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23 Jul 2021

Chart of the week - Production Drop: Steel production falls in Q1FY22

The steel production momentum of FY21 failed to carry over in the first quarter of FY22. In Q4FY21, top domestic producers - Tata Steel, JSW Steel, and Jindal Steel and Power's steel production rose above pre-Covid levels. This was in response to the rising demand for steel from infrastructure and realty companies, and the soaring price of finished steel and steel products. However, in Q1FY22 operations were disrupted due to state-wide lockdowns. This lowered steel production volumes sequentially.

The Baseline

23 Jul 2021

What did Superstar Investors Jhunjhunwala, Pabrai, and Veliyath sell in Q1FY22?

By Parth Mansinghka

Many investors look at superstar investors’ portfolios for cues as to which stocks might do well. Of course, this comes with its own risks, as some investors with their sizeable portfolios and long investment horizons have the wherewithal to withstand a market downturn, while some others may not. We took a look at the portfolios of some superstar investors to understand which companies or sectors they are cashing out of or trimming their stakes. This is especially relevant considering the elevated levels of the Indian benchmark indices.

Superstar Sells

Mohnish Pabrai’s portfolio saw a lot of selling

Pabrai’s portfolio was one of the Superstar investors whose portfolio saw a lot of selling in Q1FY22. There were four companies that saw stake cuts in Q1FY22. Pabrai sold a 4.7% stake in Kolte-Patil Developers, 4.37% stake in Rain Industries, 2.31% stake in Sunteck Realty, and 1.11% stake in Edelweiss Financial Services. He has reduced his stake in Kolte-Patil Developers, Sunteck Realty, and Edelweiss Financial Services for the second consecutive quarter now. In the first six months of 2021, Kolte-Patil Developers’ stock fell 10%, Sunteck Realty fell 17.2% and Edelweiss Financial Services rose 4.5%. However, the stock of Rain Industries rose 35% in the same period, and it looks like he booked some decent profits in this stock.

Mohnish Pabrai Sells

Porinju V Veliyath cuts stake in many companies

Porinju V Veliyath had been cutting his stake in Archies for the last three quarters and at the end of June 2021, his stake in the company dropped to below 1% from 3.6%. With the Covid-19 pandemic, Porinju might have sold the gift and home decor company because these products are not amongst people’s priorities right now. The company reported a loss of Rs 1.1 crore in Q4FY21 against a profit of Rs 2.6 crore in the year-ago period.

Veliyath sold a 1.1% stake in Som Distilleries & Breweries, a 0.19% stake in Emkay Global Financial Services, and a 0.09% stake in Kaya in Q1FY22. In the first six months of 2021, the stocks of Som Distilleries & Breweries, Emkay Global Financial Services, and Kaya rose 45%, 17%, and 21.6% respectively, and Veliyath seems to have booked decent profits here. In the past two quarters, Veliyath also reduced his stake in Orient Bell to 3.83% from 4.25%. Over the past six months, Orient Bell rose around 62% and also touched a 52-week high of Rs 359 per share.

Porinju V Veliyath sells

Rakesh Jhunjhunwala trims stake in Titan

Ace investor Rakesh Jhunjhunwala sold a 0.25% stake in his favourite company and largest portfolio holding, Titan in Q1FY22. He had been reducing his stake in the company over the last three quarters now. Jhujhunwala’s stake in Titan is now trimmed down to 4.8% from 5.5% at the end of Q2FY21. The fall in the Big Bull’s stake in Titan coincided with the shutdown of retail stores due to the first and second wave of the pandemic. This is likely to impact the company’s Q1FY22 revenues and earnings. He sold a 0.15% stake in Tata Motors and a 0.56% stake in TV18 Broadcast in Q1FY22. The stock of Tata Motors and TV18 Broadcast rose around 82% and 38% in the first half of 2021, so Jhunjhunwala booked some decent profits here.

Rakesh Jhunjhunwala Sells

Ashish Kacholia books some profits

Ashish Kacholia sold a 0.63% stake in Birlasoft, a 0.26% stake in NIIT, a 0.1% stake in Poly Medicure, and a 0.09% stake in Vaibhav Global in Q1FY22. He now holds a 1.4% stake in Vaibhav Global, a 2.26% stake in NIIT, a 1.67% stake in Poly Medicure, and a 1.2% stake in Birlasoft. All of these companies gave good returns over the last two quarters and posted a new 52-week high during the period. Hence, here also there might be some profit booking done by the Superstar.

