has been in the range of 10% for the past eight quarters, the management hopes to improve it further through a better product mix, price hikes, and a focus on premiumization. The company features in a screener for stocks with improving cash flow and good durability.

Sharekhan maintains a ‘Buy’ call on TVS on the back of new launches and a gradual revival in export volumes. Analysts expect a healthy festive season and believe that the company will see robust traction in volumes, backed by its product portfolio.

5. Marico

This FMCG company has fallen by over 5.9% since the announcement of its business update on Thursday. Marico reported a low single-digit YoY volume growth in Q2FY24. It’s domestic volumes grew by 3% YoY in Q1FY24. The company attributed weak rural demand as the reason for this muted volume growth. Parachute Coconut Oil and Saffola Edible Oils’ volumes (contributing to around 37% and 31% of the total revenue) also grew in the low-single digits.

Marico highlighted that its consolidated revenue has moderated during the quarter due to price corrections in its key domestic portfolio. In Q1FY24, the company’s revenue dropped by 2.1% YoY to Rs 2,523 crore, driven by price cuts taken in its Saffola Edible Oils segment. According to Trendlyne’s Forecaster, its revenue is expected to grow 3.4% YoY in Q2FY24. The company is set to declare its Q2 results on October 30.

The FMCG company’s management said that the recent surge in food prices and below-normal rainfall in some regions have dampened rural demand. According to Saugata Gupta, the MD and CEO of the firm, “Factors such as retail inflation dropping to sub-5% levels, late pickup in monsoons, hike in kharif crop MSPs (minimum support price) and higher government spending give us hope for a gradual recovery in rural sentiment”. He added that Marico targets a volume growth of around 8% in the medium term.

The company’s share price touched a new 52-week high on Tuesday after ICICI Securities upgraded its rating to ‘Buy’ and raised the target price to Rs 670. The brokerage is optimistic about the company's efforts to accelerate expansion while maintaining its market share. As a result, Marico features in a screener of stocks where brokers have upgraded recommendations or target prices in the past three months.

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

The Baseline

05 Oct 2023

Chart of the Week: DVM screener delivers CAGR of 37.4% over ten years

By Akshat Singh

Investors are constantly on the lookout for investment strategies that deliver outsize returns. Managing a portfolio that consistently outperforms its benchmark over time is a feat achieved by very few. Often, you will find ‘finfluencers’ on youtube claiming market-beating returns every time they invest. The reality of the stock market however, is that it is volatile, and there will be periods of negative as well as positive returns.

One way to maximize returns is via screeners that automatically search for stocks that outperform on not one, or two but multiple metrics. The DVM score, for example, looks at several metrics across management quality, financial health, stock valuation, as well as several dozen technicals, to identify high-scoring stocks. With these scores, investors are able to shortlist higher quality stocks for investing.

In this edition of Chart of the Week, we analyse one DVM screener - the ‘DVM - High Performing, Highly Durable Companies’ screener. This screener selects stocks from the Nifty 500 index that show strong financial durability, reasonable valuation, and positive momentum scores. It is optimised to highlight the top five stocks with the highest durability scores.

The screener backtest checks for past returns generated, and ran from March 2013 to September 2023, evaluating this strategy’s quarterly performance against the Nifty 500 benchmark. The screener has given cumulative returns of 2,772.8% over 10 years and 6 months, with a CAGR of 37.4%. In contrast, the benchmark’s CAGR stands at 14.5 %.

The heatmap presents a period analysis, showcasing the strategy's quarterly returns from Q1FY14 to Q2FY24. The data reveals that this approach delivered positive returns in 29 out of 42 quarters. It also outperformed the Nifty 500 index in 30 of these 42 quarters.

The strategy had its maximum drawdown of 29.9% in Q1FY23. The term maximum drawdown represents the biggest observed loss from a portfolio’s peak to its lowest point before a new peak is attained. This strategy is an automated one and did not have a stop loss set, so the drawdowns show the maximum loss potential under this approach. Introducing a stop loss can reduce periods of negative returns and lower maximum drawdowns.

The screener currently has stocks such as Great Eastern Shipping Co, Apar Industries, Natco Pharma, Maruti Suzuki India and Jindal Saw.

