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18 Aug 2021

Chart of the week: Mutual Funds increase stake in banks and NBFCs

With the stock markets testing record highs, everyone has a favourite sector. For mutual funds, that sector seems to be banks and financial services companies. In the last four months, mutual funds have consistently increased their stake in banks like HDFC Bank, IDFC First Bank, and Federal Bank, and non-banking financial services companies (NBFCs) like Muthoot Finance, Power Finance Corporation, and Manappuram Finance.

The Baseline

18 Aug 2021

Five Interesting Stocks Today

Tech Mahindra: This company’s stock is now among the most overbought IT services companies among the Nifty 500, according to technical indicators like RSI and MFI. The company’s stock rose a little over 26% after it announced its Q1FY22 results at the end of July. The company’s over 4% dollar revenue growth enthused investors, which has pushed its TTM PE ratio to its highest ever at 25.2.
ICICI Bank: This private bank’s shares received the highest number of target price upgrades (seven) over the past one month as analysts were enthused by its performance in Q1FY21. The bank posted a 50% YoY rise in its Q1FY22 profit at Rs 4,747.4 crore on the back of a 5bps expansion in its net interest margin to 3.89% and a 20% YoY growth in retail loans. The stock ended Tuesday’s trade within 2.2% of its average target price of Rs 701.20.
Aurobindo Pharma: This pharma company’s stock was on a falling spree even before its results were announced last Thursday. In the past three weeks, the stock has fallen nearly 20%, with nearly 11% of the fall coming after the company declared its results. It was the only stock that touched a 52-week low on Tuesday. The company’s net profits fell nearly 4% QoQ in Q1FY22 to Rs 770 crore, while revenues fell nearly 4.9% QoQ to Rs 5,783.3 crore. A slowdown in the company’s US business due to delays in product launches amid a third wave of the pandemic and lower sales of anti-retrovirals doesn't bode well. As the company’s stock kept falling over the previous three weeks, many promoter entities had to pledge an additional 1.28% of their stake in the company over the last few days as collateral for loans taken by those entities.
KEI Industries: Over the past three months, this electrical products maker’s stock rose nearly 46% and touched a 52-week high of Rs 783.7. This company was severely impacted by the first wave of the pandemic in Q1FY21 and its profits fell by 20% YoY. The company’s profits rose rapidly over the next three quarters, which helped it post a higher profit in FY21 than FY20, despite the impact of the first wave. Q1FY22 however, disappointed even though the impact of the second wave was not as severe, the company’s net profit fell nearly 25% to Rs 67 crore. Promoter Anil Gupta cashed in on this frenzy in the share price of the company, and from June 18, 2021 to August 16, 2021, pared his holdings through multiple sales by 1.59% to 13.64%.
Apollo Hospital Enterprises: This hospital chain company’s stock was the best performing stock among the Nifty 500 and gained the most on Tuesday, rising 13.2%. It also gained nearly 23% over the past week. On Friday, the company announced that its profits nearly tripled QoQ in Q1FY22, despite a mere 31% rise in its revenues.

The Baseline

16 Aug 2021

Five analyst stock picks this week

EClerx: This analytics and BPO services company - which has been in our top screeners for a while now - is a buy from ICICI Securities with an upside of 16%+ on a target price of Rs. 2650. "Traction in customer care, RPA, analytics & content development, cross sell and up sell to Personiv clients to drive growth," analyst Devang Bhatt writes, "Lower roll offs from one off client specific event, improving deal wins and revival in growth are expected to drive revenues."
Oil India: HDFC Securities is bullish on this oil business, giving it a target price of 200 and an upside of 21%+. "Our reco is premised on (1) increase in crude price realisation and (2) improvement in domestic gas price realisation (at USD 2.5/mmbtu)," analyst Harshad Katkar and team write. "We expect oil price realisation to increase to ~USD 59/bbl in FY22E and USD 61/bbl in FY23E vs. USD 44/bbl in FY21, given the expected global economic rebound, post COVID. Q1FY22 revenue was 4% below our estimates while EBITDA was 3% above, owing to lower-than-expected crude realisation offset by lower-than-expected operating expenses."
PNC Infratech: IDBI Capital is a buy on this infrastructure company, with analysts Vishal Periwal and Shouvik Chakraborty assigning it an upside of 27.9% on a target price of Rs. 350. "Q1FY22 PAT was in-line with our consensus estimate," they note, "Q1FY22 execution (revenue) was up 38% YoY with improved EBITDA margin of 14.0% vs 13.2% YoY. On toll collection front, Q1FY22 collection increased by 15% YoY and to grow further by Q3FY22. Q1FY21." The outlook looks bullish, they write, "Order book at Rs121bn provides revenue visibility (equals 2x TTM Revenue) and going ahead PNCL is focusing more on road construction project."
Jindal Steel and Power: This steel company's prospects have improved, according to Prabhudas Lilladhar. "JSP's current net debt/EBITDA fell to comfortable level of 1.3x on normalised earnings assumed in FY23e with EBITDA margins at Rs12,000/t," Prabhudas Lilladhar analysts Kamlesh Bagmar and Amit Khimesra write, giving the company an upside of 18%+ on a target price of Rs. 500. "JSP underperformed its peers by an average of 40% over last four months due to concerns on JPL deal and pressure on margins due to high iron ore prices and softness in long product’s prices." One factor that has shifted recently, they note, is iron ore prices. "Recent weakness in iron ore prices allays the concerns on iron ore cost to a large extent while long product prices would improve as activity picks up post monsoon."
Endurance Technologies: This company is "well poised for growth, despite reporting mixed quarterly results," according to Axis Direct, which gives it an upside of 15%+ on a target price of Rs. 1886. "The share of EV/Hybrid technology is expected to increase in the near future as the demand in Europe shifts towards less polluting vehicles to reduce carbon footprint," analyst Senha Prashant writes. "In this backdrop, we expect the company to post Revenues/EBIDTA/PAT CAGR of 11%/15%/16% respectively over FY20-23E."

