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

17 Sep 2022

Winners and losers among India Inc promoters; companies expected to deliver strong growth in Q2

When it comes to wealth creation, the last 12 months have been a topsy turvy time. The sharp upward swing in stock markets last year was followed by a period of high volatilty. It wasn't just the fortunes of retail investors that were affected - Indian promoters and big business families also saw unexpected changes.

In this week’s Analyticks:

India Inc's promoters: Big winners and losers in net worth
Screener: Companies predicted to deliver strong QoQ revenue growth in Q2FY23

Let’s get into it.

India's promoter families: Who gained and who lost big time in the past one year?

This year has been a mixed bag for Indian markets. While some consumption-oriented sectors like hotels and restaurants, retailing, and food and beverages zoomed in value, others likeIT and Pharma got beaten down.

This created a new batch of winners and losers: some Indian promoter families saw their net worth figures reach new highs, while others saw their net worth fall from record levels between September 2021 and September 2022.

To arrive at public net worth estimates for September 2022, we have considered the stock price as on September 9, 2022 and promoter holdings in companies as of the most recently available date - end of June 2022. The previous year’s net worth estimate is based on September 2021 month end prices and shareholding.

The Winners: Some promoter families see wealth soar as consumption recovers in India

Who said fast food is bad for you? Not for the Jaipuria family. After India emerged out of the Omicron wave, outdoor leisure and travel activity rebounded strongly. Out of home consumption of food and beverages also rose, benefitting promoter Ravi Jaipuria and his family.

The family’s net worth touched nearly Rs 60,000 crore, up over 70% for the period in question. This stellar jump was mainly driven by their official franchisee of PepsiCo brands, which is Varun Beverages. The company doubled its sales volumes to 300 million cases in Q2-2022 backed by the intense heat wave, IPL season and higher outdoor activity.

A second notable contributor to the rise in the Jaipuria family’s net worth was the quick service restaurant player Devyani International. The franchisee of KFC and Pizza Hut grew ahead of Jubilant Foodworks in Q1FY23. Devyani’s average daily sales from KFC stores touched an all-time high and same store sales growth crossed 60% in Q1FY23.

Promoters of specialty chemical companies like Pidilite Industries and Fine Organics have also gained in the year gone by. The Parekh family’s net worth scaled the Rs 1 lakh crore mark in September 2022, led by the healthy stock price performance of Pidilite. The correction in crude oil prices from June 2022 added to the fortunes of this family. Vinyl acetate monomer is a key input used in the company’s adhesives like Fevicol and is linked to crude prices.

Rise in demand for food and beverages also aided the revenue growth of Fine Organics as it caters to the food additives market. The Shah and Kamat family saw their combined net worth double to Rs 15,000 crore as Fine Organics' share price moved steadily upward.

The Losers: Promoters of IT and Pharma companies suffer a dip in their fortunes

As the IT sector boomed, backed by new digital transformation projects, the demand for quality talent rose. The tide was in favor of the techies as companies competed to hire them by offering higher packages. As the bidding war escalated, attrition rates started to climb.

Many engineers saw a revolving door of opportunity, exiting new companies in six months or less to join the next one at even higher pay packages. Before the Ashneer Grover fiasco, BharatPe was making headlines for tempting engineering hires with BMW bikes and trips to Dubai. IT companies had to incur higher costs in form of incentives to retain talent. The effect of these costs could be clearly seen on the margins of top-tier IT companies from Q3FY22.

Soon, demand concerns also emerged. Worries of an economic slowdown in the US and Europe surfaced towards the end of March 2022. Margin pressures coupled with uncertainty on the demand front spooked foreign investors, leading to capital flight from the Indian IT sector and causing the Nifty IT index to correct over 25% from its highs.

Accordingly, the prominent promoter families of Azim Premji and Shiv Nadar saw their net worth fall by more than Rs 50,000 crore in this period. This was driven by the underlying correction in the stock prices of Wipro and HCL Technologies respectively.

Divi Satchandra Kiran and his family was another major loser in terms of net worth. The combined family’s net worth fell below Rs 50,000 crore on the poor near-term outlook for Divi’s Laboratories. As the pandemic started to recede from Q2FY22, analysts expected the company’s revenues from sale of Covid-19 drugs, especially molnupiravir, to fall in FY23. The evidence of this was clearly seen in the company’s financial performance for Q1FY23.

Ajay Piramal and family also saw their net worth fall by over Rs 15,000 crore, mainly due to the demerger of their pharmaceutical business. However, even when the business was combined with Piramal Enterprises, the pharma unit saw its revenues fall by over 30% QoQ in Q1FY23. Notably, the demerged entity will get listed on the bourses in Q3FY23, adding back to the family’s public net worth.