In the course of the backtest, Ceat gave the highest returns of 428.8%. On the other hand, Triveni Engineering & Industries’ stock price had the highest fall of 48.8%.

Greenpanel and Jyothi Labs shine as top performers over the past two years

Greenpanel performs the best in the DVM screener over the past two years

Here, we look at stocks with the highest returns over the past two years from the DVM screener’s backtest. Greenpanel Industries was part of the screener from June 30, 2021, to June 30, 2022. During this period, it provided a return of 85.9%.

Meanwhile, Jyothy Labs entered the screener on June 30, 2023, and exited on September 22, 2023. In these three months, the company gave a return of 61.7%. This can be attributed to the rise in its net profit by 98.7% YoY to Rs 96.3 crore in Q1FY24, aided by increased rural demand.

The tobacco major, Godfrey Phillips, remained in the screener for two quarters, from September 30, 2022, to March 31, 2023. In this duration, the company gave 58.5% returns. The company's decision in October 2022 to sell its chewing tobacco business and other trademarks allowed it to concentrate on the cigarette business. Consequently, its net profit surged by 70.3% YoY in Q3FY23 to Rs 199.2 crore.

Zydus Lifesciences, a pharmaceuticals major, was in the screener from September 30, 2022, to June 30, 2023. During this period, its stock price rose by 50.7%. On October 3, 2022, the company received the US FDA’s approval for its Mirabegron tablets, which are used to treat overactive bladder. This came with 180 days of shared generic drug exclusivity, caused the stock price to surge by 5.8%.

Lastly, Kalyan Jewellers India, active in the screener for the past quarter, recently exited but not before registering a 46.7% return. The company’s net profit rose by 33.3% in Q1FY24 to Rs 143.9 crore, aided by expansions in northern regions of India and the UAE.

Apar Industries and Jindal Saw post 300%+ returns in the past year

Apar Industries leads in one-year gain among active stocks

Let’s now focus on the yearly and quarterly price change % of stocks currently active in the screener. Apar Industries’ stock price rose by 353.1% in the past year and 66.9% in the past quarter. Since its inclusion in the screener on March 31, 2023, the firm has yielded a return of 101.6%. The company’s Q4FY23 net profit rose by 193.8% YoY, followed by a surge of 61.2% YoY in Q1FY24.

The general industrials company, Jindal Saw, reported a stock price rise of 334.4% in the past year and 38.3% in the past quarter. The company posted net profit gains of 54.2X to Rs 263.1 crore in Q1FY24. On September 18, 2023, the company entered into a joint venture with Hunter Energy Services, a US-based company. As part of this collaboration, they will jointly invest $25 million (approx Rs 208.1 crore) to establish a threading plant in Maharashtra. The investment will replace imports estimated at $200 million per annum.

Meanwhile, Natco Pharma surged by 42.2% in the past year and 26.3% in the past quarter. The shipping company, Great Eastern Shipping Company, also rose by 63% in the past year and 13.8% in the past quarter. It has been active in the screener for the past quarter and has provided 9.2% returns in this period. Shipping stocks surged after global leaders announced a multinational rail and port agreement that would connect the Middle East and South Asia at the G20 summit. This led to the shipping stocks to surge by 12.2% in the past month.

Lastly, auto giant Maruti Suzuki India’s share price rose by 20% in the past year and 8.4% in the past quarter. The company’s quarterly net profit increased by 143.7% YoY to Rs 2,525.2 crore in Q1FY24.

In summary, the screening criteria of high returns and durability, results in stocks that can potentially deliver medium to long-term gains with moderate risk, as suggested by the max drawdown of 29.9%. Despite uncertainties like the COVID-19 pandemic, this screener gave a mean quarterly return of 10%. It also consistently held an average stock count of 4.7, implying diversified investment, except for Q1FY21 when it had no stocks.

Investors should undertake quarterly portfolio reviews and adjustments according to the entries and exits of stocks. And keep in mind as always, that past returns don't guarantee future outperformance.

