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05 Mar 2024, 11:28AM

5 stocks to buy from analysts this week

1. UNO Minda:

Geojit BNP Paribas maintains its ‘Buy’ call on this auto parts manufacturer with a target price of Rs 792, indicating an upside of 24.7%. Analyst Saji John says that Q3FY24 revenue exceeded expectations, fuelled by growth across all segments. Revenue has grown by 20.9% YoY, while profit increased by 19.4% YoY to Rs 193.5 crore.

John says, “Despite near-term challenges from reduced volumes and macroeconomic headwinds, we believe the stability in commodity prices and chip supplies augurs well for the company.” He points out that the company is in the process of expansion of its existing product portfolio from lighting, acoustics etc to areas like seating, and adding new product lines. The annual order value from EV OEM is Rs.3,292 crore.

The analyst points out that UNO Minda’s product diversification and the success of new products enhance its visibility. He forecasts a revenue growth of 17% CAGR over FY24-26, considering the expected stability in demand, diversification efforts, and an increase in content per vehicle.

2. Kalpataru Projects International:

Sharekhan maintains a ‘Buy’ rating on this construction and engineering company with a target price of Rs 1,140, indicating an upside of 14%. Analysts at Sharekhan say, “Kalpataru Projects’ robust order book and tender pipeline, merger synergies, and easing cost headwinds should improve performance.”

The analysts are upbeat as Kalpataru’s current order book stands at an all-time high of Rs 51,753 crore. The management also expects an order inflow of over Rs 6,000 crore during Q4FY24. Saudi Aramco has reportedly issued a letter of intent for about 16 engineering, procurement and construction packages worth $10 billion for the expansion of its Master Gas System. The analysts are optimistic about the company’s chances of securing the lowest bid for three of these packages.

The company’s entry into new projects such as underground tunneling and construction of data centers, airports, and industrial plants is likely to help growth momentum. The analysts forecast net sales to grow at a CAGR of 11.8% over FY24-26.

3. Pitti Engineering:

KR Choksey maintains a ‘Buy’ rating on this small-cap electrical equipment manufacturer with a target price of Rs 1,027. This indicates an upside of 30.6%. In Q3FY24, the company’s revenue rose by 24.2% YoY to Rs 296.9 crore, while its net profit increased 9.8% YoY. However, the EBITDA margin fell 130 bps YoY to 15%. Analyst Unnati Jadhav believes that moderation in profitability was due to staffing ahead of capex deployment.

Jadhav highlights the 25.4% QoQ growth in the company's order book to Rs 898 crore due to new orders from sectors such as rail, wind energy, and power. She says, “Increasing exposure to high growth sectors could propel future prospects.”

Jadhav is upbeat about the ongoing capex of Rs 120 crore, with Rs 85 crore already spent in the past nine months. She expects the company’s merger with Pitti Rail to boost margins, driven by a 19% volume expansion. Jadhav forecasts a revenue CAGR of 13.8% and a net profit CAGR of 36.5% over FY24-26.

4. Aurobindo Pharma:

Axis Direct recommends a ‘Buy’ call on this pharma company with a target price of Rs 1,185, indicating an upside of 10%. In Q3FY24, the company reported a 90.6% YoY growth in profit to Rs 936.3 crore, beating the brokerage’s estimate by 12.6%, Its revenue also increased by 15.6% in the same period. Analyst Neeraj Chadawar and his team attribute this growth to stable demand and new product launches. They say, “Aurobindo's diverse range of approved products has enabled it to effectively manage price erosion, maintaining a neutral impact overall.”

Going forward, the analysts are optimistic about the potential of the new China plant and Vizag plant to boost injectable supplies in the Europe market, contributing to mid-teen margin improvements. They are also positive about the growth from generic injectables Eugia, which currently brings in $520 million, and the launch of Pen-G API, expected to add $100-150 million in external sales in FY25-26).

On the back of changes in the product mix and a decrease in raw material costs, the analysts estimate the EBITDA to be in the range of 18% to 20% from FY24 to FY26.

5. Union Bank of India:

ICICI Direct assigns a ‘Buy’ call on this bank, with a target price of Rs 180. This indicates an upside of 15.4%. Analyst Vishal Narnolia says, “Union Bank of India has delivered steady growth during 9MFY24, with gains spread across all segments.” He expects an improved balance sheet, capital adequacy, and healthy liabilities to support the bank’s business expansion efforts and digital enhancement plans.

Narnolia predicts stable margins at 2.9-3% in FY24-26, driven by healthy CASA at 34.4% of deposits, repricing of deposits, and recent capital raising. He believes that the moderation in slippages and healthy coverage at 92.5% will keep credit costs low, which should gradually improve the return on assets (RoA) to 1-1.1% in FY24-26. The bank’s management is optimistic about further declines in non-performing assets (NPAs).

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

(You can find all analyst picks here)

The Baseline

01 Mar 2024

Five Interesting Stocks Today

1. Dixon Technologies (India):

This consumer electronics company has risen by 19.3% over the past month, reaching its all-time high of Rs 7,048 on Monday. The company has also recovered by 13% since the Directorate of Revenue Intelligence’s inspection concerning raw material imports on January 19.

The past month has been eventful for Dixon. The company’s arm, Padget Electronics, inked a manufacturing agreement with Compal Smart Device India for mobile phone production. Padget has also finalised deals with Lenovo for manufacturing notebooks and tablets, and is in talks with ASUS. Another Dixon subsidiary, Dixon Electro, began refrigerator production.