Outlook stays strong for specialty chemicals and consumption related sectors

In the earnings call of Q1FY23, the management of Devyani International sounded confident of the demand trends in the second half of the fiscal. This expectation is backed by India's upcoming festive and holiday season. The company is also set to expand its domestic store count by over 50% by FY24. So it's no surprise that the consensus estimates of analysts expect its net profits to double in the next two years.

The demand outlook for Varun Beverages is also strong given that its juices, energy drink and dairy segments are performing well, and it is expanding into newer markets. The Jaipuria family is riding high on upbeat sentiment in this sector.

The Speciality chemical sector is set to grow at a CAGR of 11-12% in next five years as the demand shifts to India, owing to the ‘China+1’ policy of global suppliers. The favorable demand environment augurs well for players like Pidilite Industries and Fine Organics. Analysts expect these companies to clock robust revenue growth in FY23 as well.

Among the losers, the near-term challenges for Indian IT continue to persist. High attrition rates will take a few more quarters to stabilize while a weak macroeconomic environment may impact the technology spends of these companies. Accordingly, analysts see top-tier IT firms clocking lower revenue growth in FY23.

As India continues to cope with a challenging global environment of high inflation and growth slowdown, it will be interesting to see which promoter families emerge as the big winners and losers over the next year.

Screener: Some segments set to clock strong QoQ revenue growth in Q2FY23

As we approach the end of Q2FY23, we take a look at companies which are likely to report strong topline growth in the September quarter as well as in FY23, according to Trendlyne’s Forecaster. Analysts have also recommended a Buy/Strong Buy rating for these stocks.

This screener reflects 15 companies that qualify within the Nifty 500 group. The festive season in India began with Ganesh Chaturthi and Onam in August end, and is expected to drive higher sales for home appliance and consumer durable makers in September. Companies like TTK Prestige and Crompton Greaves are predicted to clock over 20% QoQ revenue growth in Q2FY23, backed by the premium segment.

Online beauty and fashion retailer Nykaa will also see strong sales growth in Q2FY23 according to analysts, as redder lipsticks and hair treatments fly off the shelves during the festive season. Higher consumption among Indians will also drive demand for retail credit, aiding the expected double-digit revenue growth of HDFC Bank and Axis Bank.

Fertilizer maker Coromandel International is set to deliver QoQ revenue growth of nearly 60% in Q2FY23 on the positive impact of Kharif season, according to estimates.

You can find some popular screeners here.

The Baseline

16 Sep 2022

Five Interesting Stocks Today

KEC International: This heavy electrical company stock started the week with a 9% surge, but fell 3% on Tuesday. However, it rose 5% on Wednesday after it bagged an order worth Rs 1,108 crore, according to a filing released by the company. The order contains projects in transmission and distribution, as well as oil & gas in India, the Middle East, and Africa. This is the second big order recently won by the company, following an order worth Rs 1,313 crore on August 16.

Despite a robust order book and the stock price rising 21.8% in the past 90 days, this stock shows up on the screener of stocks underperforming their industries. KEC International is underperforming the heavy electrical equipment industry by 8.5% in the past 90 days.

However, brokerages like ICICI Direct and ICICI Securities are enthusiastic about the new order book and maintain a ‘Buy’ rating on the stock. Trendlyne’s consensus recommendation shows 14 analysts who recommend a ‘Buy’ rating on the stock. The management also says that they expect order growth of 15% for FY23. But the major concern about the increase in the net working capital (NWC) cycle remains. However, KEC management says that with the diversification into railways, civil, and oil and gas pipelines, the NWC will reduce to 130-135 days by Q4FY23 from 148 days in Q1FY23.

Dixon Technologies (India):Thisconsumer electronicsmanufacturer’s stock rose 4% in intra-day trade on Tuesday. The rise came after its subsidiary Padget Electronicsreceivedapproval for the disbursement of incentives worth Rs 53.3 crore under the production-linked incentive (PLI) scheme. The company will be receiving incentives for the manufacturing of mobile phones. In fact, it is the first company under this scheme to receive approval for the disbursement of funds from the government, as it achieved the investments and revenue targets set by the government.

Themanagementis looking to capitalize on the centre’s push for manufacturing in India, as it has received approval under five PLI schemes, for LED components, IT hardware, mobile phones, air conditioners, and wearables & hearables. This has led to the stock making it to thisscreenerwhich lists companies benefitting from PLI schemes.