The Baseline

04 Oct 2023

Five analyst picks this week

By Suhas Reddy

1. Minda Corp:

SBI Securities gives this auto components manufacturer a 'Buy' rating with a target price of Rs 382, indicating an upside of 17.1%. The analysts are optimistic about the company due to its robust electric vehicles (EV) order book and smart key lock set. The total order wins stand at Rs 3,000 crore, of which Rs 750 crore is for battery chargers.

Minda Corp’s management has guided a revenue growth of 20-25% over the next 2-3 years on the back of new product development, customer acquisition, and increasing exports. They also expect better efficiencies, streamlining of fixed costs and component localization initiatives to improve margins. They predict that demand will pick up in H2FY24, coinciding with the festive season. They are also positive about the improvement in semiconductor supplies due to new supplier management initiatives, and expect momentum to extend into the coming quarters.

2. Global Health:

Motilal Oswal initiates coverage on this healthcare facilities company with a ‘Buy’ rating and a target price of Rs 840, implying an upside of 13.4%. Analysts Tushar Manudhane, Sumit Gupta and Akash Manish Dobhada state that “the firm has been able to cater to requirements across therapeutics, making it a preferred choice among many patients”. This has enabled its net profit to grow at a CAGR of 47% over FY19-23, they add.

The analysts expect this growth momentum to continue in the coming quarters, led by an increasing volume of patients, growth in international patients, and improving average revenue per occupied bed (ARPOD). They are also upbeat about the firm’s plans to increase capacities at its new hospitals in Lucknow and Patna. Overall, they are optimistic about the healthcare services provider’s growth prospects due to its robust business model and surplus cash. Manudhane, Gupta and Dobhanda expect the company’s net profit to grow at a CAGR of 26% over FY23-25.

3. PI Industries:

Geojit BNP Paribas reiterates its ‘Buy’ call on this agrochemicals company and increases its target price to Rs 4,000. This indicates an upside of 17.9%. According to analyst Anil R, the company’s standalone profit growth of 22.2% YoY to Rs 1,829 crore in Q1FY24 was led by robust CSM export contribution, from higher volumes and prices. “Favourable product mix and improved operating leverage expanded EBITDA margin in Q1FY24,” he says.

The analyst expects exports to double in the coming 3-4 years on the back of government support, becoming a major revenue driver. He also remains positive about PI Industries’ plans to launch four new products in FY24, and its strong CMS export order book of $1.8 billion. Anil expects the focus on research and new acquisitions to grow the pipeline further. The management has planned a consolidated capex of Rs 900 crore for FY24, mainly for its agchem business.

4. NTPC:

ICICI Direct maintains a 'Buy' rating on this electric utilities company with a target price of Rs 300, indicating an upside of 27.6%. Analyst Chirag Shah holds an optimistic view as the company is the sole player that has added coal-based capacities over the past five years, reaching an impressive installed base of 73,000 MW. Notably, NTPC aims to achieve 45-50% of its capacity from non-fossil fuels by 2030.

Shah believes in the management's ability to reach 20,000 MW of renewable capacity by FY26, considering the company's current 3,300 MW of installed renewable capacity and 5,900 MW of projects under construction. He also highlights the company's efforts to diversify into emerging areas like green hydrogen and nuclear power.

Shah foresees generation growth at a CAGR of 11% over FY23-25 due to a higher power load factor (PLF) from increased electricity demand. However, he cautions that a slowdown in demand due to reduced economic activity could affect the company's PLF and profitability.

5. Brigade Enterprises:

ICICI Securities maintains a 'Buy' rating on this realty company, with a target price of Rs 695, indicating an upside of 20.4%. Analysts Adhidev Chattopadhyay and Saishwar Ravekar are upbeat about the company's prospects due to its residential launch pipeline of 8 million square feet (msf) over the next 12 months, and significant land acquisitions with a gross development value (GDV) of Rs 53 billion.

The analysts predict residential sales bookings to reach Rs 45.8 billion in FY24 and climb to Rs 51.3 billion in FY25, fueled by its robust launch pipeline. They highlight the company's strategic land acquisitions in Bengaluru, Chennai, and Hyderabad, with GDVs of Rs 8 billion, Rs 10 billion, and Rs 35 billion, respectively.