In Q3FY24, Dixon Technologies reported an 85.8% YoY growth in net profit to Rs 96.4 crore, while revenue increased 2x YoY. This growth was driven by a 251% YoY rise in its mobile and electronic manufacturing division, which accounts for 67% of total revenue. But the EBITDA margin contracted 80 basis points YoY. The company missed Trendlyne Forecaster’s net profit estimate by 18.6% due to a 116.3% YoY rise in material costs to Rs 4,345.3 crore.

Dixon’s management is positive about its mobile business and expects to capture a market share of 35-40% in Indian smartphone manufacturing. Managing Director Atul Lall says, “We're ramping up investments to meet the increasing order book from Motorola, and demand for some large new brands in the pipeline.” The company has also partnered with Samsung for their Taizun operating system, which is expected to commence operations by the end of FY24.

Jefferies downgrades Dixon Technologies to ‘Underperform’ and warrants caution over valuations and softer discretionary demand. It suggests that the risk-reward appears to be stretched. The company appears in a screener for stocks with PE higher than their respective industry.

2. Delhivery:

This logistics startup rose 2.7% on Monday, following the extension of its partnership with wellness brand Plix for cross-border freight shipping services. Delhivery has an existing collaboration with the brand for domestic express parcel shipping.

Over the past month, Delhivery has risen by 8.8%, placing it in a screener of companies with prices above their short, medium, and long-term moving averages. In Q3FY24, the company reported a net profit of Rs 11.7 crore, marking its first ever profit, against a net loss of Rs 195.7 crore in Q3FY23. This beat Trendlyne’s Forecaster expectations of a Rs 67.8 crore net loss for the quarter. Nuvama Research noted, “The shift to profitability is a milestone we had foreseen only in H1FY25E.”

Sahil Barua, the MD and CEO, said, “We've achieved profitability for the first time in Q3, from enhanced utilization across our key business segments and trucking networks.”

Meanwhile, revenue was up 20.3% YoY to Rs 2,194.5 crore, fuelled by strong demand during the festive season. The Express Parcel business (which constitutes 66% of total revenue) saw a 21% YoY revenue increase, while the Part Truckload business (17% of revenue) rose by 37% YoY. Delhivery features in a screener of stocks with increasing revenue for the past four quarters.

Elara Securities upgrades Delhivery to ‘Buy‘ and raises the target price to Rs 570. The brokerage believes that the festive season push may normalize in the near term and the focus will be on market share gain.

3. Reliance Industries:

The Ambani family is in the news for another partnership, but that's not the one stock markets are interested in. This refineries/petro products company has risen by 3% over the past month due to merger talks with Disney. These talks concluded successfully on Thursday as Reliance Industries entered into a joint venture (JV) agreement with Viacom18 Media and Walt Disney, merging Viacom18 into Star India through a court-approved arrangement.

This landmark JV will be valued at Rs 70,352 crore, and marks the rise of a major new player in the entertainment industry. Post-merger, Reliance will own 16.3%, Viacom18 will have 46.8%, and Disney will hold a 36.8% stake in the JV. Additionally, Reliance will invest Rs 11,500 crore in the venture.

According to analysts at Jefferies, the JV is set to dominate India's cricket broadcasting rights with a substantial 40% share of the advertising market. The brokerage also added that Disney's business valuation is substantially lower than perceived, potentially adding around Rs 40 per share to Reliance's value.

The company released its Q3FY24 results on January 19, with a 9.3% YoY growth in its net profit to Rs 19,641 crore, while its revenue increased by 3.9% YoY to Rs 2.3 lakh crore. The revenue growth was on the back of improvement in oil to chemicals (O2C), oil & gas, JioBharat, Reliance Jio Infocomm (led by Akash Ambani) and Reliance Retail (headed by Isha Ambani) segments.

JioBharat and Reliance Jio Infocomm’s revenue increased by 11% YoY to Rs 32,500 crore, thanks to a sharp rise in net subscriber additions. Similarly, Reliance Retail’s revenue grew by 23.8% YoY to Rs 74,370 crore, owing to increased footfall in stores and improvement in the groceries, fashion and consumer electronics segments. The company appears in a screener of stocks with increasing return on equity (RoE) over the past two years.

Post-results, BOB Capital Markets maintains its ‘Buy’ rating on the company with an improved target price of Rs 3,175. This indicates a potential upside of 6.4%. The brokerage believes that the company’s market share expansion and media business growth will contribute to its revenue. It expects the company’s revenue to grow at a CAGR of 7.5% over FY23-26.

4. Triveni Turbine:

This heavy electrical equipment manufacturer has risen by 7.9% over the past week, touching a 52-week high of Rs 504.9 today on the back of a strong order book and good quarterly results. Its Q3FY24 net profit grew by 29.7% YoY to Rs 68.2 crore and revenue increased by 32.9% YoY, thanks to a favourable demand-supply scenario. The firm beat Trendlyne Forecaster’s estimates for net profit and revenue by 3.3% and 4% respectively. The company appears in a screener of stocks with strong momentum.

