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

28 Sep 2023

The West and Asia are approaching inflation differently

In a world where inflation is rising during a growth slowdown, central banks face a challenge. The only tool they really have to beat rising prices? Interest rates.

As many countries face weak growth and recession risks, global central banks are pulling interest rates in different directions. In US, UK, India and the EU, inflation has fallen from its peak but is still above the target. Trade wars and surging oil prices haven’t helped: tensions with China, the world’s biggest exporter are high, while OPEC+ countries are driving oil prices up as they try to boost their revenues.

Rising inflation increases costs for people, and takes a big bite out of their savings.

In this environment, there are no easy answers. Central banks are divided: Western powerhouses like the US and Europe are raising interest rates to tame sticky inflation. In contrast, China and Japan are bringing down their interest rates to boost growth.

Countries like Pakistan (22% interest rate), Hungary (14%) and Brazil (12.8%) have kept interest rates high, while Japan (-0.1%), China (3.5%), and South Korea (3.5%) are at the lower end of the spectrum.

Japan sees the lowest interest rates among global peers

The Reserve Bank of India (RBI) is walking a tightrope, keeping interest rates high while trying to prioritize growth. Meanwhile, both the US and EU are hiking rates even as the possibility of a recession increases.

In this week’s Analyticks:

The global divide: Central banks differ on interest rates amid slowdown worries
Screener: Stocks with increasing debt levels as interest rates rise

Let’s get into it.

US Fed embraces "higher for longer" interest rate policy

The US Federal Reserve Bank has embraced a "higher for longer" approach to interest rates. In just 15 months, the Fed has hiked interest rates to a 22-year high of 5.5%, the fastest increase in a short time. But the hike has not led to the much-hoped-for drop in inflation, which stood at 3.7% in August. This is quite above the Fed’s target of 2%.

Interest rates rise at the fastest pace in 2022 than any other time in US history

The recent spike in inflation puts the Fed in a tricky position, giving it limited room to further increase interest rates. Still, the Fed has hinted at one more rate hike before the end of 2023.

US inflation spikes in the past three months, prompting Fed’s hawkish stance

The Fed has opted for higher interest rates rolled out over a longer period, rather than aggressive hikes at one go. It hopes to prevent a recession with this strategy, and achieve a soft landing for the US economy. Federal Reserve Chairman Jerome Powell said, “While some factors are beyond central banks’ control, the US economy has a good chance of a soft landing.”

Will things go as Powell planned, or is a crash landing on the horizon? So far at least, the US economy has been resilient, with higher-than-expected GDP growth (revised upward from 1% to 2.1% in 2023) and higher consumer spending despite rate hikes. But some analysts are predicting a recession in 2024, as unemployment rises.

European Central Bank sticks to high-interest rates, despite recession signals in its largest economy

With an inflation rate of approximately 5.2% in August, down from a peak of 10.6% in October 2022, the European Central Bank (ECB) is struggling to bring inflation down to its target of 2% in the Eurozone. The ECB foresees consumer inflation hitting 3.2% by the end of 2023, with the 2% target expected to be met only in 2025. The prices of natural gas and crude inching above $90 is contributing to sticky inflation.

Eurozone inflation remains stubbornly high

While the ECB has signalled one more rate hike in 2023, politicians, investors and industries are pushing for a pause. European countries, including Germany, the largest economy, are seeing a slowdown and a drop in industrial production.

European countries’ manufacturing PMI declines

Germany faces declining manufacturing output due to rising interest rates. Germany’s manufacturing PMI for August was at 39.8 (35 in Covid times), the lowest among developed economies.

Japan fuels growth through ultra-loose monetary policy

Japan’s prolonged deflation (with a 30-year historical average inflation of below zero) made growth difficult to sustain. So the recent spike in inflation is not such bad news here, and has provided an opportunity to boost the economy. The Bank of Japan is capitalizing on this trend and has maintained its interest rates at a low -0.1%.

Nikkei 225 hits a 30-year high amid high inflation and low interest rates

The ultra-loose policy has led to a rally in the country's stock markets, to a 30-year high. Although inflation peaked around 4.3% in January 2023, it has softened to around 3.2% over the past five months.

Facing slow growth, China opts for rate cuts

After decades of growth, China's post-Covid slowdown has its central bank scrambling to cut rates. The People’s Bank of China slashed its loan prime rate by 10 bps to 3.45% in August. China’s GDP is expected to grow at 4.8% in 2023, lower than initial estimates of 5.6%. Trade wars and rising fuel costs have put a damper on China's economic momentum.

China’s weak GDP growth has prompted lower interest rates

Adding to these challenges is the growing debt problem in China's real estate sector. Industry participants are asking for both financial stimulus and rate cuts to prevent the problem from worsening.

India stands out in balancing interest rates, inflation, and growth

India’s inflation shot up to 6.8% in August from 4.9% in June 2023, mainly due to a surge in vegetable prices. However, these rates are expected to decline in the coming quarters owing to a favorable monsoon.

India’s inflation stays within RBI's target range of 2%-6%

The Reserve Bank of India (RBI) projects inflation will settle around 5.4% in 2023. Since this would be within the RBI’s 2-6% target range, the bank is not hiking rates - yet. An expected GDP growth rate of 6.5% for the year has given the RBI some room to relax, for now.

Globally, rising crude prices, ongoing trade wars, and high government spending have led to sticky inflation.Central banks seem to be leaning towards maintaining high interest rates for longer periods, and hiking more slowly. It remains to be seen if a growth slowdown will force central bankers like the US Fed to be more cautious about hikes, or if they will keep going, as JP Morgan CEO Jamie Dimon suggests, all the way to 7%.

Screener: Stocks with increasing debt levels as interest rates rise

Rising interest rates tend to make debt a bigger burden for businesses.This screener shows stocks that have a total debt-to-equity ratio greater than 1, and increasing interest expenses YoY In FY23. It also highlights stocks where Forecaster expects growing interest expenses in FY24.

The list comprises 25 stocks from the Nifty 500 and three from the Nifty 50 indices, featuring sectors like electric utilities, refineries/petro-products, hotels and telecom services.

Major stocks in the screener are Adani Green Energy, Tata Telecommunications, Adani Energy Solutions, Hindustan Petroleum Corp, Lemon Tree Hotels and Bharti Airtel.

Adani Green Energy reported a revenue growth of 41.3% in Q1FY24. Its net profit also grew by 50.5% to Rs 322 crore, backed by lower operating expenses. However, Adani companies are known for their high debt levels, and this one is no exception. The firm’s interest expense tripled due to debt-backed expansion. Adani Green Energy plans to reach its installed capacity of 25,000 MW in 2025, up from 8,216 MW currently. Most of the new projects will be backed by debt, which can worsen interest expenses for the firm.

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

Lemon Tree Hotels reported a 69.4% YoY increase in net profit to Rs 23.5 crore in Q1FY24. Its revenue also improved by 15.7% YoY to Rs 222.2 crore, aided by higher gross average room rate (ARR), more revenue per available room (RevPAR), and increased occupancy. The firm has been on an expansion spree and recently signed two new properties in Bhubaneshwar and Kasauli. These properties are expected to be operational by FY25 and FY26, respectively. The firm’s asset-light model through franchised hotels is expected to accelerate its growth with lower capex.