The analysts also believe that the company's focus on achieving 100% occupancy by FY24 (currently at 84%) will be key to its success. They foresee a 16% net operating income by FY25, driven by the leasing of vacant spaces in Tech Gardens, Bengaluru, and the full operationalization of the Brigade Twin Towers office project in FY25.

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

(You can find all analyst picks here)

The Baseline

03 Oct 2023

India’s PLI schemes: Is the government’s vision for boosting business a dream or a mirage?

By Abhiraj Panchal

The great hope of the Indian government’s much-celebrated Production Linked Incentive (PLI) schemes is to build powerful, globally competitive businesses across Indian industries Launched as part of the Atmanirbhar Bharat campaign, the PLI scheme hopes to make India a manufacturing powerhouse, through incentives for sales of domestically manufactured products. It encourages both domestic and foreign producers to expand or establish …

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Government claims 3.3 lakh jobs have been created

The first Production-Linked Incentive (PLI) scheme was introduced in April 2020 by the IT Ministry. It offers a 4-6% incentive based on increased sales for manufacturing electronic components such as mobile phones, transistors, and diodes. By the end of 2020, the scheme had expanded to include 10 more sectors like food processing, telecom, auto components, and white goods. As of now, PLI schemes have been announced for 14 key sectors with an outlay of around Rs 2 lakh crore. The government also plans to extend the scheme to other sectors like toys, leather, railways, and footwear.

Sectors where the PLI scheme is implemented

According to the Ministry of Commerce & Industry, 733 applications have been approved across 14 sectors as of June 2023, with an expected investment of Rs 3.7 lakh crore. Actual investment realised till FY23 is Rs 62,500 crore, which has led to an incremental production/sales of over Rs 6.8 lakh crore and the creation of around 3.3 lakh jobs. Exports have increased by Rs 2.6 lakh crore during the same period.

PLI scheme aims to transform India into a manufacturing powerhouse

The PLI scheme operates on what seems like a straightforward approach: reward companies for increased production.

So beneficiaries earn incentives based on their incremental sales, which encourages them to expand their manufacturing capabilities. This, in turn, boosts local production and improves sectoral competitiveness as players boost production and vie for incentives. The resulting productivity gains reduce dependency on imports and drive export growth.

The scheme serves a broader purpose: fostering self-sufficiency and reducing reliance on imports. Many of the targeted manufacturing sectors are labour-intensive, where gains would boost employment opportunities. Each PLI scheme is tailor-made to its respective sector, ensuring benefits such as higher foreign investment and stronger industrial infrastructure.

Government allocates Rs 2 lakh crore across sectors

The government has sanctioned a financial outlay of approximately Rs 2 lakh crore over five years for various sectors under the PLI scheme. The automobile and auto components sector gets the highest share of Rs 57,042 crore, followed by mobile and specified electronic components (Rs 40,951 crore), and advanced chemistry cell (ACC) battery (Rs 18,100 crore).

Rs 1,97,411 crore approved in total PLI outlay

Sectors like pharmaceutical drugs, telecom, textile and food products each have been allocated Rs 10,000-15,000 crore. Electronic products, solar PV modules, white goods, specialty steel, and drug intermediaries and Active Pharmaceutical Ingredients (API) will get Rs 4,000-7,000 crore. Medical device manufacturing has been earmarked Rs 3,420 crore, while the drone and drone components sector will receive Rs 120 crore.

PLI disbursements to reach Rs 13,000 crore in FY24

In FY23, the government disbursed around Rs 2,900 crore across eight sectors, which include large-scale electronics, IT hardware, bulk drugs, medical devices, pharmaceuticals, telecom & networking products, food processing and drones & drone components.

According to the Department for Promotion of Industry and Internal Trade (DPIIT), as of April 2023, the PLI scheme has been most successful in the large-scale electronics sector, attracting investments of Rs 5,100 crore. This sector was the primary beneficiary with the highest PLI disbursement of Rs 1,649 crore. Padget Electronics, an arm of Dixon Technologies (India), received the first-ever disbursement of Rs 53.3 crore in September 2022.

It was followed by the pharmaceutical sector with an investment of Rs 1,900 crore. It received Rs 652 crore in the form of disbursement. While investments worth Rs 1,600 crore were made in the telecom sector, it received a disbursement of Rs 35 crore. The food processing sector got Rs 486 crore.