In Q3FY24, the company’s order book grew by 28% YoY to Rs 1,575 crore, with export orders climbing 41% YoY to Rs 762 crore. Major order bookings were noted from the Middle East and North Africa, Turkey and the Americas. Its geographical expansion and product & aftermarket offerings have fueled order growth across various segments, including biomass industries, oil & gas, and both sub & beyond 30 MW. A new subsidiary was established in Texas, USA, to invest in local manufacturing, aligning with its strategy of being closer to customers and gaining from US energy incentives. The domestic order book saw a modest 18% YoY increase to Rs 814 crore, impacted by order delays and the festive season.

Dhruv Sawhney, Chairman & Managing Director of the firm, says, “We've set new records in revenue, profitability, and order booking. By the nine-month mark, product orders reached Rs 9.9 billion, a 19% YoY increase driven by exports, especially in the API segment, alongside robust domestic demand. With a 14% improvement in the overall enquiry book, we remain constructive on future orders for this segment in the medium term.”

Sharekhan recommends a ‘Buy’ rating for Triveni Turbine, with a target price of Rs 550. They say, “ The stock trades at ~29x its FY2026E EPS, which we believe offers room for an upside, considering a strong growth prospectus and robust ROE/ROCE ratios.”

5. Havells India:

This consumer durables company has risen by 5.8% in the past week, hitting its 52-week high of Rs 1,550 on Wednesday. This uptick came after Goldman Sachs upgraded Havells India to ‘Buy’, expecting the company to resume double-digit growth starting Q1FY25.

The company has struggled recently, posting single-digit returns in the past two quarters, mainly because of reduced demand in semi-urban and rural markets, driven by inflation.

In Q3FY24, Havells India posted a slight net profit increase of 1.5% YoY to Rs 287.9 crore, missing Trendlyne’s Forecaster estimates by 10.1%. At the same time, its revenue rose by 7.3% YoY to Rs 4,469.8 crore, also missing estimates by 2.8%. The firm appears in a screener of stocks where mutual funds have increased their shareholdings in the past quarter. Based on Trendlyne’s Results dashboard, the company’s growth in revenue and net profit during Q3FY24 lagged behind its industry peers.

Havells India’s wholly owned subsidiary, Havells International, announced a joint venture with Salesmark Ventures, USA on February 14, 2024. This partnership will allow Salesmark to market and sell various portable air conditioning units and related accessories from Havells’ brand portfolio in the US market.

CEO Anil Rai Gupta says, “We expect the premiumisation trend to recover as inflation shows signs of abating.” He expects better margins as the company’s investments in brand building normalize over the next quarter.

BOB Capital Markets maintains a ‘Buy’ call on Havells India, given its strong presence in the consumer durables sector and improving consumer demand. The brokerage estimates the firm’s sales to grow at a 9% CAGR, with net profit improving at a 17.6% CAGR over FY24-26.

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

The Baseline

29 Feb 2024

Chart of the week: Internet software, realty firms see profit and revenue surge, chemical stocks struggle

By Satyam Kumar

Following the Q3 results season, we turn to Trendlyne’s results dashboard to assess the performance of various industries, and identify top performers as well as those that struggled. We also check drivers of positive or negative industry sentiment. This edition of Chart of the Week looks at the YoY growth in revenue and net profit for Q3FY24 across industries and their large-cap stocks.

Leading the pack in terms of revenue and profit growth for the quarter are internet software and services, realty, and consumer electronics industries.

Zomato, PB Fintech drive growth in internet software and services

The internet software and services industry registered an average net profit growth of 292.6% YoY and revenue growth of 33.2% YoY in Q3FY24.

This surge was helped by Zomato and PB Fintech, which saw net profit rise 139.8% and 143.6% YoY, respectively. Additionally, 21 of 31 stocks in the industry posted a profit increase during the quarter.

Zomato’s profit boost was on the back of its quick-commerce arm Blinkit, which saw a 27% QoQ revenue growth. Its food delivery segment’s revenue also increased by 10% QoQ, helped by a higher take rate of 20.1% (up 70 bps QoQ) after introducing a platform fee.

PB Fintech’s revenue rose by 42.8% YoY, driven by its insurance and credit businesses, which grew by 44.3% and 35.5% YoY, respectively.

The realty industry posted an average net profit growth of 211% YoY in Q3FY24, with a 21.4 % YoY improvement in revenue amid strong customer demand. Key contributors included Macrotech Developers, Phoenix Mills, and Brigade Enterprises respectively, with their net profit up by 24.4%, 58.4%, and 29.2% YoY. The industry’s revenue boost was largely due to Macrotech Developers and Brigade Enterprises reporting record pre-sales of Rs 3,410 crore (up 12% YoY) and Rs 1,520 crore (up 51% YoY), in Q3FY24. Phoenix’s mall consumption went up by 25% YoY to Rs 3,300 crore with rising income levels and urbanisation, while its rental income was up 33% YoY to Rs 447 crore during the quarter.

The consumer electronics industry also saw its net profit and revenue improve by 172.5% YoY and 29.7% YoY during the quarter. Dixon Technologies (India), Voltas, and Blue Star contributed to this growth with their profits up by 85.8%, 72.5%, and 71.9% YoY, respectively. This growth was supported by major policy changes and production-linked incentive (PLI) schemes by the Indian government to attract large global players into this space. Dixon Technologies in particular, saw its revenue double on a YoY basis in Q3FY24, thanks to its mobile and electronic manufacturing segment, with a growth of 251% YoY to Rs 3,214 crore. Voltas and Blue Star also reported net profit growth on festive sales and rise in demand for air conditioners.