See all research reports and analyst calls.

The Baseline

13 Aug 2021

Five Interesting Stocks Today

Asian Paints: The promoter group of this paints market leader recently pledged shares. On August 6, 3.2 lakh shares worth Rs 95.6 crore were pledged. This is the first set of pledges in Q2FY22. In the previous two quarters, promoters pledged 40 lakh shares (0.41% stake) worth Rs 1,157 crore. As of June 30, 2021, over 9% of promoter shareholding was locked in pledges.
ACC: This cement maker’s stock is up by nearly 11% in one month as cement companies are expected to benefit from capital expenditure cycles of manufacturing companies (automobile, steel, and chemical) in Q2FY22. Even after the rally, ACC’s valuations remain in check. Its trailing 12-month (TTM) price-to-earnings (PE) ratio is 21.9, against an average PE of 29.7, putting it firmly in the buy zone.
Eicher Motors: This two-wheeler and commercial vehicle maker’s stock is up by nearly 7% since the month began. This is after the company’s two-wheeler wholesales in July 2021 rose by 9% against the previous months. Analysts are still pessimistic about its Q1FY22 results given the second wave suppressed demand for two-wheelers and the rally in fuel and metal prices. The company will announce its results on August 12, 2021.
Dabur India: Brokers are sending mixed signals following this FMCG company’s results. The company’s Q1FY22 revenues rose by 6.5% YoY to Rs 2,696 crore, with net profits up by 8% to Rs 437 crore, with EBITDA margins down by 50 basis points. On one hand, Geojit BNP Paribas downgraded its rating on the company to ‘Hold’ from ‘Buy’ expecting commodity inflation to put pressure on its Q2FY22 margins. On the other hand, IDBI Capital upgraded its rating to ‘Buy’ from ‘Hold’ as the company hiked prices by 3% to offset this inflation. The average broker target price is 11% above the company’s market price.
Prestige Estates Projects: Expecting a recovery in housing demand, mutual funds have changed their mind on this real estate company. In June and July 2021, mutual funds purchased over 14.2 lakh shares in the company. This was after mutual funds sold nearly 20 lakh shares between February to May 2021. In one month, the stock is up by 17%.

The Baseline

12 Aug 2021

Chart of the week: Companies using IPO proceeds to pay off debt

With the benchmark index testing new highs, companies are eager to sell their shares in the public market. Many companies are issuing fresh shares to the public and using the proceeds to pay off debt.

Of the eight companies launching IPOs between August 2 to August 12, six companies will use the IPO proceeds to reduce debt. Nuvoco Vistas Corporation and Chemplast Sanmar will use nearly 90-95% of the proceeds from the fresh issue of shares to reduce debt. The only two companies that will not pay off debt using the IPO proceeds are - CarTrade Tech (the entire IPO is an offer for sale), and Aptus Value Housing Finance (the Rs 500 crore raised from the IPO will be used to fund working capital).