You can find more screeners here.

The Baseline

26 Sep 2023

Five analyst picks this week

By Satyam Kumar

1. HDFC Bank:

ICICI Securities maintains its ‘Buy’ rating on this private bank with a target price of Rs 2,000. This implies an upside of 30.3%. Analysts Jai Prakash Mundhra, Chintan Shah, Renish Bhuva and Vaibhav Arora remain optimistic about the bank's prospects after its analyst conference on September 18. The highlight of the conference was that the NIMs and net worth of the merged entity (HDFC Bank and HDFC) will fall due to the need for additional liquidity, to increase the liquidity coverage ratio. The analysts expect the bank’s NIM to stabilise after Q2FY24 as the merger has resulted in higher non-performing assets.

Despite short-term performance challenges, the analysts believe the bank's key growth drivers for the medium to long term are intact. They add, “We believe HDFC Bank has given reasonable clarity on the movement of net worth and related matters. The mobilisation of retail deposits and NIM trajectory are likely to be key drivers for the stock price.” They expect the bank’s net profit to grow at a CAGR of 15.9% over FY23-25.

2. PNC Infratech:

ICICI Securities maintains a 'Buy' rating on this roads and highways company with a target price of Rs 460, indicating an upside of 25%. Analyst Bhupendra Tiwary is upbeat about PNC's robust execution capabilities, supported by modern equipment and an in-house team for timely project delivery.

Tiwary highlights PNC's healthy order book, now at Rs 18,900 crore after adding new projects worth Rs 4,083 crore. It suggests strong revenue visibility. He expects inflows of about Rs 10,000 crore in FY24, driven by road projects, resulting in an estimated revenue CAGR of 13.5% from FY23-25. He also foresees internal accruals funding equity requirements, supported by the company's strong cash flow generation. As of Q1FY24, PNC maintains a net debt-to-equity ratio of 0.17X.

The analyst notes that the company is in talks with potential investors to monetize its assets, including 12 projects, aiming to complete this process by FY24-end. This strategic move is expected to facilitate the company's scalability in the future.

3. GAIL (India):

Geojit Financial Services upgrades its rating on this utilities company to 'Buy', with a target price of Rs 142. This implies an upside of 15%. Analyst Vinod T P maintains a positive outlook, citing GAIL's substantial infrastructure expansion and improving sequential performance, thanks to a brighter economic outlook.

Vinod points out that a decrease in operational costs and other expenses has helped the company swing from an operating loss of Rs 336 crore in Q1FY23 to an operating profit of Rs 1,797 crore in Q1FY24. He expects GAIL's planned capex of Rs 9,000 crore for FY24—allocated to pipelines, petrochemicals, city-gas distribution, and equity investments—to drive growth. He is also optimistic about GAIL's plans to construct 100 CNG stations and 2 lakh DNPG stations over the next two years.

The analyst believes that GAIL's earnings performance will benefit from increasingly stable prices and consistent global LNG supplies. Vinod notes that the company is well-placed to capitalise on the growing demand for energy, owing to its diverse revenue streams and ongoing infrastructure expansion.

4. Hero MotoCorp:

Sharekhan maintains a 'Buy' rating on this 2/3-wheeler company with a target price of Rs 3,629, indicating an upside of 22%. Analysts at Sharekhan are optimistic about the company's focus on volume growth, premiumisation, expansion in the electric vehicle (EV) market, and robust festive sales.

They anticipate volume growth in the premium segment, with over 25,000 bookings for the Harley Davidson X 440 and the launch of the Karizma XMR. They believe Hero’s strategic product rollouts in FY24, targeting both the entry-level and premium segments, will elevate the average selling price and attract new customers, particularly with the launch of Hero 2.0 stores.

The analysts say Hero's electric vehicle (EV) strategy is well-defined with a two-pronged approach. The company is building its own brand, VIDA, while also investing in Ather Energy, a rising name in the domestic EV market with new electric scooter launches. Given the healthy uptick in retail sales during Onam and Ganesh Chaturthi, they expect this momentum to persist, particularly during the 42-day festive period in Q3FY24.

5. Tata Steel:

Prabhudas Lilladher maintains a ‘Buy’ call on this steel manufacturer with a target price of Rs 144, indicating an upside of 13%. Analyst Tushar Chaudhari bases his call on the company’s recently announced proposal to set up an electric arc furnace at its Port Talbot steel-making facility for a capex of 1.3 billion pounds. The UK government will grant 40% of the project cost. Chaudhari believes this move will address market share, competitiveness and substrate import challenges. Tata has also planned further capex over the next three years, subject to relevant regulatory approvals.

Chaudhari expects Tata Steel’s current cash losses to end, as the company will import substrate instead of producing at its old facilities. He remains optimistic, expecting a fall in energy costs and believes that the volatility of coking coal prices won’t directly affect the company. He revises FY25 EBITDA estimates upwards by 5% to Rs 41,100 crore.

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

(You can find all analyst picks here)

The Baseline

25 Sep 2023

As the relationship grows strained, we look into Canada’s Indian equity investments

By Suhas Reddy

The relationship between India and Canada has taken a surprising, sour turn this month—sparked by accusations over the killing of a pro-Khalistan Canadian citizen and activist. This has upended a historically friendly relationship with strong financial ties between the two countries. Despite the tit-for-tat expulsions of diplomats, and freeze on free-trade agreements and visa services, Canada has a significant investment in India’s stock market, according to NSDL. With Rs 1.77 lakh crore parked in Indian assets, including Rs 1.5 lakh crore in equities, Canada is the seventh-largest player in India's capital markets.

Canadian Foreign Portfolio Investors (FPIs) have major investments in Indian infrastructure funds, real estate assets, logistical parks, listed entities and unlisted start-ups.

The two major Canadian investors in Indian equities are Canada Pension Plan Investment Board (CPPIB) and Caisse de dépôt et placement du Québec (CDPQ). At the end of FY23, CPPIB’s portfolio in India was worth over Rs 1.3 lakh crore and held stakes in about 70 listed Indian firms. By the end of 2022, CDPQ’s portfolio in India was worth around $6 billion.

Canadian Pension Fund optimistic about India’s internet tech firms

Let’s first look into investments (stakes greater than 1%) held by Canadian pension funds in listed Indian companies. CPPIB currently holds over 1% stake each in six stocks, with its biggest investment in terms of value being in Kotak Mahindra Bank. The total holding value of its investments in these six stocks is Rs 16,002.8 crore. It also owns stakes in the US-listed securities of Infosys, Wipro and ICICI Bank.

CDPQ’s total holding value in listed companies where its stake is greater than 1% stands at Rs 1,123 crore. Its biggest investment in terms of value is Piramal Enterprises, followed by Mahanagar Gas.

Holding value of large Canadian FPIs decline

The holding value of Canadian FPIs in the Indian equity market in the Indian equity market reduced over the past year. While CPPIB increased its investment in Indian equity at the beginning of FY23, its holding value fell by 17% YoY and 26.7% QoQ.

CDPQ slashed its Indian market holdings to less than half, marking a cut of 75.3% YoY and 62.7% MoM.