While these three industries celebrated robust Q3FY24 results, others like commodity chemicals, fertilizers, and agrochemicals faced declines in both revenue and net profit during the same period.

Weak demand and Chinese competition dampen chemical industry’s revenue

The chemical industry faced continued price pressures in Q3FY24, while inventory rationalisation by end-user agrochemical companies is coming to an end. Weak demand and ongoing Chinese dumping resulted in subdued revenues and margins.

The agrochemicals industry was impacted the most, recording a 125.8% YoY decline in average net profit and a 21.3% YoY fall in revenue. UPL, Bayer Cropscience, and Sumitomo Chemical India saw revenue declines of 27.7%, 8% and 28.1% YoY, respectively. This downturn was due to a sharp decrease in price realisation, pressured by higher supplies from China as Covid-related restrictions eased.

Meanwhile, the commodity chemicals industry saw a 53.4% YoY plunge in average net profit and a 7.6% YoY fall in revenue during the quarter. Tata Chemicals and Navin Fluorine International reported significant profit drops of 59.6% YoY and 26.8% YoY, respectively. The decline in net profit was mainly due to industry-wide channel destocking and inventory reduction.

The fertilizers industry also saw a 67.3% YoY decline in net profit, while its average revenue decreased by 32.9% YoY during Q3FY24. Coromandel International and The Fertilisers and Chemicals Travancore faced sharp decreases of 56.2% YoY and 81.7% YoY in net profit during the quarter.

The Baseline

28 Feb 2024

Is the Nifty Index overvalued post-results? | Screener: Nifty50 stocks with rising margins and profits

By Shreesh Biradar

The GDP numbers for major countries in the most recent quarter, were a big 'ouch', painting a grim picture of the global economy. The UK reported negative growth and entered a technical recession, hurting its already unpopular Prime Minister, Rishi Sunak. Germany and Japan are in the same boat.

So far, India is better placed. Although official GDP growth figures haven't been released yet for the December quarter early estimates suggest a strong growth rate of 6.5%-7%. Jefferies predicts that the Indian economy will become the third-largest by 2027.

India’s growth has been helped by muted inflation, the China +1 strategy, a stable currency, and higher government spending.

For Nifty 50 companies, revenue has grown on average by 6.2% YoY in the December quarter, slower than India's expected GDP growth. The difference suggests a slowdown in the formal sector, due to downturns in major industries like IT, agrochemicals, specialty chemicals, and packaged foods.

But if we look at profit, the Nifty 50 registered an impressive 17.3% YoY growth, thanks to lower input costs and product premiumization. Sectors like auto, metals and realty are outperforming the broader market in profit growth. Five Nifty companies — Tata Motors, HDFC Bank, Tata Steel, ICICI Bank, and JSW Steel — contributed 56% of the index's YoY profit growth.

The Nifty 50’s current PE stands at 22.8, which is below its five-year average of 25.9. The lower valuation is due to a slowdown in the overall topline, and concerns over debt-fueled consumption.

Nifty 50 results review: IT and chemicals underperform, while auto and metals shine
Screener: Nifty 50 stocks surging over the past month with rising operating profit and operating profit margin

Let’s get into it.

Concerns rise with revenue slowdown

The Nifty 50 reported subdued revenue growth in the latest quarter, due to multiple factors - a weaker-than-expected monsoon from the El Nino effect, soft rural demand, and reduced global IT spending.

The IT sector, a heavyweight in the Nifty 50, saw only a 3.2% increase in the top line, and marked its first net profit decline of 1.4% in the past 26 quarters.

Revenue trends: Auto, metals, realty, and banks excel amid slowdown in chemical, IT, and OMC sectors

Packaged food and agrochemical sectors were especially hit by lower rural consumption. "Urban growth has continued to outpace rural growth across many industries, and an uneven monsoon hit kharif crop output," Rohit Jawa, the CEO of HUL noted. Although a good monsoon in FY25 is expected to drive a recovery in rural spending, many companies in consumption-driven sectors still see muted demand in the first half of FY25.

The refineries and petroleum sector suffered from lower consumption and crude prices, though the demand for petroleum products is expected to grow by 3% in FY25. Specialty chemicals faced challenges from higher Chinese imports, which has pressured domestic sales volumes and margins.

On the other hand, industries like banks, auto parts & equipment and iron & steel products have led revenue growth for the Nifty 50. Banks benefitted from higher loan growth, while the auto sector’s revenue was boosted by price increases and festive season sales.

Margin growth helps the bottom line

The Nifty 50 saw its profit margins grow because of lower input costs, festive demand, higher price realization, increased exports, and a stronger USD.

Nifty 50 sees margin expansion in four consecutive quarters

Margins in the auto parts and equipment industry got a boost from lower commodity prices and higher price realization, with an uptick in volumes during the festive season.

Oil marketing companies have benefited from buying crude at lower prices from Russia and exporting more refined oil to European nations, improving refining margins. However, this may change as nations buying from Russia face a higher risk of sanctions.

The iron & steel industry saw better margins from domestic consumption and lower costs. However, rising Chinese imports have put pressure on margins lately. Meanwhile, the pharma sector has benefited from stable prices in the US, and better domestic sales.

