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

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

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.

The Baseline

30 Jul 2021

Five Interesting Stocks Today

JSW Energy: This electricity utility company is the most overbought stock according to technical indicators RSI and MFI. The company’s stock is up nearly 54% over the past month and touched a 52-week high of Rs 258.30 on Wednesday. The stock is trading above all its simple moving averages.
Mindtree: This IT services company saw eight brokerages increase their target price over the past one month. Even after this, the company has an average target price of Rs 2,439.91, and is currently trading at a TTM PE of around 37 times. Over the past year, the stock has risen nearly 2.5 times. The company’s revenues in dollars in Q1FY22 rose 7.7% QoQ to $311 million, with most verticals seeing robust growth. At this run rate, the company is set up to post another year of over $1 billion revenues. It also recorded all-time high bookings in Q1FY22
Indo Count Industries: This textile maker is the best performing stock among Nifty 500 companies, rising nearly 31% over the past week. The stock is trading above all its simple moving averages. Over the past one year, the company saw a remarkable recovery in its fortunes after suffering a debilitating blow due to the first wave of the pandemic when its revenues dipped to Rs 336 crore in Q1FY21 (vs Rs 425 crore QoQ) and profits were at Rs 18 crore. Since then, pent-up demand led to revenues doubling to over Rs 700 crore for the first time and remaining above that level. It will be interesting to see how the company fared with the second wave of the pandemic when its results are out on Tuesday.
Swan Energy: This diversified company’s stock was the highest gainer during trade on Thursday and also clocked its highest volumes in a week. As a result, the company’s stock touched a 52-week high of Rs 175.85 during trade. The stock traded with nearly 4.6 times its weekly average volumes as 70 lakh shares exchanged hands on Thursday.
Johnson Controls-Hitachi Air Conditioning India: This air conditioning solutions company saw the highest rise in promoter pledge in Q1FY22 when its promoter JHCAC India Holdco pledged 32.3% of its shareholding in the company on May 28, 2021. This amounts to 24% of the company’s outstanding shares. The shares were pledged to secure the loan given by promoter group entities in Taiwan--Johnson Controls-Hitachi Air Conditioning Sales Taiwan Co and Johnson Controls-Hitachi Air Conditioning Taiwan Co. Essentially, the company’s promoter pledged shares to secure revolving credit facilities for two other promoter group companies that don’t hold shares in Johnson Controls-Hitachi Air Conditioning India.

The Baseline

28 Jul 2021

Chart of the week - Airlines passenger load factor recovers

In May 2021, with lockdowns in full effect, air traffic fell by 72% against March levels when the country was open. During this time, domestic airlines' capacity utilization suffered. Airlines' passenger load factor (the passenger load factor measures the capacity utilization of an airline based on the passengers it carries) was 52.7% in May against nearly 70% two months prior.

As lockdowns eased in June, airlines' passenger load factor improved. InterGlobe Aviation, the operator of IndiGo Airlines, recorded an 11.5 percentage points growth in passenger load factor in June. SpiceJet's passenger load factor improved to 71% in June (from 65% in May), the highest passenger load factor among domestic airlines.

The Baseline

28 Jul 2021

Five Interesting Stocks Today

Info Edge (India): This internet services company’s stock is up by 7% in the month and yet remains cheaply priced per historic valuations. This month, it received Rs 375 crore by selling a 3.5% stake in Zomato, through the food delivery company’s IPO. Its trailing 12-month price to earnings (PE) ratio is 46.6 against a median PE of 72.6 putting it in the buy zone in terms of its historical performance.
Just Dial: This local search engine’s management and promoters are selling shares in large numbers, days after Reliance Industries acquired the company. In the past week, insiders disposed of over 4 crore shares. On July 17, Reliance Industries’ retail subsidiary Reliance Retail Ventures (RRVL) acquired a 41% stake in the company for Rs 3,497 crore. RRVL also made an open offer to take an additional 26% stake.
Persistent Systems: This IT consulting company’s stock jumped by nearly 7% on July 26 to a new all-time high following its strong performance in Q1FY22. Revenues grew by 10% QoQ with net profits up by 9.6%. The company’s EBITDA margins rose by 90 basis points to 14.1% despite higher employee costs due to fresh recruitment. The company also recorded a total contract value of deal wins in Q1FY22 at $245 million (Rs 1,823 crore).
PVR: Brokers think Q2FY22 is when this cinema operator will bounce back. ICICI Direct upgraded its rating on the stock to “Buy” from “Hold” expecting discretionary spending on movies to rise in Q2 as the economy unlocks. Geojit BNP Paribas maintained a “Hold” rating on the stock, expecting footfalls to recover to March 2021 levels (pre second Covid-19 wave) in Q3FY22 with a full recovery due in FY23. The average broker target price is at an upside of 13% against the cinema operator’s current price.
KPIT Technologies: This software company’s stock is trading with high momentum having hit its 52-week high earlier this week. Its relative strength index jumped to 81.3 (an RSI over 70 is considered overbought), its money flow index rose to 83.4 (an MFI over 80 is considered overbought), and it’s trading above all moving averages. The stock’s trailing 12-month PE is 44.8 compared to the Nifty IT’s PE of 31.3.

The Baseline

25 Jul 2021

Five analyst stock picks this week

JSW Steel: ICICI Securities continues to be bullish on this steel company post strong Q1FY21 results, with an 18.5% upside and a target price of Rs. 850. JSW reported ITS highest ever quarterly revenue, operating EBITDA and net profit after tax. "The 5 MTPA Dolvi expansion will commence operations by September 2021, providing healthy revenue visibility," Analyst Dewang Sanghavi writes. Key risks, they note, include "a steep decline in steel prices, and higher than expected rise in operating costs."
Hindustan Unilever: This FMCG giant is a pick for Axis Securities with an upside of 13%+ on a target price of Rs. 2,670. "The topline was in line with our expectations though on all other key bottom-line numbers, the performance was below our expectations," analysts Gaurav Uttrani and Suvarna Joshi write. But they note, "Q1FY22 performance displayed resilience with improving trajectory across the portfolio, especially in the discretionary products. The management indicated that rural growth will continue."
HCL Technologies: This software company is among the players riding the IT demand recovery globally, and Geojit is a buy on this stock, giving it an upside of 15.4% on a target of Rs. 1147. "Despite the second wave of the pandemic, the company has shown high resilience," analyst Sheen G writes, "With continued investments in digital engineering and geography expansion, HCL is positive about scaling up its margins in upcoming years apart from winning large deals, with healthy renewal rates."
Can Fin Homes: Edelweiss is a buy on this finance company, with a target price of 660 and an upside of 24%."Credit costs continued to moderate with provisions declining 85% YoY and 15% QoQ, resulting in PAT growth of 16% YoY and 6% QoQ," analyst Vinay Khattar notes. "Management expects growth to return from Q2FY22 while NIMs/spreads should increase with loans getting repriced at higher yields." The key risks here include another round of lockdowns driven by an third wave of infections and the company's current significant AUM concentration in Bangalore (~37% of AUM).
Indian Bank: Chola Wealth Direct is a buy on this bank, noting the improvement in NIM and lower opex boosted operating performance while tax reversal propped up PAT, says analyst Arjun Pasumarthi. "The bank’s improving collection efficiencies and less than expected restructuring have improved credit cost outlook. In addition, the anticipated recovery in corporate demand should support the credit off take in 2HFY22E," he writes. Risks include fresh slippages in stressed sectors, and delayed recoveries in loans.