Dixon’s net profit inQ1FY23surged by 151.6% YoY, driven by the mobile and consumer electronic manufacturing services segments. Themanagementexpects the mobile segment to drive revenue growth in the coming quarters in FY23, as it expects orders from Motorola and Samsung to rise. It also plans to increase production volumes in all its business verticals, as demand is expected to increase on rising orders and customer acquisition. The company has planned a capex outlay of Rs 310-320 crore for the rest of FY23. It intends to use this capital to expand production capacity, invest in PLI-related schemes and diversify its product portfolio mix. Overall, the firm aims to increase its total production capacity by 40% by the end FY23.
Bharat Electronics: This defence electronics company hit its life high in five of the last ten trading sessions. The stock is up 36% since it announced its Q1FY23 results in July. With the stock price hitting multiple life highs, the company comes up in a screener that lists stocks with strong momentum and current price above short, medium, and long-term moving averages.

This Navratna public sector company held an investor outreach program from September 12-15, where the company reiterated its revenue growth guidance of 15% in FY23, in line with Trendlyne’s Forecaster estimates of 14.3%. The management also said that the company is focusing on non-defense businesses, which accounted for 10.2% of revenues in FY22. Over the next two to three years, the company aims to get 20% of its total revenue from the non-defence sector. In line with this strategy, BEL recently signed a memorandum of understanding (MoU) with UK-based Smiths Detection, to offer advanced, high-energy scanning systems to the Indian market. It also signed an MoU with NHPC for setting up a 1,000-megawatt solar manufacturing unit in India. The company's order book position stood at Rs 55,333 crore in Q1FY23 with an expected order inflow of Rs 20,000 crore in FY23. With a huge order book in hand, the focus now turns to execution - how well it can fulfill these orders.

Kalyan Jewellers:The stock of this jewellery maker outperformed the Nifty 500 index by over 15 percentage points in the past week and touched its life-high today. The company also surpassed its IPO issue price of Rs 87 apiece for the first time this week. The stock has been buzzing in trade on the expectation of bumper sales in Q2FY23.

The gold prices in USD/Kg corrected close to 15% between April and September 2022, according to the World Gold Council. This augurs well for gold jewellery demand in India’s upcoming festive and wedding season. In fact, Kalyan Jewellers saw a stronger sales momentum in July than in Q1FY23 for both the Indian and Middle East markets. The official festive season in the southern part of India began as of August end with the arrival of Onam. The southern market actually happens to be the stronghold of Kalyan Jewellers and the company derives 65% of its sales from the same. Now, the company is looking to expand in other regions and will invest around Rs 250 to 300 crore by this Diwali. Back in July, its initial target was to open 10 stores across Delhi NCR, Maharashtra, Uttar Pradesh, Orissa and Chhattisgarh. Since then, it has already opened three stores taking its store count to over 160. Coupled with the sales from new stores and strong traction in its flagship market, the company may rake in higher YoY revenue and profits for Q2FY23.

According to Kalyan Jewellers, the organized retail market for gold jewellery will grow at a rate of 14% YoY in FY23, faster than the broader gold jewellery demand. This definitely augurs well for the company and consensus estimates of analysts see its net profits rising over 40% in FY23.

Zensar Technologies: This IT stock is falling for the last three consecutive sessions, nearing its 52-week low on Thursday. It fell 2% on Wednesday after the company held its investor meeting. In its investor meeting, the management noted that it is seeing a fall in demand from clients, especially from the retail, manufacturing and technology segments. The company’s major clients are from the US (71% of the client base) where the economy is slowing, and businesses are starting to conserve cash. Given this, Motilal Oswal’s report suggests that the technology segment might take a dip in terms of demand as many tech companies have started to lay off employees.

Despite headwinds, Motilal Oswal gives a ‘Buy’ rating on Zensar with a target price upside of 15% as it expects revenue to grow in FY23. It also expects margins to improve and key accounts to recover during the year. In its investor presentation, the management says that demand and order book is still robust from the BFSI (banking and financial services) segment, (56% growth in Q1FY23). The company also has 5 mergers & acquisition deals on the table for execution. The stock also shows up on a screener of companies whose RoE is improving from the past two years.

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

The Baseline created a screener Ten Year Returns Higher …

15 Sep 2022, 07:03PM

Ten Year Returns Higher than Industry

Stocks whose ten year returns are higher than their industry

The Baseline

14 Sep 2022

Chart of the week: Nestle India, CG Power significantly outperform their sectors in ROE

By Abdullah Shah

For investors, Return On Equity (ROE) is a useful financial ratio to check while hunting for quality stocks. It’s a fairly simple calculation - ROE is net profits divided by shareholder equity.

This ratio gives investors a good sense of the stock’s profitability - how efficient the company is at converting equity provided by shareholders into profit. An ROE below 10% is considered weak.