Holding value of Canadian FPI investments in Indian stocks falls YoY

Canadian firms prefer the banking & finance sector

Canadian firms have preferred the Indian banking & finance sector over the past year. CPPIB’s portfolio heavily leans towards the banking sector (59.4%), followed by software & services (22.2%) and transportation (11.6%). It also has investments in the telecom sector.

Canadian investments prefer the banking & finance sector

CDPQ also primarily focuses on banking & finance, accounting for 66% of its Indian portfolio, with additional stakes in utilities (9.5%) and diversified consumer services (8.7%). The firm has also invested in sectors like realty, cement & construction, and pharmaceuticals & biotechnology.

Over the past few years, CPPIB has expressed plans to invest about a third of its portfolio in emerging markets by 2025, with India featuring prominently. Despite current diplomatic tensions, experts reportedly don’t expect a long-term impact on Canadian investments in India. However, any escalation could put pressure on these investors, and the could put pressure on these investors, and the companies where Canadian holdings are significant.

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

The Baseline

22 Sep 2023, 04:30PM

Five Interesting Stocks Today

1.Blue Star:

This air conditioner manufacturer rose by 13.6% over the past week till Friday, as it floated its Qualified Institutional Placement (QIP) to raise up to Rs 1,000 crore. It has set the floor price for the QIP at Rs 784.55 per share, nearly a 2% discount from Monday’s closing price of Rs 800. The management plans to use the capital to fund its capex plans of capacity expansion and also reduce its debt. The company has planned a capex of Rs 750 crore over the next three years, with the major portion of it being executed in FY24 and FY25. It shows up in a screener for stocks in the PE Buy zone with a high Durability score and rising Momentum score.

With air-conditioner penetration at less than 10% in India, B. Thiagarajan, MD of Blue Star said, “The long-term prospects for the business will continue to be good and we project that for the industry and Blue Star the growth will be at least 10% and 15% respectively in FY24.”

According to ICICI Securities, intense summer conditions and rising affordability will drive robust demand in the industry in the coming years. It also expects the company to gain market share in the coming quarters given its dominant market presence and focus on distribution expansion. According to Trendlyne’s Forecaster, the consensus recommendation from 20 analysts on the stock is a ‘Buy’.

Although the firm’s largest segment, unitary products (room air conditioners), saw muted revenue growth in Q1FY24 due to unseasonal rains in North India, it still managed to gain market share in the segment. Nikhil Sohoni, CFO of Blue Star noted, “While the summer season impacted room air conditioner sales, we hope that demand will revive in the festive season”. He added, “We are optimistic about the prospects for the rest of the year.”

2. UPL:

This agrochemicals firm is seeing an uptick in demand for its products in North and South America. These regions contributed 20.5% to the company’s overall revenue. In a recent report Citi anticipates that the profitability of United States farmers in CY23 will surpass historical levels. The US Agriculture Department forecasts an increase in soybean production in Latin America during the current fiscal year. Citi adds that prices of generic chemicals are close to bottoming out, and a recovery appears to be on the cards from the first half of 2024. According to Trendlyne Technicals, the stock increased by 5% in the past month.

The company’s Q1FY24 net profit fell by 81.1% YoY to Rs 166 crore and its revenue dropped by 17.2% YoY. The weak set of numbers has driven the stock down by 10.4% in the past three months. However, management indicated that new products such as Evolution and Feroce are outperforming in the market. The revenue from these differentiated products has risen from 24% to 35% of total revenues in Q1FY24. Looking ahead, the management expects a subdued demand from the domestic market in the near term, especially in Q2FY24, but anticipates a recovery starting in H2FY24.

KR Choksey says that the company's medium-term goal is to reduce net debt, aiming to achieve a Net Debt/EBITDA ratio below one while maintaining an 'investment grade' credit rating. They anticipate that UPL's emphasis on high-growth products like differentiated offerings, specialty chemicals, and seeds will boost market share and drive future revenue growth.

3. SJVN:

This electric utilities company has been volatile over the past few trading days. Following an 8.4% rise in share price in two consecutive sessions, SJVN plunged over 13% intra-day on Thursday after Centre’s Power Ministry (representing the President of India, promoter of the company) launched an offer for sale (OFS) to offload up to 4.9% equity stake in the company.

This comes right after the company’s share price surged 6.6% on Wednesday and touched a new 52-week high, after it signed a MoU with Power Finance Corp for financial assistance of projects worth Rs 1.2 lakh crore. The projects include renewable energy and thermal generation projects to be set up at a total cost of approximately Rs 1.2 lakh crore.

Despite the sharp fall on Thursday, the company’s share price has risen 30.3% in the past month, following multiple order wins. Earlier this month, the company, through its arm SJVN Green Energy, signed a power purchase agreement with Bhakra Beas Management Board (BBMB) for an 18 MW solar power project. The project is expected to be commissioned by August 2024.

In August, it received an order from Assam Power Development Corp for three solar power projects with a cumulative capacity 320 MW. It features in a screener of stocks that are up by more than 20% over the past month.

JM Financial has a ‘Buy’ rating on SJVN as the brokerage has a positive outlook on India’s hydroelectric power sector. According to Trendlyne’s Forecaster, its revenue is expected to increase by 9% in FY24.

4. Power Grid Corp of India:

We have one more electric utilities stock this week. Power Grid rose 2.1% over the past week, outperforming the Nifty 50 index, which fell 2.1% over the same period. It appears in a screener of stocks near their 52-week highs with significant volume.

This rise comes after Union Power Minister, RK Singh said that India plans to add 25-30 GW of thermal power capacity. This is in addition to the 50 GW expansion which is already under construction. The increase in thermal power capacity is on the back of ever increasing power demand, which reached a record high of 241 GW towards the end of August.

The company also emerged as the preferred bidder under tariff based competitive bidding (TBCB) to establish an inter-state transmission system project in Rajasthan on September 11. The project is to establish a new 765/400 kV substation along with a static synchronous compensator (STATCOM) at Ramgarh and a 765kV D/C transmission line.

Sharekhan maintained its ‘Buy’ rating on the stock with a target price of Rs 290 per share. The brokerage believes that the company’s orders in hand worth Rs 48,700 crore and a strong order pipeline in the transmission segment will aid in profitability growth. It expects the company’s net profit to grow at a CAGR of 8.6% over FY22-25. It also has a ‘Buy’ consensus from 13 out of 19 analysts tracking the stock.

5. Hindalco Industries:

This aluminium manufacturer fell 5.9% since its 52-week high of Rs 508.9 on September 14, 2023. It hit a 52-week high after the company inked a partnership agreement with Italy-based Metra SpA to enhance aluminium extrusion and fabrication technology to manufacture Vande Bharat rail coaches. It plans to invest Rs 2,000 crore for the project. Novelis, a subsidiary, signed a contract with Ball Corp to supply aluminium beverage can sheets to Ball’s can-making plants.

In Q1FY24, Hindalco beat Trendlyne Forecaster’s estimate for net profit by 24.5% despite its profit falling 40.4% YoY to Rs 2,454 crore. Its revenue also fell by 8.3% YoY but beat the estimate by 6.7%. Sales were affected in Q1 due to the destocking of cookware, but the management is optimistic that sales volumes will recover and exceed expectations in Q2 as destocking is almost over, and due to high demand.