The Baseline

09 Aug 2021, 06:18PM

Five analyst stock picks this week

Alkem Laboratories: HDFC Securities is a BUY on this pharma company with an upside of 11.9% on a target price of Rs 3960. Analysts Bansi Desai and Karan Vora write, "Alkem's Q1 revenue/EBITDA beat estimates by 26%/37%, led by good growth in India and international markets. India business delivered a stellar growth of 65% YoY - a 25% two-year CAGR - led by strong recovery in acute and outperformance in chronic and trade generic businesses." They note the steadiness of the main business. "Barring the COVID-led boost to vitamins, the performance was largely driven by good growth in the core portfolio, which is encouraging."
Indo Count Industries: Edelweiss' Kapil Jagasia and Praveen Sahay are bullish on this textile company, with an upside of 44% on a target price of Rs. 394, noting, "Indo Count Industries’ growth momentum continued in Q1FY22 despite (a) Q1 being generally a weak quarter, and (b) the additional impact of Covid led disruptions." They add that the outlook is strong, "Due to large forex gains of ~INR30cr, PAT at INR117cr beat our estimates of INR92cr. We expect ICIL to witness volume-led growth and steady improvement in margins over FY22-23E."
Escorts: Axis Securities is a BUY on this auto company, with an eye on an upcoming surge in tractor sales. They assign it a 12% upside on a target price of Rs. 1350. "Tractor volumes grew by ~6% YoY during May-Jul’ 21.The demand sentiment is expected to remain positive in the second half of the year on the back of strong macroeconomic factors such as good crop production along with hold-up of most crop prices, uniform availability of water, and availability of retail financing along with recovery in commercial-use demand," analyst Darshan Gangar writes. In addition he notes, input price increases have become less of a factor. "The overall raw material inflation was in the range of 8-10% in the last year. With the price increase in Jul’21 (the third price hike in the last nine months), it has completely passed on all commodity cost inflation witnessed till June 21."
Tata Communications: ICICI Securities is a BUY on this telecom infra company, with a target price of Rs. 1725 and an upside of 15.8%, saying that despite a muted performance in Q1 due to Covid, outlook is strong. "Growth to be driven by platforms like a) cloud, edge, security, b) next generation connectivity, c) NetFoundry d) MOVE, IoT, wherein each have robust market size growth potential of 15-25% CAGR in next four to five years," analyst Bhupendra Tiwary writes, "We expect ~8% revenue CAGR in FY21-23E in the overall data segment, driven by likely acceleration in growth from H2FY22 onwards."
State Bank of India: Motilal Oswal is bullish on this banking behemoth, assigning it a big upside of 37% on a target price of Rs. 600. "Asset quality ratios deteriorated marginally on elevated slippage in Retail/SME. However, the management clarified that slippage worth ~INR48b has already been recovered/upgraded in July’21," the analyst team notes. "We expect slippage to subside going ahead, assuming there is no third COVID wave or no severe impact from it. The bank is well on track to keeping credit costs in check."

The Baseline

06 Aug 2021

Five Interesting Stocks Today

Coforge: This IT services company’s promoter has resumed decreasing its stake, inviting foreign institutional investors. On August 4, private equity firm Baring Asia, pared a 5.5% stake in the company for Rs 1,590 crore. This invited Nomura India to purchase 3.5 lakh shares for Rs 160 crore. Since October 2020, the promoter lowered its stake in Coforge by nearly 17%. In that time, the stock has doubled.
Larsen & Toubro: This infrastructure company’s stock is up by 10% in one month. In that time, the company announced a 61% growth in Q1FY22 standalone revenues and a 2.6X jump in net profits. Even after the rise, L&T’s valuations remain cheap. Its current price-to-earnings (PE) ratio is 18.2, compared to an average PE of 23.8, placing it in the buy zone.
Britannia Industries: This biscuit maker’s stock is lifted by the rising index despite a poor show in Q1FY22. Britannia’s stock gained 2% in the past month, but trades lower than the Nifty50’s gain of 4% in that time. The street expected packaged food companies to perform well amid the lockdown in Q1FY22. However, Britannia underwhelmed with a 2% YoY fall in revenues and a 28% fall in net profits in Q1FY22.
Kajaria Ceramics: Brokers were pleased with this tile maker’s Q1FY22 results, and expect a greater upside in FY22. The company’s revenues doubled on a YoY basis with net profits of Rs 47 crore (against losses of Rs 27 crore in Q1FY21). This was backed by strong demand since lockdowns eased June leading to a 95% capacity utilisation at its factories. Three brokerages - HDFC Securities, BOB Capital Markets, and ICICI Direct upgraded their target price on the company’s stock. The average broker target price is at an upside of 10%.
Godrej Consumer Products (GCPL): Big changes are afoot at the helm of this FMCG company. On August 4, the company’s chief financial officer and company secretary V. Srinivasan stepped down from his position to pursue opportunities outside the company. The company also announced that Adi Godrej, the chairman of the Godrej Group, will step down from GCPL’s board next month. In May, GCPL announced that Sudhir Sitapati, Hindustan Unilever’s head of foods and refreshments, would take over as the Managing Director and CEO of the company from October. This pushed its stock price up by 24% in one week.