ROE however, is a ratio that varies greatly by sector, since some businesses, like say commodities, may build more assets than cash flows. This screener therefore, is a useful way to look at ROE, by identifying ROE outperformers at a sector level.

Nestle India has among the highest outperformance over its sector in annual ROE. The company has outperformed the FMCG sector by 70 percentage points in annual ROE. Nestle posted an annual net profit growth of 3% YoY and witnessed a rise of 23 bps YoY in annual EBITDA margin.

Next in the list is CG Power and Industries with an annual ROE of 90.9%, outperforming the general industrials sector by 64.4 percentage points. The company’s annual EBITDA margin rose by 5.3 percentage point YoY, helping ROE expand.

Info Edge (India) has the next highest annual ROE in its sector and outperforms the software & services sector by 42.1 percentage points. A growth in annual net profit of almost 9X YoY in FY22 with a 10 percentage point YoY rise in annual EBITDA margin aided the company to achieve a high annual ROE of 74%.

Page Industries outperforms the textiles, apparels & accessories sector by 23.5 percentage points in terms of annual ROE. The company achieved this high ROE as its annual net profit for FY22 grew 57.5% YoY with its annual EBITDA margin growing 150 bps YoY.

The Baseline

12 Sep 2022

Five analyst stock picks trading in the PE Buy Zone

By Abhiraj Panchal

This week we take a look at five analyst picks that are also trading in the PE Buy Zone. The PE buy zone is a useful valuation check - it sees whether the stock trades at its current PE the majority of the time.

If the current PE is unusually low compared to where the stock usually trades, the stock is in the PE buy zone. If the current PE is unusually high for the stock compared to its previous history, it is in the PE sell zone.

Healthcare Global Enterprises: ICICI Securities maintains its ‘Buy’ rating on this healthcare facilities company with a target price of Rs 339, indicating an upside of 25%. This stock is currently trading in the PE Buy Zone.

Analysts Vinay Bafna and Rohan John are positive on the hospital chain as it focuses on its core competency area of oncology. They believe the firm’s “comfortable debt levels with limited capex plans provide room to explore additional growth opportunities and drive efficiency at the newer hospitals”. The analysts expect revenue from international tourists to increase, as it has hospitals across major cities in India. Revenue from international patients has already jumped to 1.5X of pre-covid levels, added the analysts.

Analysts Bafna and John like the company’s strategy to strengthen its foothold in the oncology hospital space by focusing on acquiring standalone hospitals from tier-2 cities, where the cost of acquisition will be cheaper. HealthCare Global expects its newly acquired hospitals to be operational in 18-24 months, they added. The analysts expect the company’s net profit to grow at a CAGR of 29.2% over FY22-24.

Home First Finance Company India: Motilal Oswal initiates coverage on this housing finance company with a ‘Buy’ rating and a target price of Rs 1,020. This indicates an upside of 16.6%. The stock is currently trading in the PE Buy Zone.

Analysts Abhijit Tibrewal and Nitin Agarwal expect the company’s assets under management (AUM) to grow on the back of its rising disbursements, co-lending partnerships and diverse marketing channel. The analysts added, “Home First’s first mover advantage in technology along with its strategic digital partnerships has resulted in robust underwriting, quicker turnaround and superior asset quality”.

The analysts believe the company is well placed to mitigate a potential margin compression given its cost efficiencies. They also anticipate the asset quality to remain stable and healthy as its net non-performing assets stood at 1.8% in FY22. Analysts Tibrewal and Agarwal expect Home First Finance’s AUM and net profit to grow at a CAGR of 29% and 24%, respectively, over FY22-25.

Narayana Hrudayalaya: Prabhudas Lilladher maintains a ‘Buy’ rating on this healthcare facilities company with a target price of Rs 810, indicating an upside of 14.8%. The stock is currently trading in the PE Buy Zone.

Narayana Hrudayalaya inked an agreement with Shiva and Shiva Orthopaedic Hospital to acquire its orthopedic and trauma hospital (Sparsh unit) in Bengaluru on a slump sale basis for Rs 280 crore. Param Desai and Sanketa Kohale said, “Though the acquisition looks expensive, it will offer the entire spectrum of services in Health City.” They further added, “Sparsh unit possesses 100 operational beds since a decade, which has generated Rs 49 crore and Rs 18 crore revenues in FY22 and FY23 (4 months) along with healthy profitability.”

The analysts believe that the company’s aggressive capex plans, which include a new Cayman unit, inorganic opportunities and greenfield/ brownfield expansion in India over the next three years will enhance growth visibility beyond FY24. Overall Desai and Kohale expect an EBITDA CAGR of 22% over FY22-24.