Hindalco’s Silvassa extrusion facility started operations in Q1 and the company is increasing its capacity. Its Aditya Aluminium's cold-rolling facility is also expected to begin by FY25. This will lead to a 50% increase in downstream aluminium capacity by FY25. The aluminium manufacturer has guided a capex of Rs 4,000-4,500 crore for Indian operations for FY24. It has also guided capex for the arm Novelis of $1.6-1.9 billion focusing on increasing greenfield rolling capacity, removing bottlenecks and setting up recycling units.

Geojit BNP Paribas has upgraded Hindalco to a ‘Buy’ on the back of strong domestic demand, volume growth, successful completion of destocking, improved margins, and ambitious expansion projects in the downstream business. The analysts also expect the cost of aluminium and coal prices to decline further in Q2. The company appears in a screener for stocks with brokers upgrading 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

21 Sep 2023, 04:18PM

Chart of the Week: Uflex and Deepak Fertilisers rise the most over the past month, close in on 52-week highs

By Akshat Singh

Finding stocks that can beat the index is a mix of analysis, strategy and betting on the right sectors. Investors are constantly looking out for indicators that can point to stocks with high potential upside.

One useful indicator is stocks that have gained value over the past month but are still trading well below (>30%) their 52-week highs.

Ahead of September quarter results, we look for stocks showing positive changes over the past month but are still far from their 52-week highs (>30% distance). This screener includes a total of 15 such Nifty 500 stocks.

Chemical & petrochemical stocks rise on new products and PLI schemes

Of the 15 stocks in the screener, five are from the chemical & petrochemical sector. In a welcome development for the raw material-sensitive sector, the Finance Minister, Nirmala Sitharaman on July 23 announced that the Centre is considering a Production Linked Incentive (PLI) scheme to promote Industry 4.0, aimed to reduce carbon intensity across the industry.

In chemicals, Deepak Fertilisers & Petrochemicals has risen by 12.6% in the past month. It is currently 42.4% away from its 52-week high. This chemical manufacturer signed two purchase agreements with GAIL, causing its stock to rise by 3.3% on September 4. Hopes for new urea orders also helped, especially after China halted its exports on September 7.

The second stock from the sector, Epigral’s share price rose by 11.3% in the past month and is currently 41.8% below its 52-week high. This boost came after it recently announced a venture into the production of chlorinated polyvinyl chloride (CPVC) compounds, with an additional capex of Rs 25 crore.

Aarti Industries also rose by 12% over the past month. It is currently 43.1% away from its 52-week high. According to Sharekhan, the company’s Nitrotoluene volumes increased by 77.6% YoY, opening up an untapped market in India. The company is planning to invest Rs 3,000 crore in this product line in FY24 and FY25.

Packaging majors rise with growing market demand

Two key players in the containers & packaging sector, Uflex and Polyplex Corp, rose by 16.4% and 3.7%, respectively in the past month, and are currently 44% and 46.9% below their 52-week highs.

Uflex’s CMD, Ashok Chaturvedi, highlighted increased demand in India as a driving force. He noted that the company's recently inaugurated plastic and polyester film manufacturing lines in Dharwad, Karnataka, are in operation. This expansion has resulted in an impressive 22% YoY increase in sales volume for the quarter, which can be attributed to the month change.

Software & services stocks grow on strong order books and new regions

Moving on to the software & services sector, which has three standout stocks: FSN E-Commerce Ventures surged by 7.5% in the past month and is currently 39.8% below its 52-week high. The company’s revenue improved by 24% YoY in Q1FY24. According to ICICI Securities, the firm’s order conversion rate, a sign of quality traffic, continues to improve.

The personal care business reported an average order value (AOV) of Rs 1,849, up 4% YoY, while the fashion business saw a robust AOV of Rs 4,058, a 9% YoY increase.

Another stock in this sector, Quess Corp rose by 5.6% in the past month and currently trades 35.6% below its 52-week high.

Easy Trip Planners rose by 15.3% in the past month and is currently trading 41.4% below its 52-week high. The company acquired a 51% stake in three companies, Guideline Travels Holidays India, Dook Travels, and Tripshope Travel Technologies, which led the stock price to surge by 2% on August 1. The management also indicated that their Dubai operations saw strong growth, with revenue reaching Rs 53 crore in Q1FY24, a 22% QoQ increase.

In summary, this screener throws light on diverse sectoral trends. The chemical & petrochemical sector stands to gain from new products and a potential PLI scheme. Commercial services are responding to market demand, while software & services firms are expanding their order books. Investors will have to wait for Q2FY24 results for further insights into corporate performance.

The Baseline

18 Sep 2023

Five analyst picks this week

By Suhas Reddy

1. Ashok Leyland:

Axis Direct maintains its ‘Buy’ rating on this commercial vehicle manufacturer with a target price of Rs 210, implying an upside of 14.4%. Analysts Aditya Welekar and Shridhar Kallani believe that the company is well-positioned to benefit from the long-term upswing in the commercial vehicle (CV) sector, given its dominant market share and new product launches. They also see its margins improving in the long run due to “operational efficiencies, a material cost reduction programme, softening of commodity costs, and pricing discipline”.

After interacting with Ashok Leyland’s pan-India dealer network, Welekar and Kallani report a general optimism about the CV upcycle. They note that the demand for medium and heavy commercial vehicles is still strong, while there is a slowdown in the light commercial vehicle segment. The analysts are optimistic about the firm’s strategy to penetrate traditionally weak markets in Northern and Eastern India, grow in the central region, and defend its market share in the southern market. The analysts expect the company’s net profit to grow at a CAGR of 34% over FY23-26.

2. Astra Microwave Products:

ICICI Securities maintains a 'Buy' rating on this defence company with a target price of Rs 510, indicating an upside of 20.4%. Analysts Chirag Shah and Vijay Goel emphasize the company's significant strengths in research and development, and manufacturing.

The analysts highlight Astra’s ascent up the value chain, transitioning from the manufacturing of subsystems to the development and production of a wide range of high-end, critical microwave and radio frequency-based equipment. They note that the company has a healthy order book, currently standing at Rs 1,580 crore, which is twice its FY23 revenue.

Shah and Goel expect a substantial influx of future orders, given the government's increased capital allocation to the defence and space sectors, which is aimed at reducing defence imports and promoting domestic production. The analysts project impressive growth rates, with EBITDA and PAT expected to grow at a CAGR of 26.3% and 46.7%, respectively, over FY23-25.

3. Bharat Heavy Electricals:

Geojit Financial Services maintains a 'Buy' rating on this heavy electrical equipment company with a target price of Rs 154, indicating an upside of 21.8%. Analyst Vinod T P holds a positive outlook, primarily because the company, in collaboration with Titagarh Rail Systems, has secured a contract worth Rs 24,000 crore from the Indian Railways. This contract is for the manufacture and supply of 80 Vande Bharat sleeper trains by 2029. Vinod highlights an additional order for an annual maintenance contract, under which Bharat Heavy Electricals will undertake comprehensive maintenance of these trains for 35 years.

