This week we look at analyst picks from the Auto and Chemicals and Petrochemicals sectors - two sectors where several companies posted high YoY revenue and profit growth in Q1FY23.
- Balaji Amines: KRChoksey maintains a ‘Buy’ call on this specialty chemicals maker with a target price of Rs 4,313, indicating an upside of 23.3%. In Q1FY23, the company’s revenue grew 49.3% YoY to Rs 674.9 crore and profit by 63.8% YoY to Rs 148 crore. Analyst Kushal Shah thinks that robust performance was mainly driven by higher realisations from the amines and specialty chemical segment which grew 55% YoY.
Shah believes that the chemical maker’s “stronger product mix, ongoing healthy pricing realisations across the majority of its products, and rise in operational leverage due to a surge in volume offtake” drove the jump in operating margins.” Balaji plans to start the operation of its dimethyl carbonate plant by the end of August 2022. Its other capex plans include setting up of a new n-butylamine plant, acetonitrile plant, methylamine plant, and dimethylformamide plant. Shah concludes that “defined capex plans will add fuel to the growth story in the coming years.”
- Hero MotoCorp: Prabhudas Lilladher maintains a ‘Buy’ call on this two-wheeler manufacturer with a target price of Rs 3,130. This indicates an upside of 12.5%. In Q1FY23, Hero’s revenue grew 50.4% YoY to Rs 8,503.1 crore and profit by 130.5% YoY to Rs 590.4 crore. EBITDA margin was 11.2% (below the brokerage’s estimate of 11.7%).
Analyst Mansi Lall says, “(the) festive season is expected to be healthy on the back of normal monsoons and increase in crop prices. The company is increasing its focus on premiumisation through its XTec models, which are 7-10% higher in price than the standard one.” Lall also remains positive on the two-wheeler manufacturer due to its successful investment in electric vehicles via Ather, an in-house mass product (Vida) and joint venture with Gogoro. These partnerships are expected to help Hero in building the entire electric vehicles ecosystem – from products to technology, to sales, service, customer care, operations, and innovation.
- Maruti Suzuki India: Motilal Oswal maintains a ‘Buy’ call on this carmaker with a target price of Rs 11,300, indicating an upside of 30.5%. During Q1FY23, revenue increased 45.4% YoY to Rs 26,592.7 and profit by 118.2% YoY to Rs 1,036.2 crore.
According to analysts Jinesh Gandhi and Aniket Desai, Maruti Suzuki targets two million units in sales in FY23 and plans to regain 50% market share in the near future. They add that the introduction of hybrid technology in Grand Vitara, is the first step towards electrification.
Gandhi and Desai expect “a recovery in both market share and margin in H2FY23, led by an improvement in supplies and mix, a favorable product lifecycle, raw materials, forex benefits, and operating leverage”
- Eicher Motors: ICICI Securities maintains a ‘Buy’ rating on this truck and two-wheeler maker with a target price of Rs 3,695. This indicates an upside of 9.6%. In Q1FY23, the company’s net profit rose 157.5% YoY to Rs 610.7 crore and revenue by 72.1% to Rs 3,397.5 crore.
Analysts Basudeb Banerjee and Pratit Vajani are positive on the company’s prospects as they believe that the business will reap benefits from falling raw material costs as demand recovers. They believe the firm’s arm Royal Enfield’s strategy to refocus at the lower end of the premium domestic motorcycle market will help boost profits. Banerjee and Vajani are also bullish on Royal Enfield’s plans to increase its exports, as it already has an 8% market share in developed markets. They believe its exports have the potential to grow given its bikes are high-quality while available at one-third the price of its global competitors. The analysts expect the company’s profit to grow at a CAGR of 52.8% over FY22-24.
- Aarti Industries: HDFC Securities maintains its ‘Buy’ rating on this specialty chemical firm with a target price of Rs 1,085. This indicates an upside of 37.4%. In Q1FY23, the company’s net profit increased 14.7% YoY to Rs 189.1 crore and revenue by nearly 50% to Rs 1,972 crore.
Analysts Nilesh Ghuge, Harshad Katkar, Rutvi Choksi, and Akshay Mane believe the chemical maker’s profitability will improve in the coming quarters given its “constant focus on capex and R&D. (This) will enable it to remain competitive and expand its customer base”. They also expect that the company’s entry into the toluene segment will drive growth in the long term. The analysts see this specialty chemicals manufacturer’s revenue growing on the back of an increase in sales volumes from new capacities added recently. They estimate Aarti’s revenue to grow at a CAGR of 9.9% over FY22-24.
Note: These recommendations are from various analysts and are not recommendations by Trendlyne.