Balkrishna Industries: Hem Securities initiates a ‘Buy’ call on this tyre manufacturer with a target price of Rs 2,293. This indicates an upside of 12.7%. The stock is currently trading in the PE Buy Zone.

The analysts note, “We believe Balkrishna Industries will continue to perform well over the next few quarters due to a robust demand environment.” They also believe that the company's export oriented business model, labor cost benefits and aggressive marketing may help them in outperforming its peers.

“With the help of capex, they are also increasing their capacity which will help them in gaining market share,” the analysts added. The tyre manufacturer is targeting doubling global market share to 10% vs. 5.5-6% currently, and its aggressive marketing and promotional activities are improving brand visibility.

IIFL Wealth Management: BOB Capital Market maintains a ‘Buy’ call on this financial services company with a target price of Rs 2,277, indicating an upside of 31.8%. The stock is currently trading in the PE Buy Zone.

Mohit Mangal writes, “IIFL Wealth has successfully scaled its annual recurring revenue (ARR) business over the last three years and aims to have 80-85% of its topline from recurring streams,” and he believes this strategy will ensure a favourable asset mix of both debt and equity, and garner traction in the alternative investment space.

This financial services company plans to target Rs 5-25 crore clients due to low competition levels and robust growth in clientele. Mangal remains positive on the stock and concludes, “The company has maintained a niche position in the under-penetrated wealth management business, enjoys a track record of innovative wealth products and has a strong team leader-driven model that boasts of low attrition at both the client and team level.”

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

The Baseline

09 Sep 2022

Adani's wealth grows as others shrink; Indian companies plan 'once in history' capex spending

It's difficult for Indian parents to point to Gautam Adani while telling their kids, "Don't you want to become like him?" Adani is after all, a college dropout. He was probably the kid adults called "a bad influence".

Now, to the frustration of Indian parents everywhere, Adani has become even richer, with Bloomberg placing him as the third wealthiest man in the world in 2022.

In this week's Analyticks:

It's raining gold: Adani's wealth rose even as many billionaires became poorer
Capex spending is on fire for Indian businesses: Companies are scaling up investment to meet domestic demand

In 2020, Gautam Adani was far from wearing the "richest three" crown. He had just $10 billion in net worth and was behind Mukesh Ambani in the billionaire race.

Come 2022, and how fortunes have changed. Adani has seen a jump in his net worth that beats any fairytale - it has multiplied 14X between Jan 2020 and now. He is now worth $143 billion, making him the third richest behind just Elon Musk and Jeff Bezos. Ambani is behind him, ranked tenth.

Much of this wealth has been driven by the rise of Adani stocks, which are at eye-watering, triple digit PE valuations. Adani Green Energy trades at 764 PE, while Adani Transmission trades at 458 PE.

Compare this to Reliance Industries, which trades at 26.3 PE. Despite the octopus nature of Bezos' Amazon's business, it trades at 116 PE, while Musk's Tesla trades at 99.1.

The rapid rise in Adani stocks over the last two years explains Gautam Adani's jump in the wealthiest list, even as other fortunes crumbled as markets turned volatile. Musk and Bezos, for example, saw their net worth decline as the value of Amazon and Tesla stocks fell in the year to date. Adani is also well ahead of other Indian billionaires.

The Adani group currently has a combined market cap of over $250 billion (approximately Rs 20 lakh crore). However, the challenge is that these businesses are "deeply over-leveraged" and loaded with low cash flow and high debt, as a recent CreditSights report put it, which means that Adani's net worth “is paper wealth, and tied to the valuations of his holdings in the Adani Group’s stocks". There's also the concern of the group's non-transparent shareholding, with anonymized shareholders like the APMS Investment Fund holding large stakes in Adani companies.

Rising debt in Adani companies is in contrast to Reliance's efforts to sharply cut debt levels. The crown is shiny for Adani, but high levels of debt are a shaky foundation to build a business, or net worth on.

Capex forecasts show aggressive spending plans in FY23

The outlook for India is brighter than the global economy, and that is showing up in the aggressive spending plans among Indian businesses. International as well as domestic analysts are bullish on spending, thanks to the healthy balance sheets of the Indian private sector, and rising domestic demand. Government policies have also been increasingly supportive of Indian industry, which is giving businesses confidence that the large investments they make will pay off.

As a result, the planned capex for the year across major industries is soaring. This screener (subscriber) looks at the estimated annual capex spending for India's top businesses in FY23. Industries such as refineries, oil production, electric utilities and telecom are all seeing big spending estimates.