The Baseline

05 Aug 2021

Chart of the week: Market leader Hero’s wholesales decline in July

The two-wheeler market is limping back to normalcy after lockdowns. The top four two-wheeler companies (scooters and motorcycles) saw wholesales in July 2021 rise by 8% YoY.

However, the market leader Hero MotoCorp's total two-wheeler wholesales declined by 13% YoY. What's even more surprising is that Hero MotoCorp's July wholesales also declined by 3% against June wholesales, when lockdowns were still in effect. The other listed two-wheeler makers (Bajaj Auto, TVS Motor Company, and Eicher Motors) all saw higher sales in July than June.

The Baseline

02 Aug 2021

Five analyst stock picks this week

Apcotex Industries: Axis Direct is a buy on this specialty chemicals company, giving it an upside of 20% on a target price of Rs. 410. "For Q1FY22, Apcotex missed our top-line estimates but beat EBITDA and PAT estimates," analysts Suvarna Joshi and Darshita Shah write. "Industries like Paper & Paperboard (packaging), Tyre, Footwear, Auto, and Construction helped the company in recording strong growth in the current quarter." They think Apcotex is on track for longer term growth: "Along with the current strong demand, the diversification in the end-user industries that the company caters to will help it maintain the growth levels for the next 3- 5 years." PE Buy Sell Zone for Apcotex
Oberoi Realty: ICICI Securities is a buy on this realty company, with a target price of Rs. 830, a 23%+ upside. "Oberoi Realty is uniquely positioned in Mumbai's premium residential segment, and is moving towards a balanced mix of retail, commercial and hospitality assets," analysts Bhupendra Tiwary and Lokesh Kashikar write. "This will provide stability to slow-moving and volatile revenue streams." The analysts are expecting a rapid recovery in "malls, hotels and office assets." PE Buy/Sell Zone for Oberoi Realty
Shriram Transport Finance: Despite the pummelling the auto industry has received during the pandemic, Edelweiss is bullish on this transport finance company, giving it a 22%+ upside on a target price of Rs. 1700. "PAT was significantly lower than estimates due to higher-than-expected credit costs, but disbursements surprised positively, declining only 15% QoQ, well ahead of peers." analysts Jigar Jani and Raj Jha write. "We believe it is well placed to capture the revival in the CV cycle due to (a) it being the largest player in the CV financing space (b) lower-than-expected restructuring and (c) better than-expected asset quality." PE Buy/Sell Zone for STFC
Ajanta Pharma: Motilal Oswal sees an upside of 21%+ on a target price of Rs. 2780 for this pharma business. "AJP is on track to outperform in the Branded Generics segment across DF/Asia/Africa and build a product pipeline for the US market," analysts Tushar Manudhane and Bharat Hegde write. "Ajanta has completed its major capex to cater to growth for the next three years," they observe, "We remain positive on the company due to a) new launches and market share gains in the key markets of the US/DF/Asia/Africa, b) the benefits of major capex (to accrue over the next 2–3 years), c) improved operating leverage." PE Buy/Sell Zone for Ajanta Pharma
Larsen & Toubro (L&T): Geojit BNP is bullish on this engineering conglomerate, giving it an upside of 20%+ on a target price of Rs. 1935. "Q1FY22 revenue grew 38.0% YoY, on solid order book coupled with large project executions and robust E&C growth amidst pandemic," analyst Sheen G writes, "High liquidity, improved leverage, prospective pipeline with better utilization and production is expected to continue in the near-term." PE Buy/Sell Zone for L&T

The Baseline

30 Jul 2021

What did superstar investors buy in Q1FY22?

By Parth Mansinghka

The portfolios of marquee investors tell retail investors what they are bullish on in the market. The superstars with large portfolios recently bought stakes in some interesting companies. Some of their biggest buys can be seen in the chart below.

Superstar buys

Rakesh Jhunjhunwala buys into financial services space

Ace investor Rakesh Jhunjhunwala bought a 2.17% stake in Indiabulls Housing Finance, a 0.42% stake in Edelweiss Financial Services, and a 0.38% stake in Federal Bank in Q1FY22. Federal Bank recently announced its Q1FY22 results and recorded its highest-ever operating profit of Rs 1,135 crore, and Jhunjhunwala seems bullish on this Kerala headquartered bank.