Ashish Kacholia sells

Vijay Kedia trims stake in Neuland Labs and Cheviot

Vijay Kishanlal Kedia sold a 0.55% stake in Neuland Laboratories and a 0.25% stake in Cheviot. He now holds a 1% stake in Neuland Laboratories and a 1.3% stake in Cheviot. During the first six months of 2021, Cheviot and Neuland Laboratories rose 176% and 98% respectively. This rise could be the reason for booking profits by Kedia in these two stocks as both touched new 52-week highs in Q1FY22.

Ashish Dhawan trims stake in Birlasoft and Max Healthcare

Ashish Dhawan sold a 0.73% stake in Birlasoft and a 0.25% stake in Max Healthcare in Q1FY22. He now holds a 2.9% stake in Birlasoft and a 1.4% stake in Max Healthcare. Both Birlasoft and Max Healthcare stocks rose by 60% and 79% from January-June 2021 and touched their 52-week highs. It appears that Dhawan booked some profits in these stocks.

It appears that some of the sale transactions by the Superstar investors were triggered by stocks touching their 52-week highs. With markets at their peaks, it is the ideal time to book some profits. It will be interesting to see whether some of these companies continue to find favour over the next three months in some superstar portfolios.

The Baseline

23 Jul 2021

Five Interesting Stocks Today

Jindal Stainless (Hisar): This steel company jumped to an all-time high in share price, capping an already strong three month period for the stock's shares. The stock rose by double digits in one trading session on Thursday after it announced that it had signed an MOU with Tata Steel to jointly explore chrome ore near Orissa. The company has a strong momentum score, but is overbought on the MFI, suggesting a potential pullback soon.
Firstsource Solutions: Speaking of momentum, one of the strongest momentum stocks in the midcap IT sector is FSL, which has seen both FIIs and MFs increase their shareholding in the June quarter. The company has made recent strong gains in the export markets of US and UK, leading to a robust growth guidance of 15-18% in CC terms. It is seeing traction in healthcare (especially in the provider business) and growth in its banking vertical, led by growth in collections, fintech and UK banking.
Bajaj Finance: A star of 2019 for investors delivered a muted performance in Q1FY22, hard hit by a spike in provisioning and NPAs. Bajaj Finance reported a spike in GNPA as well as NNPA of 2.96% and 1.46%, up from 1.79% and 0.75% QoQ. The worst-hit sector for the company was the auto financing business, where the GNPA jumping to an astonishing 19.15% from 9.31% in the Q4FY21, led by the 3W segment which accounts for 30% of auto loans.
Wipro: A consistently strong performance for this IT major, typically a laggard among the giants, has boosted its standing among analysts who have given the company multiple buy calls since its June quarter results. The company has developed a healthy deal pipeline that should help it drive growth over the next two financial years, giving it long-term visibility. Its technicals put it in the moderately strong momentum range. Its current PE is high compared to historical level, putting it in the sell zone.
Jyothy Labs: This FMCG company is trading lower in its TTM PE compared to its 3 year, 5 year and ten year PEs (screener), but is gaining ahead of its June quarter results due on July 29. The company's focus on cleaning and maintenance home products gives it an opportunity in this space as focus on hygiene increases, but its short-term results may have been hit by the state lockdowns linked to the second Covid19 wave.