Banks and IT sector to drive earnings in FY25

The banking sector has seen margin contraction this quarter due to the rising cost of funds and lower yields on advances. But with interest rates expected to drop in FY25, banks should see margins recover, supported by high loan growth. Credit growth in banks is projected at 14% for FY25, with profits expected to grow by around 22% YoY.

India's IT sector, which had surged during the Covid years, has been impacted by spending cuts by BFSI clients, leading to lower revenue and margin contraction. As interest rates surged globally, customers have also postponed IT infrastructure spends.

With its cash cow failing to deliver, tech CEOs are looking for other ways to grow. New verticals are all the rage - utilities, telecom, automobile, retail and manufacturing. Tech companies are also tapping into newer markets in Asia, Africa and the Middle East. Wipro for example, is bullish on digital solutions and AI in FY25, while HCL Tech is betting on non-BFSI verticals. TCS is expecting a surge in order inflows from India.

With global interest rates expected to drop post-June 2024, the IT sector may see a revival in client spending, especially in Q3FY25.

Banks set to boost topline, IT eyes margin expansion in FY25

Nifty 50 valuations appear reasonable

The Nifty 50 has gained 12.2% in the past month, sparking debate on whether it's valued too high compared to its global peers. Given India's status as the fastest-growing major economy and Nifty 50’s impressive 17.2% earnings growth in Q3FY24, a premium valuation seems justified.

The Nifty 50’s current PE of 22.8 is also below its 5-year and 10-year averages.

Nifty 50 PE trades below long-term averages

The lower valuation compared to historical averages is on account of a slowdown in its topline and an expected margin moderation in FY25. The index's long-term averages were also marginally skewed by the high valuations in the Covid period.

However, the Nifty 50’s one-year forward PE of 19.4 suggests that the valuation is within a reasonable range, and FY25 will give it more room to grow.

Screener: Nifty 50 stocks surging over the past month with rising operating profit and operating profit margin

BPCL leads in month change, while Adani Ent leads in operating profit margin growth

Continuing our analysis of the Nifty 50's performance, we look into which stocks in the index have the highest YoY growth in operating profit and operating profit margin in the latest quarter.

This screener focuses on Nifty 50stocks that have surged over the past month, and saw a rise in operating profit and operating profit margin.

Leading the pack is the automobile & auto components sector, with five out of 11 stocks coming from this sector. Major stocks that appear in the screener are Bharat Petroleum Corp, Mahindra & Mahindra, Power Grid Corp of India, Tata Motors, Maruti Suzuki India, Adani Ports & SEZ, Sun Pharmaceutical Industries and Adani Enterprises.

Mahindra & Mahindra has risen by 19.3% over the past month, owing to its operating profit growing by 18.5% YoY to Rs 6,224 crore in Q3FY24. Its operating profit margin also expanded by 48 bps YoY to 17.6%, helped by increased sales of premium vehicles (XUV 700, Thar & Scorpio-N) and improved price realization.

Power Grid Corp of India’s share price has surged by 19.1% in the last 30 days, while its operating profit grew by 3.2% YoY in Q3FY24. This utilities company’s operating profit margin increased by 57 bps YoY to 88.4% on the back of reduced finance costs and lower provisions for depreciation and interest payments.

You can find more screenershere.

The Baseline

26 Feb 2024

5 stocks to buy from analysts this week

By Abhiraj Panchal

1. CIE Automotive India:

Axis Direct maintains its ‘Buy’ rating on this auto part and equipment manufacturer with a target price of Rs 565. This indicates an upside of 22.2%. Analysts Shridhar Kallani and Aditya Welekar say, “The company’s Indian operations are likely to outperform underlying industry growth in the medium term.”

In Q4CY23, the company reported a net profit of Rs 168.9 crore, as against a loss of 657.8 crore in Q4CY22. Meanwhile, its revenue showed only marginal YoY changes. The analysts believe that the subdued revenue growth was due to decreased sales of medium and heavy commercial vehicles and delayed ramp-up of new electric vehicle (EV) export orders.

However, Kallani and Welekar expect growth in the Indian operations to surpass estimates, thanks to increased orders from OEMs (original equipment manufacturers), demand-backed capital expenditure, and overall industry growth.

The analysts highlight the company’s potential for long-term growth in India and Mexico, led by increased capacities, opportunities for operational efficiency improvements, and a healthy balance sheet. They estimate a revenue CAGR of 9.6% from the Indian operations and 5.7% from European business over CY24-26.

2. Tata Consumer Products:

KRChoksey reiterates its ‘Buy’ rating on this tea and coffee company with a target price of Rs 1,352, indicating an upside of 14.9%. Analyst Unnati Jadhav says, “Tata Consumer’s focus on driving growth through organic and inorganic expansion will lead to double-digit topline growth in the medium-term.” In Q3FY24, the company’s revenue grew 9.7% YoY to Rs 3,863.5 crore, while its net profit decreased 20.7% YoY to Rs 278.9 crore.

Jadhav believes that the decline in net profit was due to exceptional items worth Rs 91.5 crore related to acquisitions and restructuring expenses.

The analyst expects the acquisition of Capital Foods and Organic India to boost profitability, led by superior margins from the acquired business. She foresees revenue growth, backed by distribution expansion, innovation, premiumization and inorganic play. She remains optimistic as the management has indicated current margins of 15% as the new base and expects further expansion. Jadhav forecasts revenue, EBITDA and profit to grow by 13.9%, 21.1% and 24.7% CAGR, respectively, over FY24-26.