Total disbursement in March 2023 stood at Rs 2,857 crore

Rajesh Kumar Singh, the Secretary of DPIIT, expects PLI disbursals of Rs 13,000 crore by FY24. He added that this figure could significantly grow going forward and may vary as the government considers adjusting the PLI scheme in sectors that are not performing up to expectations.

The success of PLI scheme has varied across sectors

The effectiveness of PLI schemes varies significantly across sectors. From FY22 to FY23, sectors benefitting from the scheme saw a boost in foreign direct investment (FDI) inflows. Specifically, FDI inflows in drugs and pharmaceuticals increased by 46%, in food processing industries by 26%, and in medical appliances by 91%. Rajesh Kumar Singh says, “Due to PLI schemes, there was a significant increase of 76% in FDI in the manufacturing sector in FY22 ($21.3 billion) compared to FY21 ($12.1 billion).”

PLI boosts foreign direct investment inflow

The scheme is also transforming India’s export portfolio from traditional commodities to high-value-added products such as electronics & telecommunication goods, and processed food products.

The PLI scheme has led companies to increasingly shift their suppliers to India. Foxconn and Wistron have products being manufactured in the country. In mobile manufacturing, India has achieved a 20% increase in value addition in just three years. For comparison, Vietnam took 15 years to see an 18% increase, while China reached a 49% increase but only after 25 years. Value addition in electronics manufacturing has increased by 23% from a negligible base in 2014-15.

India has become almost self–reliant in antennae, gigabit passive optical networks and customer premises equipment, thanks to a 60% rate of import substitution in the telecom sector under the PLI scheme. The drone sector has seen a 7x jump in turnover after the implementation of PLI scheme, benefitting largely MSME startups. In the food processing sector, the sourcing of raw materials from India has jumped. Similarly, the pharma sector has reduced its dependency on imported raw materials.

Not a level playing field: smaller companies miss out on incentives

The PLI scheme offers benefits based on increased investments from businesses, which favours companies with strong financing capabilities. This limits participation from small and micro sectors, and primarily benefits large-scale industries. The scheme also increases the fiscal burden on the government as it was launched after the pandemic when resources were already limited.

While the PLI effort has boosted some sectors, it has struggled to deliver results in areas like solar PV modules, ACC batteries, textile products, and specialty steel. These sectors have underperformed, failing to attract investments. The scheme’s sector-specific nature can also create distortion in the allocation of resources, and create an uneven playing field, providing opportunities for some sectors and not others.

The success of the PLI scheme also depends on various external factors. It requires rapid infrastructure development, improvements in the quality of education, and skill development. There are also potential environmental concerns due to increased production.

Is PLI turning India into a base for cheap labour?

The effectiveness of the PLI scheme in creating high-level jobs and establishing India as a manufacturing hub remains a topic of debate. For instance, speaking about import substitution, Raghuram Rajan argues that while the scheme has led to an increase in mobile phone exports, many parts used in these phones are imported. He claims that the manufacturing process involves the assembling of mostly imported goods. According to him, this has led not to high-paying jobs but to low-level assembly positions.

Another point of contention is the lack of a concrete method to analyse the success of the scheme. This raises the question: could the resources allocated to PLI have been more effectively utilised to improve other sectors, such as education, which could also provide long-term, skill-based benefits to the Indian economy?

PLI scheme: Dawn of a bigger dream or falling short of expectations?

While it may be too early to declare the PLI scheme a success or failure, it has undoubtedly garnered global attention towards India’s manufacturing capabilities. The scheme serves as an initial step towards the goal of making India a global manufacturing hub. Although there has been a noticeable increase in production, the pace of growth and disbursement has been slower than expected.

The Baseline

29 Sep 2023

Five Interesting Stocks Today

1. Lupin:

This pharmaceuticals company hit its 52-week high of Rs 1,184.7 on Friday. It has increased by 5.7% in the past month, outperforming its industry. During the month, the company acquired five legacy brands and their associated trademark rights from Menarini for Rs 101 crore. It has also proposed transferring its two active pharmaceutical ingredients (API) manufacturing sites at Dabhasa and Visakhapatnam to its arm, Lupin Manufacturing Solutions, for which it expects to get Rs 750-850 crore.