This spending is partly driven by where India is on the development curve. As India's GDP ramps up, companies are building the "once in a country's history" essential infrastructure, that is needed to take the economy to the next level. This is like the infrastructure spending European and US economies saw in the 1950s and 1960s, and China saw in the 1970s as their GDP jumped. Large capex spends are being earmarked in critical sectors like metals, electric utilities, telecom and cement to meet the rising demands of Indian consumers.

For example, cement companies like Ultratech Cement and Grasim Industries have planned annual capex in the range of Rs. 50,000 crore. Sectors like auto are also seeing big outlays from companies like Tata Motors, as businesses focus on new models and the EV transition.

Companies are also moving up the value chain as their prospects improve. Rising global market share for India's chemical and fertilizer companies are pushing them towards higher-margin specialty compounds, and they are investing to build capacity here. The major companies in real estate and retail such as Avenue Supermarts, Prestige Estates, and Phoenix Mills, have also earmarked annual capex in the range of Rs. 20,000 crore.

The full screener on planned capex spends is here.

The Baseline

09 Sep 2022

Five Interesting Stocks Today

Ashok Leyland: This truck manufacturer’s stock touched its all-time high of Rs 169.4 on Tuesday and rose by 11.8% over the past month till Thursday. The surge in stock price comes on the back of a robust business outlook and a major deal win. This month, the company bagged orders worth $75 million to supply 1,400 buses in the UAE. This is the largest order for buses it has received in the UAE to date.

The company’s total wholesales for the month of August rose by 51% YoY, mainly driven by the surge in demand for trucks and buses. The management says the company’s diverse product portfolio mix and robust distribution network led to an increase in sales and market share. The firm’s domestic market share in trucks improved by 490 bps YoY to 31.1% in Q1. This healthy performance helped the stock make it to this screener which lists companies that outperformed their industry in the past 90 days.

The management expects the demand environment to improve due to increasing construction, infrastructure and mining activities. It also expects the re-opening of schools, colleges and offices to improve demand for buses. The light commercial vehicle segment’s sales volume will continue to grow on rising demand from the e-commerce and agriculture sectors. The street largely holds a bullish outlook for the stock, with a consensus recommendation of ‘Strong Buy’. According to KRChoksey, the company’s pipeline of new product launches will help increase its market share. The management anticipates better profitability in the coming quarters on softening commodity prices and a robust demand environment.

Federal Bank:This bank's stock rose 9% in trade on Monday on speculative reports of the bank merging with another private bank. However, the bank denied the news and called it speculative. The stock tanked 8% after the bank issued this clarification. However, this did not affect the stock’s overall performance as it shows up in a screener where it is outperforming its industry by 14.2% in the past 90 days. It also shows up on the screener identifying stocks where FIIs increased their holding.

In a recent interview, the bank’s CEO Shyam Srinivasan said that rupee depreciation has helped improve the bank’s NRI (non-resident Indians) funds account. 21% of India’s remittances are now coming in through the bank. He also adds that earlier these funds were just lying with the bank, but now, the activity in these accounts has improved with investments into properties and other finances. He expects remittances to improve in the upcoming quarter.

Recently brokerage Nirmal Bang gave a ‘Buy’ rating for this stock as its retail loan AUM (assets under management) improve to 55% in Q1FY23. It also expects asset quality to improve. What impressed the brokerage was the corrective measures taken by the bank to disburse small ticket-sized corporate loans to counter risk. The bank also reported an improved net interest margin to 3.2% in Q1FY23. However, the brokerage believes that the bank should have a higher contingency buffer.Trendlyne’s consensus recommendation saw 21 brokerages recommending a ‘Buy’ on the stock in September.

Brigade Enterprises: This realty stock hit its all-time high of Rs 575.4 on Wednesday and has been on an upswing since announcing its Q1FY23 results on August 2. The company’s net profit rose over 4X YoY to Rs 87.7 crore beating Trendlyne’s Forecaster estimates by 161%. Its sales bookings in the residential segment jumped 70% YoY in the same period. The realty firm benefitted from the resurgence in demand for housing, office spaces, and travel as it is present in the residential, commercial, retail, and hospitality segments.

The management expects a favourable demand environment to continue over the coming quarters, and to meet this demand it has added projects worth Rs 500 crore in H2CY22. It plans to add more projects in the remainder of FY23. The company has been funding these projects from the proceeds from its qualified institutional placement (QIP), through which it raised approx Rs 500 crore. This has helped it maintain strong cash flows and a healthy balance sheet. It shows up on this screener which lists companies whose cash flows from operations have been consistently improving over the past two years.