The analyst foresees improvements in margins and profitability in the future, driven by increasing revenues in both the power and industrial segments, This outlook is further supported by a robust order book due to the Vande Bharat project, and ongoing efforts towards cost optimization. Moreover, with its well-established reputation and government support, the company looks well-positioned to thrive in India's evolving energy sector.

4. Maruti Suzuki India:

Motilal Oswal reiterates its ‘Buy’ call on this car manufacturer with a target price of Rs 11,900, indicating an upside of 13.1%. Analysts Jinesh Gandhi, Amber Shukla and Aniket Desai say, “Stable growth in the domestic private vehicles (PV) market and a favourable product lifecycle augur well for Maruti Suzuki India.”

The analysts remain optimistic as the company plans to increase its production capacity by another two million units over the next nine years. They notethat Maruti aims to “establish market leadership in the SUV segment”, given its current and upcoming launches in this product category. Moreover, the development of electric vehicles is underway at its Gujarat plant and the first model is to be launched in FY25. The company is also focusing on CNG and other clean fuel options, as it has extended the S-CNG technology to six more models. This would reduce its carbon footprint.

The analysts expect market share gains and margin recovery in FY24, driven by an improvement in supplies, a favourable product lifecycle, a stronger product mix, and operating leverage.

5. Archean Chemical Industries:

ICICI Securities maintains its ‘Buy’ call on this chemicals company with a target price of Rs 750. This indicates an upside of 24.1%. Analysts Sanjesh Jain, Akash Kumar and Ashvik Jain maintain their stance on the back of recent trends in Bromine prices. They say, “Bromine prices dropped to a 15-year low in China in June but partly recovered in August.” They believe the price fall is due to a mix of greed, speculation and a sudden drop in demand.

The analysts expect China’s ongoing destocking to last through 2023, positively impacting all bromine producers. This is because China depends on imports to meet its demand, and thus, it cannot create overcapacity.

Jain, Kumar and Jain say that Archean Chemical’s Q1FY24 result was relatively better despite volatile bromine prices. The resilience is thanks to the company's long-term contracts, and strong performance in the industrial salts segment. The analysts expect Bromine to witness volume recovery by Q4FY24, and prices to firm up only in FY25. They are also optimistic as the company is in the process of commissioning its derivative plant, which increases earnings visibility during the forecasted period.

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

(You can find all analyst picks here

The Baseline

15 Sep 2023

Five Interesting Stocks Today

1. Escorts Kubota:

This commercial vehicles company has risen by 21.6% over the past month, on the back of reports that the government is planning a production-linked incentive (PLI) scheme for the railway industry. The capex for the PLI scheme is expected to be around Rs 800-1,200 crore over the next three years. The scheme aims to increase domestic manufacturing of wheels, brakes and transmission systems for Linke Hofmann Busch (LHB) and Vande Bharat train sets.

Escorts Kubota’s order book in the railway segment stands at Rs 950 crore as of Q1FY24 and contributes to 10% of the company’s overall revenue. The management is also focusing on expansion and diversification of the product lines in this segment. It expects an increase in orders due to the PLI scheme, and this has helped the company appear in a screener of stocks that are up by more than 20% over the past month.

Axis Securities maintains its ‘Buy’ rating on the stock with an upgraded target price of Rs 2,900 per share. The brokerage believes that the introduction of new products, higher revenue from spare parts and exports will aid double-digit growth in the company’s revenue. It also expects the company’s EBITDA margins from all the segments to expand on the back of operating leverage and improvement in the product mix. The brokerage expects its revenue to grow at a CAGR of 12.4% over FY23-26.

2. KEC International:

This power transmission equipment manufacturer hit its all-time high of Rs 747.7 on Wednesday after announcing multiple order wins during the week. The company won orders worth Rs 1,021 crore on Tuesday, including the construction of a data centre in Western India, the establishment of a manufacturing facility for an FMCG company, transmission and distribution projects from India and the Americas, and overseas order for the supply of cables. It also landed a Rs 1,145 crore order on Wednesday for the design, supply and installation of an overhead transmission line in Saudi Arabia.

KEC International has risen by 7.6% over the past month, outperforming the benchmark index. This surge followed a 36.5% YoY increase in its Q1FY24 profit to Rs 42.3 crore (beating Trendlyne Forecaster’s estimate by 9.9%). Its revenue also grew by 27.9% YoY on the back of a 71% YoY growth in the transmission and distribution (T&D) segment and a 60% YoY rise in the civil segment. The company also appears in a screener for stocks with improving cash flow.

Vimal Kejriwal, the Managing Director of KEC, said, “Our year-to-date order intake has surpassed Rs 7,500 crore, a robust growth of 30% YoY.” The total order book currently stands at more than Rs 35,000 crore. Management expects to secure orders worth Rs 25,000 crore during FY24. The sector is also likely to benefit from increased government capex spending and a revival in private capital spending. With improving T&D execution and a healthy order book, Geojit BNP Paribas remains positive on KEC International on a long-term basis.

3. Larsen and Toubro:

This construction and engineering firm has risen by 9.4% over the past month, following its announcement of an increased buyback price and an order win worth $3.9 billion from Saudi Aramco.

The company rose 1.7% on Tuesday after it announced an increase in its buyback price to Rs 3,200 from Rs 3,000. At the same time, it reduced the number of shares for the buyback to 3.1 crore from the earlier 3.3 crore. The buyback is set to start on September 18. Due to the recent rise in its share price, the firm features in a screener of stocks trading above their short, medium and long-term moving averages.

The company’s order win from Saudi Aramco is for the second phase expansion of the Jafurah Unconventional Gas Field in Saudi Arabia. ICICI Securities projects that L&T could achieve over 20% YoY increase in order inflow in Q2, excluding services, with this order win. Although the company has given an order inflow growth guidance of 15% YoY in FY24, the brokerage believes that this figure is understated. Accordingly, it has upgraded the stock to ‘Buy’ from ‘Add’ and revised the target price to Rs 3,141.

On Thursday, L&T also announced a partnership with BAE Systems Inc. to introduce the BvS10, an Articulated All-Terrain Vehicle (AATV), to the Indian market as part of the ‘Make in India’ programme.

4. Praj Industries

This industrial machinery manufacturer rose by 14.4% over the week ending Friday, hitting a 52-week high of Rs 609.8. It started rising following the launch of the Global Biofuel Alliance (GBA) by Indian Prime Minister Narendra Modi at the G20 Summit on September 11.

GBA aims to accelerate the global shift towards biofuels and reduce dependence on fossil fuels.

The street expects Praj to benefit from this as it has a 50-55% market share in the domestic ethanol plant sector. Additionally, it has been expanding its global footprint, with its international order inflow now 35% of total orders in Q1FY24. This is a significant increase from 19% in Q1FY23.

The Indian government has reiterated its target to blend 20% ethanol with petrol by 2025, a jump from the current 11.5%. Praj Industries is well-placed to capitalise on the Centre’s push to increase biofuel usage. On July 6, the company agreed to form a joint venture with Indian Oil Corp to strengthen biofuel capacities in India.

As of Q1FY24, the firm’s order book stands at Rs 3,780 crore, of which the bio-energy segment accounts for 78%, followed by engineering at 17% and hi-purity at 5%. The company has also begun to gain traction in the compressed biogas (CBG) market, securing orders for five CBG plants worth Rs 500 crore in total.