In early September, Lupin inked a deal with Mark Cuban Cost Plus Drug Company to improve healthcare accessibility in the US by expanding the availability of tiotropium bromide inhalation powder. In addition, the firm’s arm acquired the entire stake in French pharmaceutical company Medisol for 14.5 million euros.

In Q1FY24, Lupin reported a net profit of Rs 452.3 crore, as against a loss of Rs 89.1 crore in Q1FY23 (beating Trendlyne Forecaster’s estimate by 84%). Its revenue also increased by 29% (beating estimates by 6.8%), thanks to strong sales growth in India, North America, and EMEA. The company also features in a screener for stocks with good quarterly growth in the recent results. The management expects the company’s robust pipeline of products, such as gSpiriva and diazepam gel, and other key launches like Prolensa to drive earnings growth in FY24 and beyond.

Axis Securities recommends a ‘Buy’ call on Lupin on the back of new product launches, double-digit growth in its India business, and an improving API business. The brokerage believes that the company’s margin has scope for improvement in the coming quarters as its margins at 13% are still below the industry average of 22%.

2. NBCC:

Thisconstruction & engineering firm has been making headlines with its recent announcement of selling its property in New Delhi's World Trade Centre for Rs 5,716 crore through an e-auction. It has also secured orders worth Rs 2,000 crore from the Kerala Housing Board. In the past week, the company touched its 52-week high of Rs 63.6 following an order win worth Rs 150 crore from the Khadi & Village Industries Commission. As of September 2023, the company’s order book stands at Rs 45,000 crore. According toTrendlyne Technicals, the company's stock price surged by 15% in the past month. However, the stock’s long-term price change remains volatile.

NBCC’sQ1FY24 net profit stands at Rs 75.1 crore, as compared to a net loss of Rs 6.3 crore in Q1FY23. However, its revenue growth of 6.6% YoY missed expectations due to weakened performance in the PMC segment and a drop in real estate sales. As a result, the company's EBITDA margin in Q1FY24 fell by 32 bps YoY to 3.2%, primarily driven by increased input costs.

Despite these setbacks, the management is targeting a revenue of Rs 9,000 crore (Rs 8,961 crore in FY23) for FY24. It also expects order inflows ranging from Rs 11,000 crore to Rs 12,000 crore, including an expected Rs 8,000 crore order from Amrapali Housing. NBCC aims to monetise its remaining unsold inventory of Nauroji Nagar (Rs 5,400 crore) and Sarojini Nagar (Rs 1,300 crore), targeting a total of Rs 5,300 crore in FY24.

Geojit projects that the speed at which NBCC monetises its real estate assets in redevelopment projects will be crucial for top-line growth. The brokerage also believes that tendering activities will continue to play a key role in unlocking revenue potential in the near future.

3. Procter & Gamble Hygiene & Healthcare:

This personal products company has risen by 4.6% in the past week, following an analyst call on September 22. The stock touched its all-time high of Rs 18,597.9 per share on Friday, helping it enter a screener of stocks with high momentum scores. This uptick is on the back of the management projecting healthy growth in the rural segment.

Currently, the urban segment accounts for almost 65% of the company’s total revenue, while the rural segment contributes less than 35%. The firm’s management aims to increase sales of brands like Whispers and Vicks Vaporub in the rural segment through educational drives and awareness campaigns. LV Vaidyanathan, Managing Director of the company, said, “We expect mid-single-digit volume growth over the next four to five years, with net profit outpacing revenue growth.”

Motilal Oswal Financial Services maintains its ‘Neutral’ rating on the stock with a target price of Rs 16,940 per share, after the analyst call. This indicates a potential downside of 5.6%. The brokerage believes the company has an attractive long-term outlook, aided by growth in the feminine hygiene segment and improvement in profitability through premiumisation. However, in the near term, its valuations are high, which explains the downside target. It expects the company’s net profit to grow at a CAGR of 14.3% over FY22-25. Trendlyne’s Forecaster also expects its revenue and net profit to grow by 18.6% and 22.1%, respectively, in FY24.