3. Va Tech Wabag:

Sharekhan maintains its ‘Buy’ call on this utilities company with a target price of Rs 850, indicating an upside of 6.2%. Analysts at Sharekhan say, “VA Tech Wabag has been exhibiting good operating performance, driven by a better order mix and improved execution efficiencies.” During Q3FY24, the company’s profit improved 33.4% YoY to Rs 62.9 crore.

Despite divesting two European entities, the company managed to increase its sales by 8.1% YoY to Rs 704 crore, thanks to revenue from new and large projects.

The analysts remain optimistic about Va Tech Wabag on the back of its robust order book (approx Rs 11,900 crore) and a promising order pipeline. They say, “A well-funded and strong order book with healthy revenue visibility provides comfort in execution and collections going ahead.” They also believe that the company is focused on margin improvement and cash flow generation, which positions it for growth in the medium to long term.

4. Sudarshan Chemical Industries:

ICICI Direct recommends a ‘Buy’ call on this specialty chemicals company with a target price of Rs 705, indicating an upside of 17.1%. In Q3FY24, the company’s profit increased by almost 25x YoY but fell 18.3% QoQ to Rs 14.6 crore, while revenue grew by 7.8% YoY but fell 6% QoQ to Rs 570 crore. Analyst Siddhant Khandekar believes that this YoY growth was led by a 11% increase in domestic pigment sales, which accounts for 49% of total revenues.

Khandekar is positive about the company due to its “sustained focus on specialty pigments (2/3 of the portfolio), for which it has incurred significant capex”. Sudarshan Chemical has announced the launch of four new pigments in the domestic market and two in export markets. He expects an uptick in margin on the back of improving operating leverage. He also says that the company has visible growth in international markets, especially the US, and opportunities brewing from global consolidations and exits of larger players.

5. Huhtamaki India:

SBI Securities recommends a ‘Buy’ call on this small-cap containers and packaging company with a target price of Rs 393. This indicates an upside of 11.4%. Analysts from SBI Securities say, “Huhtamaki has an established market position in the premium flexible packaging market, supported by its diversified product range and a strong, diverse customer profile.” They believe that the company has a strong competitive advantage due to its client base, including marquee clients like Colgate Palmolive, GlaxoSmithKline, Pepsico, and Coca-Cola.

The analysts are also optimistic about the company’s move towards sustainable packaging solutions, which is in line with client goals for all packaging to be recyclable by 2030. The analysts like Huhtamaki for its improving financial position, driven by strong operating cash flows.

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

(You can find all analyst picks here)

The Baseline

23 Feb 2024

Five Interesting Stocks Today

1. Thermax:

This heavy electrical equipment company hit an all-time high of Rs 3,772.9 per share on Friday, with a 22.3% rise in the past month. This rise followed a licensing and technical assistance deal with South Korea’s Flowtech. The deal enables Thermax to obtain technology to manufacture polycarboxylate ether products known for their water-reducing abilities, and improve concrete setting time. This will also strengthen its construction chemicals business, which currently accounts for 7% of its top line. The company appears in a screener of stocks with rising mutual fund shareholding in the past month.

In Q3FY24, Thermax’s net profit rose 88.9% YoY to Rs 238.3 crore, beating Trendlyne’s Forecaster estimates by 54%, while its revenue grew 13.9% YoY to Rs 2,382.8 crore, slightly missing forecasts by 1.1%. This profit boost was mainly from an exceptional gain of Rs 126 crore, from transferring leasehold rights for a vacant plot.

The firm's green energy solution contributes 5.1% to revenue, while accounting for 50% of interest payments. This has significantly impacted profitability.

Thermax has not received any significant orders in the past two quarters due to a slowdown in the domestic business. However, its management is optimistic that bidding for domestic power projects will lead to a quarterly order inflow of Rs 2,400 crore for the next three quarters. They expect it to ramp up after Q1FY25, helped by projects in the Middle East.

MD and CEO, Ashish Bhandari, announced plans to invest Rs 1,000 crore in Gujarat to set up renewable energy capabilities and build-own-operate customer plants for biomass over FY25.

Post-results, HDFC Securities maintains a ‘Buy’ rating on Thermax as they expect the company to benefit from its investments in the clean energy and sustainability sectors. They expect a revenue CAGR of 10.6% and adjusted profit after tax CAGR of 18% over FY24-26.

2. JK Lakshmi Cement:

This cement & cement products manufacturer rose by 3.5% over the past week, as brokerages like HDFC Securities, Axis Securities, and SBI Securities maintain their ‘Buy’ ratings on the stock. Its Q3FY24 net profit has risen by 88.1% YoY to Rs 143.7 crore and revenue increased by 9.1% YoY. It beat Trendlyne Forecaster estimates for net profit by 9.4% but missed revenue estimates by 3.1%. However, its EBITDA margin improved by 588 bps YoY on the back of a decline in fuel expenses and higher price realization. The company appears in a screener of stocks in the Nifty 500 with consistently high returns over five years.

In Q3FY24, JK Lakshmi Cement reported a 7.6% YoY increase in sales volume to 29.6 lakh tonnes. The growth in margin was supported by premium cement sales, which accounted for 25% of trade sales volume. The firm’s fuel expense dropped by 14.7% YoY thanks to enhanced renewable energy use and its waste heat recovery system (WHRS). Due to the imposition of busy season charges by railways, the company moved 90% of its volume by road and the remainder by train, leading to a 5% YoY increase in freight cost per tonne to Rs 1,330.