Prabhudas Lilladher is optimistic about the firm’s long-term growth prospects and expects its margins to remain healthy due to a pickup in export orders and normalising commodity prices. According to Trendlyne’s Forecaster, the stock holds a consensus recommendation of ‘Strong Buy’ from six analysts.

5. Narayana Hrudayalaya:

This healthcare facilities stock has outperformed the Nifty Healthcare index by 9.6% over the past month, rising 9.8% in just the past week, according to Trendlyne’s Technicals. This surge comes as the company announces its entry into the health insurance segment. The firm expects approval from the Insurance Regulatory and Development Authority of India (IRDAI) by the end of 2023. Narayana Hrudayalaya also plans to open clinics and pharmacies across India to increase its revenue sources. According to Vice-Chairman Viren Shetty, this “expansion into health insurance, clinics and pharmacies will integrate its hospital chains end-to-end and improve profitability”.

The firm reported a 19.4% revenue growth in Q1FY24, backed by improved surgical volumes and higher revenue per patient. Hospitals in the Bangalore region clocked 22% revenue growth YoY, followed by Mysore-Shivamogga hospitals at 16%. Its Cayman Islands facility registered a 32% YoY growth amid increased volumes in its newly opened oncology block. EBITDA margins also improved by 470 bps YoY due to better price realisation per bed.

The company has a capex plan of Rs 1,110 crore for FY24, mainly for assets with a lower turnaround time like diagnostics, clinics, and enhanced bed capacity. The stock shows up in a screener for companies with high TTM EPS growth

Geojit BNP Paribas upgrades its rating for the company to 'Accumulate' from 'Hold', citing the firm’s focus on revenue growth through capacity expansion and the margin-accretive revenue growth from its Cayman Islands operations.

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

The Baseline

14 Sep 2023

Chart of the week: Banking & finance sector leads IPOs in 2023, with stellar listing gains

By Akshat Singh

Initial Public Offerings (IPOs) are making a strong comeback as Indian markets recover from their declines in early 2023. Despite a 4.5% drop in Nifty 50 during January and February, the benchmark index has rallied 10.3% in the year to date. Market sentiment is crucial for IPO success, which explains why companies like Mama Earth and Ola postponed their IPOs amid 2022's negative market sentiment. Now, they are considering a launch in 2023’s more favourable conditions.

Currently, of the 24 mainline IPOs released in 2023, only Radiant Cash Management is trading below its issue price.

In this edition of the Chart of the Week, we look at the most successful and least successful IPOs in terms of listing gains/losses, and also their current gains from the issue price.

Most successful IPOs: ideaForge posts highest listing gain of 92.7% in 2023

Kicking off with the year's top performer in terms of listing gains, ideaForge Technology from the general industrials sector listed at a premium of 92.7% over its issue price and raised Rs 567 crore to fund its investments in product development. The company's diverse portfolio includes hardware (including Unmanned Aerial Vehicles, payloads, batteries, chargers, and communication systems) and software (such as Ground Control Station for control and autopilot sub-systems). The IPO was subscribed for 106x of the available shares.

Despite a stellar listing, its share price fell by 18% in the listing week in July. Apart from profit booking, the decline can be attributed to the company's dependency on government orders, its presence in a heavily regulated space, and reliance on imports. In addition, its net profit fell by 54.3% YoY, triggering a 6% drop in share price on August 9. However, the stock is still trading 51% above its issue price.

Banking and finance sector stocks dominate the IPO success stories

Two of the top five successful IPOs are from the banking and finance sector – Utkarsh Small Finance Bank (USFB) and SBFC Finance. Both these IPOs listed at a premium of 92% and 61.8% respectively. Their share prices have remained stable post-listing, with Utkarsh and SBFC trading at 93% and 55.4%, respectively, above their issue prices, which is close to their listing gains.

USFB, with an issue size of Rs 500 crore, focuses on microfinance services in unserved or underserved segments, particularly in Uttar Pradesh and Bihar. The IPO was subscribed for 101.9x of the available shares. According to IDBI Capital, USFB has a cost-to-income ratio of 54.1 in FY23, lower than its peers like Equitas SFB (63.4), Suryoday SFB (60) and Ujjivan SFB (54.8). A lower cost-to-income ratio indicates effective expense management relative to income.

SBFC Finance’s IPO, aimed at funding future business growth, raised Rs 1,025 crore through a combination of fresh issue and offer for sale. This non-banking finance company provides secured MSME loans and loans against gold. The IPO was subscribed for 70.2x of the available shares.

Moving on to the software & services sector, only Netweb Technologies makes it to the top five successful IPOs in 2023. This original equipment manufacturer (OEM), which specialises in high-end computing solutions, listed at an 82.7% premium and now trades at a 69.7% premium to its issue price.

The company filed the IPO to raise Rs 631 crore through a combination of fresh issue and offer for sale. It was subscribed for 90.4x of the available shares. This IT company achieved a revenue CAGR of 75% over FY21-23, along with profit growth of around 138% during the same period.

Lastly, Cyient DLM, an Integrated Electronics Manufacturing Solutions (EMS) provider from the margin-sensitive commercial services and supplies sector, listed at a premium of 58.7% over its issue price and continued to rise after listing. It currently trades 173% higher than its issue price. The IPO was subscribed for 67.3x of the available shares. In Q1FY24, the company secured orders worth $33.6 million (approximately Rs 270.9 crore), contributing to backlog growth and stability.

From the successful IPOs, now we move on to the ones that failed to perform well in their listing.

Least successful IPOs: Construction sector stumbles amid OPEC production cuts

Udayshivakumar Infra, a cement and construction company, saw its IPO open at a 10% discount to its issue price. However, the stock has risen since its listing and currently trades 18% above its issue price. According to analysts, the lackluster listing was due to a subdued market sentiment on the back of the unexpected announcement of OPEC+ crude oil production cuts in April The IPO was subscribed for 32.5x of the available shares.

Following closely in the listing losers list, Avalon Technologies from the general industrials sector listed 8.7% below its issue price. However, the stock has since recovered, now trading 38.6% above it. Avalon Technologies is a fully integrated electronic manufacturing services (EMS) provider in India, offering solutions including box build and PCB services. The IPO was subscribed for 2.2x of the available shares.

Food and transportation stocks rise post tepid debut

From the food, beverage and tobacco sector, HMA Agro Industries’ IPO listed at a marginal 0.1% premium to its issue price but is currently trading 36% above it. HMA Agro is involved in the export of buffalo meat to around 40 countries. The company raised Rs 480 crore, of which Rs 150 crore was fresh issue, with Rs 135 crore earmarked for working capital needs and less than 25% of the gross proceeds allocated for general corporate purposes.

The IPO got a relatively modest subscription rate of 1.6x due to the high valuation of HMA Agro Industries, which had a PE of 49, higher than the sector’s PE of 41.

Moving on to the transportation sector, TVS Supply Chain Solutions posted a listing gain of 2% and is currently trading only 5.2% above its issue price. The company is involved in providing integrated supply chain solutions to its clients. It raised Rs 880 crore through a combination of fresh issue and offer for sale. The IPO was subscribed for 7.6x of the available shares.