Going forward, the management anticipates leasing out 1.7 million square feet of vacant space by the end of FY23. It expects the growth in rental income to be driven by a rise in demand for office space and retail space. The recovery in rental income will help reduce the risk associated with the residential segment, it added. In the coming years, the company plans to focus on increasing its presence in newer markets, specifically in the residential and commercial segments.

Angel One:The stock of this broking company jumped nearly 14% after it released its business update for August 2022. The company also outperformed the Nifty 500 index by roughly 15 percentage points in the past week.Angel One acquired 4.5 lakh new clients in the month gone by, up by over 28% on a MoM basis. This is especially noteworthy as the company’s client acquisition run rate had fallen to 3.4 lakh clients in June and July after peaking in May.

The average daily orders rose to over 36 lakh after continuously falling between February and July owing to tepid market activity and bearish sentiment. The Indian markets came alive in August backed by renewed investment fervor especially among foreign institutional investors. The FIIs pumped in roughly Rs 54,000 crore in the Indian equity markets in August, highest since December 2020. Higher market activity also caused Angel One’s average daily turnover to rise over 20% MoM across its product segments. However, the company ended up losing market share in the derivatives segment while it gained over 3% share in the commodities segment. Angel One now holds over 50% market share in the upcoming commodities segment.

The company now has a client base of over 11 crore and its management is confident that strong client acquisition growth will continue, backed by higher participation of millennials in the markets. Prabhakar Tiwari, Chief Growth Officer, Angel One believes that the total number of demat accounts in the country will cross the 20 crore mark over the next three to four years, doubling from current levels. The company is also in the process of deploying its ‘Super App’ to deliver a personalised investment experience. Angel One beat consensus estimates of analysts in Q1FY23 and is all set to clock over 20% topline growth in FY23.

One97 Communications (Paytm): This internet company re-appointed Vijay Shekhar Sharma as its MD & CEO in the last week of August. According to reports, it looks like the CEO is on borrowed time to convert its books to black, given the stock lost 60% of its value since its IPO in November 2021 and investors were not happy.

However, recently Paytm has been in the news for entirely different reasons. The stock fell 2.5% on September 3 after the ED raided the premises of Paytm along with Razorpay and Cashfree, on suspicion of a loan racket run around by Chinese nationals. According to reports, ED seized some Rs 17 crore worth of funds in the form of merchant IDs and bank accounts. Although the company gave an official clarification saying that none of the funds frozen by ED belongs to Paytm or its group companies, the investors are yet to gain their trust back in the stock.

On September 6, the company published its monthly operational update. Given that the Reserve Bank of India (RBI) has banned Paytm from onboarding new customers, its monthly transacting users (MTU) are still up in August. However, this is just an 11.3% increase since the ban. The number of loans disbursed increased 246% YoY while gross merchandise value is up 72%. The management says that it is seeing a lot of upsell opportunities in this business. Paytm will have to focus on getting the maximum out of its existing users, given that it will take at least 3-5 months for the RBI to take a call on the imposed ban.

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

The Baseline created a screener Forecaster Annual Capex (Capital …

08 Sep 2022

Forecaster Annual Capex (Capital Expenditure) for Companies: One Year Forward

Estimated capital expenditure for companies one year forward. Only non-zero values are shown.

The Baseline

07 Sep 2022

Chart of the Week: India has a young working population. But it may not fully benefit from it

By Abdullah Shah

The Reserve Bank of India (RBI) projects India’s GDP to grow by 7.2% in FY23, which places the country among the fastest growing economies in the world. One of the reasons for the rapid growth is that India entered a demographic dividend starting 2018.

A demographic dividend occurs when a country’s working population is larger than its dependent population. When people have fewer dependents (children and elderly parents), they tend to take more risks, travel for work, and also take up high-productivity jobs. This drives higher GDP growth.

The ratio of India’s working population to total population is currently higher than countries like China, Japan and Brazil. The population of these countries have already started to decline, while India’s working population will increase till 2045. It will also exceed China’s population by 2030.

While having a large labour force is an opportunity for countries, translating it into high growth is not straightforward. India has not made significant headway in skilling and educating its workforce. And almost 83% of the workforce is employed in the unorganised sector.

Employability of India’s workforce was 47.4% in 2019. It fell to 46.2% in 2022 due to the lockdown restrictions during the COVID-19 pandemic owing to online classes, as well as long school and college closures.

As India shifts from an agricultural nation to a manufacturing/services economy and an exporting powerhouse, policy-makers will have to focus on increasing employability, and bringing more people into the organized sector. It also needs to increase labour participation for women. India currently ranks 178 out of 187 countries in female workforce participation according to the World Bank and its female labour participation rate is 19%, among the lowest in the world.