The Baseline created a screener Multibaggers: stocks with 100%+ …

19 Jul 2021

Multibaggers: stocks with 100%+ returns in one year

Stocks that have more than 100% returns over the past one year

The Baseline created a screener Halfway to multibagger: Stocks …

19 Jul 2021

Halfway to multibagger: Stocks with 50%+ returns in one year

Stocks with more than 50% return, but less than 100% return in one year

The Baseline

19 Jul 2021

Five analyst stock picks this week

L&T Infotech: This IT company has got an upbeat view from analysts post results, with ICICI Securities assigning it an 18%+ upside on a target price of Rs. 5065. Analyst Devang Bhatt writes, "LTI's ability to win large deals, presence in niche verticals, effectively mine clients, adding Fortune 500 clients, and digital prowess are key drivers. We expect LTI to register 18% CAGR in FY21-23E."
Aegis Logistics: Edelweiss is bullish on this shipping logistics company following the announcement of its joint venture, with an upside of 27.9% on a target price of Rs. 410. "Entry of a credible international partner improves growth visibility as the JV targets a capex plan of INR2,500-4,500cr over five years starting FY23," analyst Himanshu Yadav writes. "We remain positive on AGIS from a long-term view. However, the stock may see short-term weakness in the coming quarters which provides a good entry point, in our view," he notes.
Somany Ceramics: HDFC Securities has initiated coverage on this tiles company with an aggressive buy call. They see a 39.5% upside and a target price of Rs. 940. Analysts Rajesh Ravi and Saurabh Dugar note, "We like Somany for its increased focus on retail sales through a robust distribution and showroom network across India and expanding share of premium tiles sales." They estimate, "We believe these would help its consolidated revenue to grow at a 16% CAGR, supported by capacity expansion and faster growth in the bathware segment."
Infosys: Motilal Oswal continues to be bullish on the Indian granddaddy of IT, Infosys, with an upside of 13.8% on a target price of Rs. 1770. The environment is strong, MOswal analysts Mukul Garg and Anmol Garg say. "The management increased its FY22 USD revenue growth guidance to 14- 16% CC YoY from 12-14%. It characterized the current demand environment to be one of the strongest in a while." While rising attrition is a concern, they write, "We continue to view Infosys as a key beneficiary of a recovery in IT spends in FY22."
Bandhan Bank: Covid outbreaks are still a concern for this private sector bank, Axis Direct analysts admit, but they still see opportunity with an upside of 14.8% on a target price of Rs 355. Analyst Dnyanada Vaidya writes, "We expect collection efficiency to further improve as COVID 2.0 weakens and business activities pick up. The announcement of the Assam Govt. on supporting stress for the MFI borrowers bodes well for the bank, however, the impact and the progress on the same would need to be monitored." But, he points out, "COVID 3.0 continues to pose risk in the normalization of Bandhan’s business."

The Baseline

16 Jul 2021, 09:15AM

Five Interesting Stocks Today

Sobha: This Bangalore-based real estate company was the top gainer on Thursday rising 19.15% during trade touching a 52-week high of Rs 678.30. This comes as investors are turning positive on real estate companies as their Q1FY22 business updates swung them back in favour of market participants. The company’s sales value rose 45% YoY to Rs 570.9 crore.
L&T Technology Services: This technology services company posted good Q1FY22 results as its consolidated net profit rose 11.2% quarter-on-quarter (QoQ) to Rs 216.2 crore, while revenues rose 5.4% QoQ to Rs 1,518.4 crore. The company also raised its FY22 revenues growth guidance to 14-16% YoY on a constant currency basis from 12-14%. In response to this, the stock touched its all-time high of Rs Rs 3,493 on Thursday.
GAIL (India): This gas utility company’s shares saw four brokerage target price upgrades over the past month after it announced its Q4FY21 results last month. Brokerages are enthusiastic about the prospects of the company’s gas transmission business. The management guided for a 6-8% compounded annual growth in its gas trading volumes over the next three years. From FY25 onwards, this business will grow faster, according to the management. Its average target price is Rs 170.11, which means a 17.8% upside from the current price.
Sunteck Realty: This real estate company in its Q1FY22 operations update recently said it saw a 74.2% YoY growth in bookings in Q1FY22 to Rs 176 crore and its collections from projects rose 2.6 times to Rs 172 crore. In response to this update, the company’s stock rose 6% over the past three trading sessions.
Wipro: This IT services company delivered its best-ever quarterly profits in Q1FY22 at Rs 3,242.6 crore (up 9.1% QoQ) on the back of a 12.2% sequential growth in dollar revenues of its IT services business to $ 2.4 billion. Its margins took a hit and fell 150 bps to 18.8% as employee costs rose by 19.2% QoQ on the back of a second salary hike in 2021. Margins also fell because of a 14.5% QoQ rise in subcontracting expenses as demand for talent rose due to a pick up in business.

