The Baseline    
01 Aug 2022
Five analyst stock picks with revenue and profit growth in Q1FY23

As results come in for Q1, we look at companies that have analysts bullish on their prospects, and have delivered over 10% revenue and net profit growth YoY this quarter. 

  1. Larsen & Toubro: HDFC Securities maintains its ‘Buy’ rating on this construction and engineering company, but reduces the target price to Rs 2,135 from Rs 2,296. This indicates an upside of 17.9%. In Q1FY23, the company’s net profit rose 44.9% YoY to Rs 1,702.1 crore and revenue increased 18.2% YoY to Rs 35,853.2 crore.

The company beat the brokerage’s Q1 revenue and profit estimates by 1% and 1.1%, respectively. Analysts Parikshit D Kandpal, Nikhil Kanodia, and Manoj Rawat remain positive on the company’s prospects given “its record high order book of Rs 3.6 lakh crore.” They also see its plans to cut its stake in the Hyderabad metro project and revival in private capex as key positives. 

The analysts reduced their target price on account of Mindtree’s proposed merger with Larsen & Toubro Infotech, both subsidiaries of the company. Orders from India constitute 72% of the order book and 73% of all the orders are infrastructure projects, at the end of June 2022. The analysts anticipate the company’s revenue to grow at a CAGR of 13.2% over FY22-24.

  1. Coforge: Chola Wealth Direct maintains its ‘Buy’ rating on this IT consulting & software company with a target price of Rs 4,760. This indicates an upside of 20.2%. In Q1FY23, the company’s net profit rose 21.1% YoY to Rs 149.7 crore and revenue was up 25.2% YoY to Rs 1,829.4 crore.

Analyst Mugilan K expects the company’s profits to increase on the back of “strong growth in repeat business, improving order book, and increasing offshore revenues”. The analyst believes the near record-high total contract value of $315 million including two-large deal wins this quarter will boost profit growth in FY23. 

Mugilan added that executable projects in the order book stood at $745 million at the end of Q1FY23, which suggests high growth visibility in the medium term. He sees the company increasing its revenue growth guidance for FY23 to 20% or more as a key positive. He also anticipates the company’s EBITDA margin to expand 150-200 bps YoY “on account of continued offshoring, improvement in utilisation and pyramid rationalisation”, and expects the company’s profit to grow at a CAGR of 18.7% over FY22-24.  

  1. Asian Paints: Prabhudas Lilladher gives a ‘Buy’ call to this paint company with a target price of Rs 3,363. This indicates an upside of 1.2%. In Q1FY23, the company’s profit grew by 78.9% YoY to Rs 1,016.9 crore and revenue grew 53.4% YoY to Rs 8,705.9 crore. 

Amnish Aggarwal, Harish Advani, and Aashi Rara remain positive on the company on the back of market share gains in decorative paints, increased distribution, innovations & focus on high-growth waterproofing/wood finishes segment, as well as scalability plans in home décor. They added, “We expect Asian Paints to sustain premium valuations given strong growth visibility. The analysts are cautious given Grasim’s aggressive entry plans in decorative paints in FY24. The company expects commodity prices to remain volatile in the near term despite strong demand.

The analysts lower upside expectation from current levels on the stock may be because the company’s current TTM PE of 91.3, which is higher than its three-year and five-year PE ratios of  81.1 and 73, respectively.

  1. SRF: ICICI Direct retains a ‘Buy’ call on this specialty chemicals company. This indicates an upside of 12.1%. In Q1FY23, the company reported profit growth of 53.8% to Rs 608 and revenue growth of 43.9% to Rs 3,904.6 crore. 

According to analysts Siddhant Khandekar and Dhavan Shah, the company’s revenue growth was better than their estimates, led by chemicals, and packaging film segments. The analysts added, “The growth from the chemical segment was driven by robust demand for flagship products.” Operating margins for the quarter expanded 60 basis points YoY to 25.5%. The analysts believe that higher operating margins led to strong performance.

The company has planned capex of approximately Rs 560 crore towards projects like a dedicated facility to produce agrochemical intermediate, pharmaceutical intermediates, and belting fabrics, among others. Khandekar and Dhavan said, “continuous capex towards specialty chemicals on the back of higher consumption of fluoro compounds across agrochemical and pharma supports strong business performance in the years to come.”

  1. Axis Bank: Edelweiss reaffirms its ‘Buy’ rating on this bank with a target price of Rs 727, indicating an upside of 30.6%. In Q1FY23, the bank’s profit grew by 85.9% YoY to Rs 4,380.6 crore and revenue by 11.8% YoY to Rs 22,686.5 crore.

The bank’s advances grew 14% YoY to Rs 7 lakh crore, and deposits grew 12.6% to Rs 8 lakh crore. Net interest income (NII) increased by 20.9% YoY to Rs 9,384 crore, and analyst Raj Jha said that this was driven mainly by net interest margin (NIM) expansion. NIM increased by 14 basis points YoY to 3.6%.

Jha noted, “We believe this (the growth in NII and NIM) is a very positive outcome achieved through both the impact of asset repricing and changes in business mix.”  He observes that the bank performed well in terms of operating parameters and asset quality.” He adds, “We believe credit growth will remain in the mid-to-high teens over FY22-24, as the wholesale segment makes a comeback.” He concludes that eventual growth in NIM expansion should result in a steady increase in the bank’s return ratios.

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

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