This week we look at five analyst picks from the construction and metal sector:
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Larsen & Toubro: HDFC Securities maintains its 'Buy' rating on this construction and engineering company, with a target price of Rs 3,002, implying an upside of 12.2%. Analysts Parikshit D Kandpal, Nikhil Kanodia, and Manoj Rawat are optimistic about its all-time high order book of Rs 4.1 lakh crore. In Q1FY24, the company's profit surged by 46.5% YoY to Rs 2,493 crore, while revenue saw a 33.5% YoY increase, surpassing Trendlyne Forecaster's estimates by 18% and 19%, respectively.
The analysts at HDFC Securities are confident in the company's consistent outperformance, driven by robust execution. They believe that infrastructure margins have reached the lowest point and are likely to improve in the future. Analysts also expect an improvement in the performance of its subsidiaries.
The analysts estimate a robust prospects pipeline for 9MFY24, with an estimated value of Rs 10 lakh crore compared to Rs 7.5 lakh crore a year ago, indicating promising growth opportunities. Notably, they estimate a significant uptick in the hydrocarbon prospect pipeline, valued at Rs 3.5 lakh crore, suggesting potential opportunities in the energy sector.
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Jindal Stainless: ICICI Securities maintains a ‘Buy’ call on this steel manufacturer with a target price of Rs 445. This indicates an upside of 13.1%. In Q1FY24, the company reported a 132.1% YoY growth in net profit to Rs 745.8 crore and an 86.3% increase in revenue. It beat Trendlyne Forecaster’s net profit estimate by 23.9%. The company’s EBITDA stands at Rs 1,120 crore, up 35% YoY (beating the brokerage’s estimate by 9%).
Analysts Amit Dixit, Mohit Lohia and Pritish Urumkar remain positive about Jindal Stainless as its shipments rose by 54% YoY to a record level. Its domestic subsidiaries have also performed well, while overseas subsidiaries faced challenges. The management foresees a 20-25% growth in volume in FY24 and FY25 each. They expect the acquisition of Jindal United Steel to eliminate related-party transactions and drive synergies across the full value chain.
The analysts say, “We perceive Jindal Steel to be in the pole position to capture domestic growth as it is the only domestic producer with spare capacity.” They have raised their EBITDA estimates for FY24 and FY25 to 16% and 12%, respectively, factoring in higher sales volume and lower power and fuel costs.
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Dalmia Bharat: Geojit BNP Paribas upgrades its rating on this cement manufacturer to ‘Buy’ from ‘Hold’ and raises the target price to Rs 2,234 from Rs 2,200. This implies an upside of 14.3%. In Q1FY24, the firm’s net profit fell 33.7% YoY to Rs 130 crore but revenue grew by 9.8% YoY.
Despite the fall in net profit, analyst Vincent Andrews turns positive about the company’s prospects, given its healthy volume growth and a strong focus on capacity expansion. He is optimistic about its FY24 volume growth guidance of 15-17% and believes it is on track to achieve this target through organic expansion and acquisitions. He adds, “The demand outlook is positive, given the Centre’s focus on infrastructure & housing and pre-election spending.”
Although Dalmia Bharat’s EBITDA margin contracted despite volume growth in Q1, the analyst anticipates margins to improve in the coming quarters due to declining fuel costs. He expects the company’s net profit to grow at a CAGR of 38.3% over FY23-25.
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Tata Steel: Bob Capital Markets maintains a ‘Buy’ call on this steel manufacturer with a target price of Rs 145, indicating an upside of 17.6%. In Q1FY24, the company’s profit fell by 91.8% YoY to Rs 634 crore, and revenue declined by 4.8% YoY. Its EBITDA was 6% ahead of consensus but 1% below BoB’s forecast.
Analysts Kirtan Mehta and Yash Thakur remain positive as Tata Steel is prioritizing capex plans over leverage targets. They say, “This is a positive decision as completion of ongoing capex will generate cash flows and help lower leverage over the medium term.” The company has maintained its capex plan of Rs 16,000 crore for FY24.
The analysts also remain optimistic about Europe operations turning EBITDA-positive, the potential resolution of the restructuring in UK operations, and the startup of the blast furnace at TSK. “We remain confident of Tata Steel’s ability to weather the downturn and deliver on earnings-accretive growth,” they conclude.
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UltraTech Cement: KRChoksey keeps its ‘Buy’ rating on this cement maker and raises the target price to Rs 9,439 from Rs 9,105. This implies an upside of 13.5%. In Q1FY24, the company’s net profit rose by 6.6% YoY to Rs 1,688.5 crore and revenue grew by 17%. It beat Trendlyne Forecaster’s revenue and profit estimates by 2% and 0.8% respectively.
Analyst Abhishek Agarwal attributes the firm’s healthy Q1 performance to a 20% YoY growth in volume, led by robust demand. He also cites lower energy costs for margin expansion and profit growth. He believes that “the recent correction in energy prices will continue to ease margin pressures in the medium-term”.
With the demand environment remaining strong, Agarwal expects the company’s capacity expansion efforts to drive future growth and market share gains. “Given the ongoing capex, UltraTech Cement is poised to maintain its industry leadership,” he adds. The analyst anticipates the company’s revenue to grow at a CAGR of 16.4% over FY23-25.
Note: These recommendations are from various analysts and are not recommendations by Trendlyne.
(You can find all analyst picks here)