The firm’s clinker capacity and grinding capacity utilization stood at 105% and 79% respectively for the quarter. The management has guided capex plans of Rs 2,500 crore for the next 2-3 years. The capex will be used to add 2.3 MT in clinker capacity and another 4.6 MT for the grinding unit.

Management expects a volume growth of 8-10% in Q4FY24 and highlights a reduction in cement costs across most locations, which are currently 2-3% lower than Q3FY24 exit levels.

SBI Securities has given a ‘Buy’ rating to the company, with a target price of Rs 1,090. They say, “The company’s recently announced expansion plans, coupled with its target to reach a full-year EBITDA/Tonne of Rs 1,000 in the next 14-18 months, will aid long-term sustainable growth.”

3. Quess Corp:

Thissoftware and services firm rose by 7.8% on Monday following its announcement of a demerger into three entities: Quess Corp (workforce management), Digitide Solutions (insurance technology and human resource organization), and Bluspring Enterprises (facility management and industrial services). These segments currently contribute 68%, 14%, and 18% to the company’s revenue, respectively. The demerger aims to improve valuations and enable a focus on pure-play verticals. It is expected to be completed in 12-15 months, with shareholders getting one share each of Digitide Solutions and Bluspring Enterprises for every share held in Quess Corp.

In Q3FY24, the company reported a revenue increase of 8.4% YoY and a net profit decline of 27.4%. It missedTrendlyne’s Forecaster estimates by 4.4% and 18.9%, respectively. The decline in profitability was on account of higher employee expenses as the firm added 22,000 employees in the past two quarters. It also reduced spending in Indian IT staffing. Some employees have been placed in the BFSI, manufacturing and telecom segments.

The firm has reduced marketing expenses and is trying to enhance the client base to increase employee utilization. The firm's CEO, Guruprasad Srinivasan, stated that the firm has been focusing on niche segments like e-commerce, healthcare, FMCG and industrials to offset the spending cuts in the IT sector.

Quess Corp has also cut its gross debt by Rs 110 crore to Rs 400 crore. Margins are expected to expand in FY25, owing to a rebound in India’s IT solutions and increased infrastructure activities like port development, airports, and power plants, which would boost the company’s manpower supply business.

Motilal Oswal Securities predicts a 50% net profit CAGR over FY24-FY26 on a low base of FY24. Formalization of labour reforms and margin expansion are expected to drive the bottom line. However, due to concerns over taxation, a weak macroeconomic environment, and high valuations, the brokerage maintains a ‘Neutral’ rating on the firm.

4. NBCC (India):

This construction & engineering company has risen by 4.6% over the past week, after winning multiple orders and signing two memorandums of understanding (MoUs). The company bagged three orders worth Rs 369 crore from multiple clients on Monday. The orders include infrastructure development for Rani Lakshmi Bai Central Agricultural University in Jhansi, a court complex and residential quarters in Telangana, and renovations of Noida’s ICAI Bhavan.

On Tuesday, NBCC won an order worth Rs 560 crore to construct the permanent campus of NIT Sikkim. The company also signed an agreement with the Greater Noida Authority to develop a purchasable floor area ratio (FAR) for five existing Amrapali projects on Thursday, with a total value of Rs 10,000 crore. It also signed two MoUs with Housing and Urban Development Corp to provide consultancy services and asset monetisation activities.

NBCC released its Q3FY24 results on February 13, reporting a 60.3% YoY increase in net profit to Rs 110.7 crore. Its revenue also grew by 13.7% YoY to Rs 2,405.5 crore, beating Trendlyne’s Forecaster estimates by 10.8%. The revenue boost was on the back of improvement in the PMC, real estate and EPC segments. It appears in a screener of stocks with a 10% increase in share price over three months, with rising net profit growth.

Kellambally Mahadevaswamy, CMD of the company, said, “The company has a robust order backlog, with our consolidated order book reaching Rs 5,300 crore. We have set a target of around Rs 12,000 crore for the next financial year, a significant hike from the current target of Rs 8,000 crore.”

5. Devyani International:

This restaurant chain has fallen by 11.5% over the past month following an 86.6% YoY drop in its Q3FY24 net profit to Rs 9.6 crore. It missed Trendlyne’s Forecaster estimates by 77.4%. The decline was due to increased finance costs, employee benefits and depreciation expenses. A lower deferred tax credit (Rs 1.8 crore) compared to Q3FY23 (Rs 14.3 crore), and an exceptional item worth Rs 8.8 crore also contributed to the decline. In addition, Yum Restaurants India sold its entire 4.4% stake (5.3 crore shares) in Devyani International for approximately Rs 871.1 crore through a block deal on Wednesday.

Despite opening new stores (a 24% increase YoY), its revenue only grew by 6.7% YoY due to subdued same-store sales growth (SSSG) in the KFC and Pizza Hut brands. KFC and Pizza Hut reported SSSG of -4.7% and -13%, driven by falling dine-in sales. The management said that the pizza category remains under pressure due to increasing competition from unorganised players.