The Baseline

06 Sep 2022

Five analyst stock picks this week

By Suhas Reddy

Aptus Value Housing Finance India: LKP Securities maintains its ‘Buy’ rating on this housing finance company with a target price of Rs 526, indicating an upside of 46.7%. Analyst Ajit Kumar Kabi believes the company is well-placed to capitalise on improving business conditions, given its robust cash positions and underwriting practices. The analyst further adds that the company’s return on assets (RoA) has been best-in-class among its peers on a high net interest margin (NIM) and with controlled operating expenses. He expects an NIM of 10.5% and a RoA of 7% in FY23.

Kabi says, “The company has a robust tech-driven customer acquisition platform and follows a stringent credit underwriting process”. He believes this has enabled the company to keep its net non-performing assets (NNPAs) below 1% for several years. Also, its collection efficacy surpassed the pre-covid level and stood at 101.2% in June. Kabi expects the company’s net profit to grow at a CAGR of 40.7% over FY22-24.

Nippon Life India Asset Management: Axis Securities maintains its ‘Buy’ rating on this asset management company with a target price of Rs 360, indicating an upside of 20.9%. Analysts Sumit Rathi and Dnyanada Vaidya believe the firm’s growth trajectory is intact given rising inflows from tier 2 & 3 cities, and its strong distribution network. Its extensive distribution network enables it to penetrate the underpenetrated Indian market, the analysts added. The analysts also expect Nippon Life to expand its presence and scale up its offshore business via international tie-ups and partnerships.

Rathi and Vaidya notes, “Nippon Life has adopted a differentiation and low-cost approach and is focused on scaling up its Alternative Investment Fund (AIF)/ Portfolio Management Services (PMS) businesses''. They believe this strategy along with its strength in the retail segment resulted in the company amassing the largest investor base in the industry with 1.7 crore investor folios. The analysts expect the company’s net profit to grow at a CAGR of 9.9% over FY22-24.

Jubilant Foodworks: Ashika Research maintains its ‘Buy’ rating on Jubilant Foodworks with a target price of Rs 710, indicating an upside of 17.4%. The brokerage expects the company’s revenue growth to accelerate as it believes customers are shifting to organised quick service restaurants (QSR) from unorganised ones. It believes the company will maintain its dominant position in the Indian QSR space as it is expanding its store network aggressively and diversifying its cuisine portfolio. The firm is also focusing on scaling up its international operations, it added.

The brokerage is bullish for the company as it won exclusive franchise rights to operate the Popeye’s brand restaurants in India, Bangladesh, Nepal and Bhutan. It believes the strategy to diversify its cuisine portfolio will also aid in market share expansion. The brokerage house said, “strong cost control and management commentary on aggressive store additions and thrust on digital & tech initiatives provide a strong growth outlook”. The broker expects the company’s profit to grow at a CAGR of 30.4% over FY22-24.

Hindustan Aeronautics (HAL): ICICI Securities maintains a ‘Buy’ call on this aircraft manufacturer and increases the target price to Rs 2,665. This indicates an upside of 12.1%. Abhijit Mitra, Mohit Lohia, and Pritish Urumkar point out that the order lineup for HAL over the next three years is worth Rs 1.5 lakh crore, which includes manufacturing orders worth Rs 45,000 crore. The company’s management is confident of maintaining 24-25% EBITDA margins and set its internal target of Rs 2,500 crore in export revenues by FY25.

The analysts note, “The biggest certainty to our valuation is the order book, which is expected to cross Rs 1 lakh crore by FY22-23.” The defence company’s current order book stands at Rs 85,000 crore which includes a fresh order of Rs 6,000 crore in Q1FY23. They further add, “There are hardly any defence primes in the world which manufacture combat aircraft and have an equivalent book-to-bill ratio.”

Grasim Industries: Motilal Oswal maintains a ‘Buy’ call on this cement producer with a target price of Rs 1,880, indicating an upside of 10.1%. “Garsim’s FY22 Annual Report highlights integration across the value-chain and diversification into new businesses,” say analysts Sanjeev Kumar Singh and Mudit Agarwal.

The company’s standalone revenue increased 68% YoY to Rs 20,900 crore, EBITDA increased 105% YoY to Rs 3,200 crore and EBITDA margin increased by 2.8 basis points YoY to 15.4%. According to the analysts, “The improvement in performance was led by higher sales volume and better realisation, which was partly offset by a rise in raw material and input cost in H2FY22 amid a volatile external environment.”

Singh and Agarwal are positive on the cement manufacturer on the back of the company expanding capacity to cater to the growing demand across businesses and its foray into high growth businesses such as paints and B2B e-commerce.

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