The Baseline

14 Jul 2021

Five Interesting Stocks Today

Edelweiss Financial Services: This financial services company’s superstar investors are buying and selling its stock. In Q1FY22, Rakesh Jhunjhunwala purchased 37.8 lakh shares in the company, increasing his stake to 1.6% (from 1.2% in Q4FY21). However, Mohnish Pabrai sold 83.9 lakh shares, reducing his stake to 4.9% (from 6% in Q4FY21) in the quarter.
Laurus Labs: This pharmaceutical company is the pick of brokers. Motilal Oswal maintained a ‘Buy’ rating on the stock and said the company’s strengthening contract manufacturing operations and a Rs 1,500 crore capital expenditure plan to build research centres will provide commercial benefit in FY22-23. BOB Capital Markets also maintained a ‘Buy’ rating expecting its formulations division’s production volumes to Europe and North America to grow in FY22.
Hatsun Agro Products: This dairy company’s stock hit a new lifetime high as it commenced operations at its milk plant on July 12. The company said its Tiruppur plant, which was set up at a cost of Rs 101 crore, is fully operational. The plant’s daily capacity is 3.5 lakh litres a day. The company will announce its Q1FY22 results on July 14.
National Aluminium Company: Steel, aluminium, and zinc makers’ stocks are trading lower as the commodity cycle momentum has cooled off in the past few weeks. However, this aluminium maker’s stock is up by 20% in one month. Its valuation remains in check as its trailing 12-month (TTM) price-to-earnings (PE) ratio is 11.8, below the average PE of 18.7, putting it in the ‘neutral zone.’
TVS Motor Company: This automobile company’s retail market share in the two-wheeler market steadily fell in Q1FY22. According to data from the Federation Of Automobile Dealers Associations (FADA), its market share in the two-wheeler market dropped to 12.8% in June 2021 from 14.8% in April 2021. In that time, the market share of the two-wheeler market leader Hero MotoCorp grew to 44.6% from 34.6%.

The Baseline

12 Jul 2021

Five analyst stock picks this week

CDSL: Among trading companies, HDFC Securities analysts are bullish on CDSL, with a target price of Rs. 1,075. "CDSL continues to be the greatest beneficiary of the rise in discount brokers," analysts Amit Chandra and Mohit Motwani write. "It is expected to post another strong quarter (+4.9 QoQ), led by transaction and annual issuer revenue. Transaction revenue will grow on a high base, supported by higher trade volume YoY."
Avanti Feeds: Geojit is a buy on this shrimp feed company, with a target price of Rs. 760, an upside of 18%+. "The price hike taken in recent months will support realisation and we are expecting revenue CAGR of 18% over FY21-23E," analyst Vincent Andrews writes, "Demand outlook is improving given the re-opening of hotels & malls in export markets along with better export and farm gate prices, and favourable shrimp culture conditions."
TCS: Healthy deal wins are a core positive for this IT giant, ICICI Securities analyst Devang Bhatt writes. ICICISec's target price of Rs. 3,800 gives it an upside of 18%+. "TCS is a key beneficiary of multi-year growth (15-20%) in digital technologies. The increase in outsourcing in Europe, vendor consolidation and deal pipeline is leading to revenue CAGR of 13% over FY21-23E," he notes. "With industry leading margins, we expect margins to improve 142 bps over FY21-23E."
Indian Hotels: Motilal Oswal is a buy on this hotels chain, saying that "cost savings are here to stay." Giving an upside of 21%+ on a target price of Rs. 180, analysts Sumant Kumar, Darshit Shah and Yusuf Inamdar write, "While FY21 earnings are weak, we expect a sharp recovery in FY22E/FY23E on: a) a low base, b) improvement in ARRs once things normalize, c) improved occupancies, d) positivity in cost rationalization efforts in FY21, e) an increase in F&B income as banqueting/conferences resume, and f) higher income from management contracts.
Ujjivan Small Finance Bank: Axis Direct analysts are a buy on this SFB with a target price of Rs. 37, an upside of 21%+. "We believe that the disbursements have picked up in Jun’21 as geographies witnessed unlocking. Taking a cue from the performance of peers, we expect the collections to have improved in Jun’21," analyst Dnyanada Vaidya writes. "Asset quality stress build-up due to COVID 2.0, and credit cost outlook for FY22E remain key monitorables."

The Baseline

08 Jul 2021

Chart of the week - Private banks improve their loan-to-deposit ratio in FY21

At the start of FY21, private sector banks like Yes Bank and IDFC First Bank had a loan-to-deposit ratio greater than one. In March 2020, as Yes Bank was engulfed in a bad loan crisis, it had 1.6x more loans than deposits. By Q1FY22, its deposits increased by 39% YoY to Rs 1.6 lakh crore. This is higher than the deposits growth of the largest domestic bank, HDFC Bank, which had a deposit growth of 13% YoY in Q1FY22. HDFC Bank's loan book stayed flat at 0.85x its deposits book.

The loan-to-deposit ratio measures a bank's liquidity position. A high loan-to-deposit ratio (greater than 1) indicates that a bank has given out more loans than it has received deposits. This means that the bank might not have enough liquidity to cover customer deposits.