Interestingly, its stock price rose by 6% on September 11 following reports of its plans to acquire a 100% stake in three of its subsidiaries for Rs 450 crore. However, the stock fell by 6% on September 12 due to its Q1FY24 loss widening to Rs 65.3 crore.

Lastly, we have Divgi Torqtransfer Systems from the automobiles & auto components sector. Despite a modest listing gain of 2.6%, the stock is currently trading 65.8% above its issue price. The company raised Rs 412.1 crore via fresh issue and offer for sale. The company won orders worth Rs 549 crore on August 11, which led to a 12.2% surge in stock price on the same day. In addition, multiple bulk & block deals helped the stock to rise by 65.8%.

One common thread among all 10 IPOs (both most and least successful) in focus is that they are all trading above their issue prices. This means that investors who subscribed to these IPOs are currently in profit, albeit with varying degrees of return on investment.

As Indian indices continue to hit record highs, the number of companies filing for IPOs may rise, keen to take advantage of the bullish market sentiment. However, investors should look at a company's financial health, industry outlook, and valuation before subscribing.

The Baseline

14 Sep 2023

Six hidden gems among overvalued smallcaps | Smallcap screener: ‘Buy’ analyst consensus and positive Forecaster growth

By Deeksha Janiani

The party on D-Street began on September 11, as the Nifty 50 made history and hit 20,000 for the first time ever. It crossed that level today, closing at 20070. Strong investments by domestic funds and retail investors have driven the rally, even as FIIs turned net sellers in September.

New Delhi was gleaming this month after the city got a $120 million facelift, with new murals, fountains and statues installed ahead of the G20 summit. The success of the summit has added to the optimism.

A new economic corridor that links India with the Middle East and Europe, was announced at the summit. It includes an extensive rail and shipping network that will enable faster transportation of goods and services.

But while India is making its presence felt on the global stage, analysts are concerned about its market valuations, especially in the small and midcap segments. According to Bloomberg, the Nifty Smallcap 100 and Nifty Midcap 100 are trading ahead of their five-year average PE valuations.

Nifty smallcap outperforms benchmark since June 2023

The Nifty Smallcap is at its most overbought level since 2014, considering its 14-week relative strength index. Anish Tawakley, head of research at ICICI MF, observed that the relentless smallcap buying has made largecaps a better bet, “We are more comfortable with large-cap valuations. People are getting very optimistic in the small and mid-cap space around relatively weak business models.”

Higher mutual fund investments have played a major part in this rally.

Smallcap funds remain popular among mutual fund investors

Although many stocks in the small-cap universe have already run up, there is still steam left in a few. In this week’s Analyticks:

Rough diamonds?: Six undervalued smallcaps with promising futures
Screener: Smallcaps with ‘Buy’ consensus from analysts and positive Forecaster growth

Let’s get into it.

Hidden gems: Six promising smallcaps with healthy valuations

With the smallcap sector hotter than ever, it's time to ask: where should you invest? With experts worrying about high valuations in smallcap stocks, we looked for companies whose growth and future outlook made them stand out.

We found six stocks from the BSE SmallCap index with strong TTM growth, trading at lower than their industry valuation. These stocks are priced lower than their 5-year average PE , and analysts are bullish on their future growth.

AIA Engineering: Strong demand puts spending plans into high gear

This capital goods player has seen close to 30% revenue growth on a trailing 12-month basis, thanks to robust realisations and strong demand in the mining sector. Its EBITDA margins rose sharply in Q1FY24 due to lower freight costs. AIA Engineering is trading at a 25% discount to the industry PE ratio.

The company is adding to its grinding media capacity in the current fiscal year. It also plans to upgrade its plants and invest in warehouses and renewable energy systems. Overall, its planned capex for the next two years is 56% higher than in FY22 and FY23.

AIA Engineering’s management has guided for a volume growth of around 10% in FY24. It is bullish on the demand trends in North and Latin America. Analysts see the company’s revenue growing at 10% CAGR in the next two years.

AIA Engineering to accelerate investments, revenue to rise in double-digits

Mahanagar Gas: Record margins are fuelling profits

This city gas distributor has delivered a top-line growth of over 45% on a TTM basis. In Q1FY24, its margins rose to record levels due to lower gas costs. Commenting on this, Ashu Shinghal, the Managing Director at MGL, said, “With APM gas prices capped at $6.50 per MMBTU for two years, we are seeing very stable gas costs.”

MGL’s margins have improved in the past four quarters

Currently, MGL is trading at a discount of over 30% compared to its 5-year average PE ratio. Analysts see sales volumes improving as the company passes on the benefits of lower costs to its customers. The recent acquisition of Unison’s three geographical areas will also boost volumes.

MGL’s margins may normalise in the upcoming quarters, but will stay considerably higher than the all-time rock bottom levels of FY23. Hence, analysts see MGL’s profits rising by over 20% YoY in FY24.

MGL may see robust profit growth on higher margins

Safari Industries: Riding on the travel industry boom

This luggage maker has seen a revenue jump of over 50% YoY on a TTM basis. Safari Industries is trading at a 25% discount to the industry. The company has also outperformed its peer VIP Industries, in both growth and returns.

Safari Industries has outperformed VIP on all counts

Safari’s EBITDA margins have risen steadily over the past six quarters, on lower input costs and an increase for in-house manufacturing. Just last month, the company added new production capacity of 1.25 lakh units. Traditionally a mass category player, Safari has also entered the premium market with its new ‘Urban Jungle’ brand.

According to the consensus estimates of analysts, Safari Industries’ revenue may rise at a CAGR of over 20% in the next two years. This is thanks to more people travelling for leisure, and ongoing growth in business travel.

Safari may clock topline growth of over 20% in the next two years

Triveni Engineering: Sweet returns through distillery expansion

This sugar and ethanol maker’s revenue has risen by nearly 25% YoY on a TTM basis. Triveni Engineering’s distillery segment, which is ethanol sales, has seen impressive growth in the past years. Oil marketing companies are also raising prices under their ethanol blending programmes.

Triveni’s distillery sales volumes have consistently risen

Triveni Engineering plans to invest Rs 700 crore across its businesses in FY24. It is also expanding its distillery capacity over the next two years. The rising prices of sugar are helping the company’s sales realisations, and analysts see a profit CAGR of over 25% in FY23-25.

Triveni is ramping up distillery capacity, to post robust profit growth

However, one risk for Triveni is a possible ban on sugar exports, which could affect its profitability. Last year, the company exported 1.9 lakh tonnes of sugar at record prices. The industry body and the government may take the final call on an export ban by October 2023.

HG Infra: Pre-election spending to build up order book

This construction major has posted a 23% growth in standalone revenue on a TTM basis. A specialist in road and highway projects, HG Infra Engineering’s order book grew by over 50% in FY23. This provides good revenue visibility.

The Centre has sped up its capex ahead of the upcoming elections, in the hope of wowing voters. Reports suggest that the Roads Ministry plans to spend 90% of its budget by December itself. This bodes well for order inflows to HG Infra. The company expects to receive orders worth Rs 7,000-8,000 crore in FY24. A strong line-up of projects from the NHAI and Indian Railways is also anticipated.