The past quarter has been volatile for QSR (quick services restaurant) companies, with demand dipping after the Cricket World Cup and Diwali seasons. According to Ravi Jaipuria, the Chairman of Devyani International, “Consumer sentiment remains subdued, despite Q3 traditionally being a strong and festive quarter. We have also seen the impact of certain international geopolitical events on the American brands that we deal with.” However, the management is hopeful of a recovery in the next few quarters.

The company added 94 stores in Q3, taking the total to 1,452. It also acquired 283 KFC stores in Thailand. Devyani plans to add 250-275 stores in Q4 and is on track to achieve its target of 2,000 stores in FY24.

Motilal Oswal reiterates its ‘Buy’ rating on the stock with a lower target price of Rs 195. The brokerage remains cautious due to the demand challenges in the near term.

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

The Baseline

23 Feb 2024

Chart of the Week: India's trade deficit narrows in January after a volatile year, Red Sea crisis poses new challenges

By Bhavani Eswar

The global economy's fragile state in 2023, shaped by rising geopolitical tensions, high interest rates, and elevated inflation, has led major institutions such as the IMF and OECD to project a bleak outlook for global growth in 2024.

Key economies, including Japan and the United Kingdom, have already slipped into technical recessions – defined as GDP contraction for at least two successive quarters – during the September-December quarter of 2023. This is troubling for India, as six major countries that are facing recession (Germany, Japan, Thailand, Malaysia, South Africa, and the UK) are key trading partners, making up 10% of its total trade.

Another factor impacting world trade is the Houthi rebels’ presence on the crucial Red Sea trade route, which is responsible for 12% of global trade. The rebel attacks have forced exporters to reroute a major share of their shipments away from the Suez, significantly increasing travel distances and costs. Going around the Cape of Good Hope adds around 6,000 km to trips connecting Europe and Asia, leading to increased freight and fuel costs for exporters.

In this edition of the Chart of the Week, we examine the trends in countries’ trade balances and assess their trade surplus/deficit. Emerging economies like India and China have witnessed sharp changes in their trade balances in 2023.

Emerging markets see steep monthly fall in trade balances in 2023

China, the world’s largest exporter, saw its trade surplus fall by 18.7% YoY to $264.2 billion in 2023 due to weak global and domestic demand for Chinese goods. Its trade surplus slumped the most in February 2023 by 87% MoM to $11.8 billion, following a 6.8% YoY decline in exports during January and February 2023.

Meanwhile, the US trade deficit increased by 11.1% in 2023. It widened by 24.5% MoM to $74.6 billion in April 2023, reaching its highest level since October 2022. According to the US Commerce Department, this marked the largest MoM increase in the trade deficit since April 2015, driven by a fall in the value of goods exports like crude oil.

As trade balances in China and the US moved negatively, India’s trade deficit expanded to an all-time high of $31.5 billion in October 2023. This surge was due to a 70% increase in oil, gold, and silver imports during the period.

From April 2023 to January 2024, India’s merchandise exports decreased by 4.5% YoY to $353.9 billion and imports declined by 6.7% YoY to $561.1 billion.

In January 2024 however, India’s trade deficit fell to $17.5 billion, an 11% improvement from December. This was due to a 6.9% MoM decrease in imports and a 4% MoM fall in exports. The export decline was driven by a rise in freight charges due to disruptions along the Red Sea trade route, which handles 30% of Indian exports.

Russia remained a major trading partner, accounting for 44.8% of Indian imports during the same period. India’s primary export destinations included Australia, Singapore, the United Kingdom, China, and the UAE. Rating agency ICRA expects India’s trade deficit to be between $20 billion and $25 billion in the remaining months of FY24, resulting in a current account deficit (CAD) of around 1.7% of GDP in Q4FY24.

Germany’s trade surplus increased by 41.5% in 2023, with the December trade surplus reaching its highest since January 2021 at $24.2 billion. This growth was driven by increased demand for German manufactured goods in the US, UK, and China.

Vietnam has emerged as a success story in global trade, posting a trade surplus for the eighth consecutive year. The country reported a trade surplus of $28 billion for 2023 as imports in 2023 fell 8.9% to $327.5 billion. Although exports also declined by 4.4% YoY to $355.5 billion, this was due to an 8.3% drop in smartphone shipments, its largest export item. To compensate for the fall in exports, Vietnam extended a value-added tax cut to boost domestic consumption.

The Baseline

22 Feb 2024

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

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

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

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

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

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

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

In this week's Analyticks:

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

Let's take a look.

CEOs are keeping a close eye on rising shipping costs

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

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

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

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

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

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

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

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

Chart: Europe sees car sales recover in January 2024

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

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

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

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

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

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

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

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

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

You can find more screenershere,

The Baseline

20 Feb 2024

5 stocks to buy from analysts this week with high upsides

By Satyam Kumar

1. Royal Orchid Hotels:

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

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

2. NTPC:

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

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

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

3. Prestige Estates Projects:

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

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

4. Ashok Leyland:

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

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

5. HG Infra Engineering:

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

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

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

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

(You can find all analyst picks here)

The Baseline

17 Feb 2024

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

By Tejas MD

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

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

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

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

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

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

In this week’s Analyticks,

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

Indian stock market in top gear while China stumbles

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

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

Nifty50 outperforms Shanghai Composite and Hang Seng over past four years

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

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

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

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

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

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

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

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

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

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

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

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

India's import duties higher compared to other emerging markets

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

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

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

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

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

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

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

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

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

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

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

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

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

You can find more screenershere,