The Baseline    
11 Jul 2022
Five analyst picks for Q1FY23 earnings season
By Suhas Reddy


With the new earnings season underway, we looked at analysts' preview calls on various sectors and picked out the companies that they expect to do well in Q1FY23.

  1. Mahindra & Mahindra: IDBI Capital’s Mahesh Bendre and Pratik Desai believe the Indian auto sector is on the path of recovery, led by the passenger vehicle (PV) and commercial vehicle (CV) segments gaining traction. The analysts’ top picks in the sector are Mahindra & Mahindra (M&M), Maruti Suzuki India, Sona BLW Precision Forgings, and SJS Enterprises. They expect M&M’s stock to have the highest upside among the top picks. The analysts have a ‘Buy’ rating on M&M with a target price of Rs 1,643, indicating an upside of 41.5%.

Bendre and Desai highlight the company’s sales volume growth in all its segments in June, and expect the company to maintain this growth momentum throughout FY23. “The company’s PV Sales compared to pre-pandemic June-19 month are 43% higher,” the analysts said. They expect the company’s revenue to grow on the back of a robust order book and new product launches. 

  1. Larsen & Toubro: Prabhudas Lilladher’s analysts Amit Anwani and Nilesh Soni expect capital goods companies to report healthy revenue growth in Q1FY23. They see growth on the back of a low base last year, a pick-up in execution of projects, and the Centre’s infrastructure development push. However, they also expect margins to fall due to supply chain disruptions, elevated commodity prices and high freight costs. The analysts’ top picks from this industry are Larsen & Toubro (L&T), Bharat Electronics, and Siemens. Among these stocks L&T has the highest upside. The analysts have a ‘Buy’ rating on L&T with a target price of Rs 2,091, an upside of 25.5%.

“We expect the company’s consolidated revenue to grow 18% YoY in Q1FY23,” the analysts said. This growth is likely to be led by segments like IT, infrastructure, and hydrocarbons. The analysts are also upbeat on the company’s order flow as it announced many orders in the range of Rs 7,000-15,000 crore.  

  1. Infosys: ICICI Securities’ analysts Aniket Pande and Heenal Gada maintain their ‘Underweight’ rating on the Indian IT sector as they believe the peak revenue growth momentum period is over. They also expect large deal wins and hiring momentum to slow down in FY23. The analysts anticipate demand to moderate due to the economic slowdown in the US and Europe. The analysts picked Tata Consultancy Services and Infosys to perform better than the industry in FY23. Of the two stocks, they give Infosys a higher upside. The analysts upgraded their rating on Infosys to ‘Hold’ from ‘Reduce’ and increased their target price to Rs 1,464 from Rs 1,385.

This comes after Infosys’ stock price fell 25% over the past three months. Their outlook on the company improved as they believe the company is well equipped to deliver industry-leading growth even during an economic slowdown. The analysts expect revenue growth to be driven by cobalt cloud capabilities, execution of mega-deals and potential market share gain in large vendor deals. “We believe Q1FY23 will be the bottom for margins for the company and margins will gradually improve from thereon,” the analysts said. They estimate the company’s revenue to grow by 21.9% YoY in Q1FY23.

  1. Bharti Airtel: This telecom company is ICICI Direct’s analyst Bhupendra Tiwary’ top pick in the telecom space. “We see subscriber addition momentum remaining muted amid sim consolidation due to tariff hike,” Tiwary says in this telecom sector report.  He has a ‘Buy’ rating on Bharti Airtel with a target price of Rs 860. This indicates an upside of 29.9%.

“The reported average revenue per user is likely to be up 3% QoQ at Rs 184 as some residual tariff hike pass-through will be seen,” Tiwary says. He also predicts that the company will add 2 million mobile subscribers, and the wireless revenue rising 3.8% QoQ at Rs 18,278 crore. The analyst adds, “India non-wireless revenues’ traction should remain robust, especially broadband and enterprise. He expects the company to report revenue growth of 3.9% QoQ to Rs 32,739 crore, and a profit of Rs 2,264 crore. 

  1. Oil And Natural Gas Corporation (ONGC): As the Centre imposed export duties on exports of petrol, diesel, and aviation fuel, analysts Harshad Katkar, Nilesh Ghuge, Akshay Mane, and Rutvi Chokshi have turned cautious on the oil and gas space. In their report on the sector,  the analysts from HDFC Securities maintain a ‘Buy’ on ONGC with a target price of Rs 184, indicating an upside of 46.7%. 

According to the analysts, stocks from the oil and gas sector declined as investors didn’t appreciate the new levies applied to the sector. They say that these taxes will adversely affect ONGC. For the company, “we bake in a lower net crude oil price realisation of $80 and $70 per barrel vs $93 and $79 per barrel earlier for FY23 and FY22, respectively,” say Katkar, Ghuge, Mane and Chokshi.They also stay optimistic that these levies will be reduced or withdrawn as inflation gets under control. This is corroborated by the Centre’s stance that it will remove this ‘windfall’ tax on these products if there is a $40 fall in crude oil prices.

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

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