According to consensus estimates of analysts, HG Infra’s revenue and profits may rise at a CAGR of over 15% in the next two years.

HG Infra’s robust FY23 order book projects 15%+ CAGR growth

Blue Star: Strength in B2B business may boost revenue

This consumer durable maker has clocked a revenue growth of 18% on a TTM basis. Blue Star is trading at a discount of over 30% compared to its 5-year average PE, despite the stock gaining 38% over the past year. Its performance in Q1FY24 was supported by its projects and commercial air conditioning business.

Commenting on the demand scenario, Nikhil Sohoni, the CFO at Blue Star, said, “With continued investments in the infrastructure sector, we expect strong demand for our B2B products. While the summer season impacted the room AC category, we hope that the demand will revive in the festive season”.

Blue Star may register over 15% revenue CAGR between FY23 and FY25

To meet demand, Blue Star is increasing its production capacity for both room and commercial AC units at Sri City. Analysts forecast that the company’s revenue will grow by over 15% CAGR in the next two years. Profits will also grow faster as the benefits of operating leverage kick in.

Screener: Smallcaps with buy consensus from analysts, and positive growth forecasts in the upcoming quarter and year

Craftsman Automation set for highest revenue growth in Q2FY24 and FY24

Following the recent market rally, investor appetite for growth stocks is surging. This screener shows stocks from the BSE Small Cap index that had robust growth in Q1FY24, with positive revenue and net profit growth forecasts for Q2FY24 and FY24. These stocks also have a ‘Buy’ consensus from analysts, according to Trendlyne’s Forecaster. Note that this is a growth-focused screener and does not check for valuation.

Major stocks that appear in the screener are Craftsman Automation, CreditAccess Grameen, Equitas Small Finance Bank, APL Apollo Tubes, CE Info Systems and Cyient.

Craftsman Automation’s revenue is projected to grow by 51% YoY in Q2FY24. Its annual revenue is expected to rise by 44.2% in FY24. ICICI Securities anticipates accelerated revenue growth on the back of its acquisitions, higher sales of utility vehicles and a revival in the production of two-wheelers.

CreditAccess’ revenue is expected to grow by 47.8% and 34.2% in Q2FY24 and FY24, according to Trendlyne’s Forecasters. Geojit BNP Paribas expects the lender to sustain its revenue growth, led by improved loan disbursements and customer additions.

Equitas Small Finance Bank’s Q2FY24 revenue is set to expand by 26%, according to the Forecaster. According to BNP Paribas, the bank’s revenue growth will be aided by an increase in loan disbursements in the microfinance, consumer vehicles and affordable housing segments, combined with new product launches.

You can find some popular screenershere.

The Baseline

12 Sep 2023

Five analyst picks this week

By Satyam Kumar

1. Cipla:

Geojit BNP Paribas keeps its ‘Buy’ rating on this pharmaceutical firm and raises the target price to Rs 1,420 from Rs 1,120. This implies an upside of 14.2%. In Q1FY24, the company’s net profit grew by 45.1% YoY to Rs 995.7 crore and revenue rose by 17.7% YoY.

Analyst Vinod TP attributes this healthy performance to robust growth in both the US and Indian markets. Along with growth, the firm has gained market share in key product segments. He expects Cipla’s focus on India and the US to drive growth in the near term. “The company has a strong product launch pipeline for the US, India, and emerging markets, which is expected to boost the sales and profitability,” he adds.

In addition to Cipla’s planned new launches, Vinod is positive about the management’s modernisation and capacity expansion plans. He expects the company’s revenue to grow at a CAGR of 13.1% over FY23-25.

2. Devyani International:

Sharekhan maintains its ‘Buy’ rating on this quick service restaurant (QSR) with a target price of Rs 252, indicating an upside of 20.1%. The analysts at Sharekhan remain optimistic about the company’s long-term growth prospects, despite a recent slowdown in the domestic market. They say this weakening of demand is temporary and caused by high inflation, which prompted consumers to seek cheaper options. However, the analysts expect demand to improve in the coming quarters. “Softening of consumer inflation, easing dairy prices, good traction in multiplexes and a long festive season will aid good recovery in the QSR space in H2FY24,” they add.

They also expect gross margins to improve in H2 due to declining prices of chicken, vegetable oil and cheese. The management’s focus on expanding its store count and entering new markets is a key positive. The brokerage anticipates the company’s net profit to grow at a CAGR of 31.7% over FY23-25.

3. Craftsman Automation:

ICICI Securities initiates a ‘Buy’ call on this auto ancillary company with a target price of Rs 5,557, indicating an upside of 19.7%. Analysts Basudeb Banerjee and Vishakha Maliwal say, “Craftsman Automation is undergoing diversification to reduce commercial vehicle exposure and improve RoCE, by doing casting/machining of engine cylinder blocks/heads for SUV makers like Hyundai, Kia and Mahindra & Mahindra.”

Beyond a 12% CAGR in organic free cash flow from FY26 to FY36, the analysts believe that Craftsman Automation has the financial bandwidth to make acquisitions of around Rs 1,500-1,800 crore in the next couple of years, contributing to its growth prospects.

They expect the company to deliver a 22% revenue CAGR over FY24-26, led by a combination of acquisitions, continued growth in the private vehicle market, revival in two-wheeler production, and rising focus on industrial/farm equipment segments. However, the analysts remain cautious as a higher mix of the aluminium segment could impact the overall EBITDA margin. But they expect it to remain steady at 20-21% over FY24-26.

4. Titan:

Motilal Oswal maintains a 'Buy' rating on this gems and jewellery company with a target price of Rs 3,570, indicating an upside of 12%. Analysts Pratik Bipinchandra Prajapati and Tanu Jindal express a positive outlook, citing the company's robust performance across all business segments. This growth is driven by strategic investments in supply chain, digital infrastructure, strong channel capabilities, retail networks, and international market penetration.

Prajapati and Jindal emphasize Titan's utilisation of technology to uphold its leadership in the organised retail jewelry sector. The analysts highlight the company's substantial market share in the watches and wearables segment in India, particularly in the premium brand segment, where it continues to achieve double-digit growth.

Prajapati and Jindal add that the company's mobile point-of-sale software seamlessly integrates online and in-store retail experiences. Despite the recent surge in gold prices affecting demand, they expect Titan to maintain its historical resilience and perform well in the market.

5. Sobha:

HDFC Securities maintains a ‘Buy’ call on this realty company with a target price of Rs 1,024. This indicates an upside of 56.8%. Analysts Parikshit D Kandpal, Manoj Rawat and Nikhil Kanodia say that Sobha had lagged behind its peers in terms of presales. However, they note, “With the regulatory overhang largely behind, the robust financial health of the parent company, and a strong demand undercurrent in the Bengaluru market, Sobha has hit the reset-restart button.” The company has strengthened its balance sheet by reducing its net debt by Rs 1,500 crore.

The analysts remain optimistic as Sobha enjoys high client loyalty, differentiated architecture in premium offerings, in-house construction, the novelty factor and 15-25% brand premium. They believe these factors will help the company retain its pricing premium. “Valuation comfort, robust free cash flow generation, and likely deleveraging are key near-term triggers for rerating,” they note.

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

(You can find all analyst picks here)