4. Multi Commodity Exchange of India (MCX):

This commodity derivatives exchange surged over 8% intraday on Thursday, touching a new 52-week high on Friday. The spike comes after MCX announced a new commodity derivatives platform set to launch on October 3. The platform, which was previously handled by 63 Moons, will be serviced by TCS. MCX dominatesthe commodity derivatives space with a 96% market share and an average daily turnover of approximately Rs 80,000 crore.

However, a curveball from SEBI on Friday proposes to put the new platform’s launch on hold, causing the stock to tumble by over 2%. The company will continue mock tests while waiting for further directions from SEBI.

MCX’s share price has risen by 17.2% over the past week till Friday, ahead of the launch. This has helped the company turn up in a screener of stocks with prices above short, medium and long-term moving averages.

HDFC Securities is optimistic about MCX’s growth prospects, citing increased trading volumes and new product launches. It also expects profitability to improve as the company shifts to the new platform, which will cut software support costs. The brokerage maintains its 'Buy' rating and raises the target price by 34.8% to Rs 2,400.

In Q1FY24, MCX's net profit declined by 52.5% YoY to Rs 19.7 crore due to increased software support charges and product license fees. However, Its revenue grew by 34% to Rs 145.8 crore during the same period, led by an improvement in ADT (average daily turnover) of options contracts. According to Trendlyne’s Forecaster, MCX’s revenue is expected to grow by 14.9% in FY24.

5. Triveni Turbine:

This turbine manufacturer touched its 52-week high of Rs 456.6 on Thursday and rose by 6.7% from Monday till Friday. This rally comes on the back of a healthy business outlook, driven by increasing demand for energy turbines in domestic and international markets. The company commands a market share of 60% in India’s industrial steam turbine segment. The management is optimistic about achieving strong order inflows in FY24. It expects this growth to be driven by rising exports and aftermarket business (sales of parts and services).

In Q1FY24, Triveni Turbines’ revenue from exports grew by 88% YoY, making up 48% of its overall revenue. The share of exports increased by 11 percentage points YoY. This robust growth trajectory of exports is expected to continue as the company focuses on expanding its sales network and supply chain. According to Trendlyne’s Forecaster, the firm’s revenue and net profit are expected to grow by 34.6% and 37.7% YoY in FY24, respectively. It also shows up in a screener for companies with improving net cash flow over the past two years.

Notably, the company already has the capacity to meet growing demand, eliminating the need for major capex in the coming quarters. Sharekhan expects the firm’s margins to improve on the back of falling raw material costs and a growing aftermarket business. It adds that the firm has no debt and a healthy cash balance of Rs 747 crore, which makes it well-placed to expand into newer markets. The consensus recommendation on the stock from five analysts is ‘Buy’, with four recommending a ‘Strong Buy’ and one calling for a ‘Buy’.

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

The Baseline

29 Sep 2023

Chart of the Week: Sectors and stocks with the highest dividend yields in FY23

By Akshat Singh

There are two popular ways to generate returns from stocks: capital appreciation through share price growth, and dividends. Investing in dividend-paying stocks gives you a share of a company’s profits through regular cash payments. Such high-dividend stocks serve as reliable sources of income.

The dividend yield, expressed as a percentage, indicates the annual dividend payment relative to the stock’s current price. The significance of the dividend yield for a company lies in its ability to attract and retain investors for longer. A higher dividend yield boosts the stock’s appeal, especially for investors seeking steady income, such as retirees.

It's important to note that the dividend yield isn't a static figure; it changes as the stock price fluctuates. A falling stock price can inflate the dividend yield, a factor investors need to consider when analysing this metric.

In this edition of Chart of the Week, we will look into sectors with the highest 1-year dividend yield, and the top three high-yield companies in each sector over the past year. The full high dividend screener is here.

Vedanta tops the list with a dividend yield of 30.7%

The metals & mining sector has the highest dividend yield of 5.2%. Companies with the highest dividend yield in this sector are Vedanta, Hindustan Zinc and National Aluminium Company with 30.7%, 19.8% and 4.8% respectively.

Though Vedanta tops the list, its outsize dividend yield can be attributed to a 20% drop in its stock price over the past year. This shows how a plummeting share price can push up yields.