The ‘Big Bull’ also bought a 1.39% stake in the steelmaker Steel Authority of India (SAIL) during Q1FY22. The company cut its net debt by Rs 16,200 crore in FY21 and the expectation is that SAIL will further reduce it by another Rs 6,800 crore by FY23E. Also, the sales volumes increased by 5% in FY21.

Dolly Khanna buys stakes in yarn and fertilizer companies

Dolly Khanna bought stakes in many companies in Q1FY22, including three yarn spinning companies - Deepak Spinners (2.07% stake), Nitin Spinners (1.24% stake), and RSWM (1.05% stake). This can be because the economy is opening up and demand for textile and hence yarn is expected to rise in the market. The stocks of Deepak Spinners, Nitin Spinners, and RSWM rose by 84.7%, 67.7%, and 49%, respectively, so far in July 2021.

Khanna also bought stakes in two fertilizer companies - Rama Phosphates (1.77% stake) and Aries Agro (1.49% stake). This comes ahead of the Kharif sowing season when the demand for fertilizers from the agriculture industry is expected to rise. The stocks of Rama Phosphates and Aries Agro are up 59.3% and 29%, respectively, so far in July 2021.

Sunil Singhania’s Abakkus Fund diversifies its portfolio

Sunil Singhania’s Abakkus Fund bought a 2.98% stake in DCM Shriram Industries in Q1FY22. The company operates in sectors like sugar, alcohol, organic and inorganic chemicals, drug intermediates, shipping containers, processed cotton yarn, etc. The company is likely to benefit as the economy slowly opens up, and as a result, the demand for its products grows.

Singhania added two technology stocks to the Abakkus portfolio as he bought a 0.6% stake in Xchanging Solutions and a 0.08% stake in Technocraft Industries in Q1FY22. The stock of Xchanging Solutions and Technocraft Industries rose 43.8% and 23%, respectively, so far in July 2021. He also bought a 0.5% stake in Rupa & Company, a knitwear brand, and a 0.24% stake in Siyaram Silk Mills, a blended fabric and garment manufacturer. The demand for textile-related products is expected to grow in the upcoming months as people head out from their homes.

Ashish Kacholia buys stakes in welding, pharma, and technology stocks

Ashish Kacholia bought a 1.13% stake in Ador Welding in Q1FY22, a welding consumables and equipment manufacturing company. The company aims to reduce legacy costs and improve profitability in FY22-23. Its stock has made a new 52-week high of Rs 880.2 per share this month.

The superstar bought a 0.37% stake in IOL Chemicals and Pharmaceuticals and a 0.25% stake in Beta Drugs in the quarter. IOL Chemicals and Pharma is a bulk drug, intermediates, and specialty chemical manufacturer Beta Drugs makes a wide variety of anti-cancer drugs in India.

Kacholia also bought a 0.55% stake in Garware Hi-Tech Film, the largest exporter of polyester films in India, which he also added via a bulk deal purchase on July 29. The demand for polyester films is expected to grow worldwide as the manufacturing of automobiles and construction of buildings start at full pace once economies globally recover.

Vijay Kedia adds large stakes in Elecon Engineering and Mahindra Holidays

Vijay Kedia bought a 1.19% stake in Elecon Engineering Company in Q1FY22. This comes when the demand for industrial gear systems and mining equipment is expected to increase as the industries and mining operations run at full pace all over the world. He also bought a 1.02% stake in Mahindra Holidays & Resorts India at a time when people are craving to go on vacations as soon as possible.

Kedia also bought a 0.65% stake in Lykis, probably betting that demand for personal and home care products will go up. He also added a software and services company to his portfolio as he bought a 0.19% stake in Ramco Systems.

Porinju V Veliyath buys stake in IRIS Business Services

Porinju V Veliyath bought a 1.33% stake in IRIS Business Services in Q1FY22, a software services company that provides training, testing, research, data conversion, e-filing, and consulting services to their customers. The stock of IRIS Business Services rose nearly 48.3% so far in July 2021 and made a new 52-week high as well.

Veliyath also bought a 0.15% stake each in Ashok Alco-Chem and Shalimar Paints during the quarter. The demand for Ashok Alco-Chem’s products like industrial alcohol, acetic acid, and Ethyl Acetate is expected to go up as demand from pharma, paints, resin, among others, is expected to rise once the pandemic subsides.

Many superstars bought stakes in companies from textile and chemical industries where the demand is likely to pick up in the upcoming quarters, as the economy opens up post the Covid-19 pandemic. The marquee investors investing their money in these sectors could be a positive sign for retail investors.