Vedanta chose to distribute a substantial dividend of Rs 101.5 per share to its shareholders to meet its holding company's financial obligations and debt repayments. This massive payout set a new record for the company.

Moving on to the Zinc major, Hindustan Zinc (HZL), its share price increased by 9.9%. Vedanta holds a 65% stake in HZL as of June 2023. The company’s cash equivalents stood at Rs 10,061 crore in FY23, compared to borrowings of Rs 11,841 crore.

Frequent dividend payouts, with Vedanta being the biggest beneficiary, have transformed HZL from a net-cash company to a net-debt one.

Meanwhile, the utilities sector had an overall dividend yield of 2.4% in FY23. The top dividend-paying stocks in this sector are Power Grid Corporation, CESC and NHPC , offering yields of 5.6%, 4.9% and 3.6%, respectively. All three companies saw their share prices rise by at least 15% in the past year.

Analysts expect IT companies’ high dividend payouts to continue in FY24

Next comes the software & services sector with an average dividend yield of 2.3% in the past year. The top performers in this sector are Oracle Financial Services Software (OFSS), HCL Technologies, and Tata Consultancy Services with yields of 5.4%, 3.8% and 3.2%, respectively.

OFSS’ stock price rose by 39% in the past year, and Trendlyne’s Forecaster estimates its dividend yield to increase by 10 bps to 5.5% in FY24. Dolat Analysis reports that OFSS increased its dividend to Rs 225 per share for FY23, up from Rs 190 in FY22. This marks a payout of 118% of its free cash flow. This is in line with the company’s seven-year historical average of paying out over 97% of its FCF (free cash flow). The brokerage remains optimistic about OFSS' ability to sustain these high payouts.

HCL Technologies saw a 41% surge in its stock price over the past year but did not issue any special dividends. Overall, all three companies have managed to post high dividend yields despite their share prices rising sharply in the past year.

Tobacco giant outperform peers in their sector

Next up, we have the food, beverage & tobacco sector with a dividend yield of 2.2% in the past year. The stand-out companies in this sector are Godfrey Phillips, Godrej Agrovet, and EID Parry (India) with yields of 3.5%, 2.1% and 1.7% respectively. The tobacco major, Godfrey Phillips, saw its share price increase by 81% during the same period. Trendlyne’s Forecaster estimates an 80 bps rise in its dividend yield to reach 2.9% in the next year.

In this sector, two companies, Godrej Agrovet and EID Parry (India), have seen their stock prices fall by 7.8% and 4.8%, respectively, in the past year.

Windfall taxes disrupt oil & gas sector

Finally, we have the oil & gas sector with a dividend yield of 1.4% in the past year. Companies in the lead are Oil India, Oil and Natural Gas Corporation (ONGC) and Castrol India, with yields of 7.2%, 6% and 4.6% respectively.

Oil India’s stock price surged by 51.8% in the past year but Trendlyne’s Forecaster estimates that the dividend yield will remain unchanged at 7.2% next year. However, the company’s financials may face headwinds due to escalating windfall taxes and a decline in the prices of domestically produced, administered price mechanism (APM) gas. Such a cut in APM gas prices could further reduce the company’s revenue realisation.

ONGC is another company affected by windfall taxes. Despite this, its stock price surged by 44.5% over the past year. This spike can be attributed to the company’s acquisition and processing of cheaper Russian oil, which it then exports to different countries, thereby increasing its sales volume. Trendlyne’s Forecaster estimates its dividend yield to rise by 130 bps to 7.4% by next year.

Castrol India also rose by 23.3% during the same period. Trendlyne’s Forecaster estimates a 30 bps increase in its dividend yield to 5% in the next year. According to Motilal Oswal, Castrol India maintains a dividend payout policy that exceeds 70% of net profit, translating into a dividend yield of around 4-5%.

Among the stocks that made it to the list, Vedanta, Godrej Agrovet and EID Parry’s (India) share prices fell in the past year.

It’s worth keeping in mind that there are many reasons for companies to pay out dividends. While some aim to distribute profits back to shareholders, others might do so due to lack of significant expansion plans. Additionally, public sector companies are obligated to pay dividends to their shareholders.