This shipbuilding firm is making headlines due to the government’s plans to tender six Air Independent Propulsion (AIP)-capable diesel submarines worth around Rs 43,000 crore. It's the only Indian firm capable of building destroyers and conventional submarines. According to Trendlyne Technicals, the stock has risen by 8.8% in the past month. The firm’s order book at the end of June 2023 was pegged at Rs 39,117 crore, which is executable till FY27. However, the peak revenue recognition is expected in FY25 if no new major orders are bagged.
Mazagon Dock Shipbuilders’ Q1FY24 revenue increased marginally by 1.6% YoY, but net profits surged by 39.5% YoY. The bottom-line growth was driven by the faster commissioning of the P15-B destroyer ship. The management has given a revenue guidance of 10-12% for FY24, with margins at FY23 levels. Mazagon Dock has planned a capex of Rs 500 crore towards a floating dry dock.
The firm has tied up with ThyssenKrupp Marine System (TKMS) to participate in the bidding for P75I submarines (6 numbers), with an expected order value of around Rs 43,000 crore. Mazagon Dock Shipbuilders and L&T (along with Spain-based firm Navantha) have been shortlisted for the bidding process. The firm is also expecting an extension of the P75 submarine (3 numbers) valued at around Rs 22,000 crore. Apart from this, periodic refit and life certification projects are in the pipeline.
ICICI Securities says that despite Mazagon Dock’s strong execution capability, uncertainties around ordering timelines for P75I and P75 and its depleting order book pose a risk to revenue growth. The brokerage maintains its ‘Sell’ rating.
2. Kalyan Jewellers India:
This gems and jewellery retailer has risen by 18.2% in the past week, reaching a 52-week high of Rs 228.4 on Thursday. The increase comes after the company announced a 33.3% YoY improvement in its Q1FY24 net profit to Rs 143.9 crore, beating Trendlyne Forecaster’s estimate by 16.9%. Its revenue also grew by 31.3% YoY to Rs 4,387.4 crore, beating the estimate by 3.7%. This revenue surge was driven by robust store expansion and high momentum in footfall.
For FY24, Kalyan Jewellers has plans to open 52 new stores in India under the FOCO model (franchise owned while the company operates). This approach will reduce capex costs and contribute to margin expansion. The management also aims to convert its digital platform Candere into an omnichannel model by launching 25 new stores in FY24. This rapid expansion may lead to further top-line growth. In Q1FY24, Kalyan Jewellers’ operating profit margin stood at 7.8%, while its peer Titan’s was 11.2%.
But the jewellery maker needs to absorb and train employees much before the store openings, leading to increased employee cost expenses. It already added nearly 600 employees in Q1. The company also features in a screener for stocks with growing YoY costs for long-term projects.
Along with the expansion push, Kalyan Jewellers may also benefit from the rising share of organised jewellery retailers. These organised retailers are expected to claim over 40% of the market share by FY25 from 32% in 2020.
ICICI Securities maintains a ‘Buy’ call on Kalyan Jewellers and foresees revenue and profit CAGR of 21% and 28% respectively by FY25. It retains its stance based on the company’s execution performance capabilities, which it expects to sustain in the future. According to Trendlyne Forecaster, the company has a consensus recommendation of ‘Strong Buy’ from 6 analysts.
3. Jindal Steel & Power:
This metals & mining stock has been on the decline since Monday following its announcement of a 15% decrease in net profit to Rs 1,691.8 crore in Q1FY24 on August 11 post-market hours. Its revenue also fell by 3.3% YoY to Rs 12,588.3 crore due to a fall in pellet production and delays in the commissioning of key steel manufacturing facilities. These caused the company to appear in a screener of stocks with declining quarterly revenue and net profit (YoY). While its revenue was in line with Trendlyne’s Forecaster estimates, net profit beat estimates by 111.1%.
Despite the dip in net profit, Jindal Steel & Power's EBITDA margin expanded by 560 bps YoY to 21.6%, owing to a reduction in the cost of raw materials due to lower iron ore and thermal coal prices. It has managed to conclude the mining lease of Utkal C and Gare Palma IV/6, along with the commissioning of a 6 MTPA pellet plant at Angul, despite a delay in the commissioning of steel plants. This will bring down the cost of thermal coal. The delay in the commissioning of the steel plants was due to the hold-up in environmental approvals. Bimlendra Jha, Managing Director of the company, said, “The mining lease for the two thermal coal mines will lead to consistent availability of coal for our thermal coal requirements in DRI Kilns, Coal Gasification and Power Plants at lower costs.”
Following the results, ICICI Securities has maintained its ‘Buy’ rating on the stock with an upgraded target price of Rs 810 per share. This indicates a potential upside of 26.4%. The brokerage believes that the delay in the steel mining activities in Angul will affect revenue growth in the near term. However, it expects the company’s EBITDA margin to improve on the back of the captive coal mining and pellet plants. The brokerage expects its revenue to grow at a CAGR of 3.6% over FY22-25.
4. Tejas Networks:
This telecom services company rose nearly 7% in intraday trade on Wednesday after winning a contract worth Rs 7,492 crore from TCS. The contract involves supplying radio access network (RAN) equipment for BSNL's 4G/5G network project. As per the deal, the firm will supply RAN equipment across 1 lakh sites and the project is expected to be executed during 2023 and 2024.
This deal seems to have accelerated the recovery of Tejas Networks' share price. The stock had declined by nearly 10% after the announcement of its Q1FY24 results on July 21. Its net loss widened nearly 4X YoY to Rs 26.3 crore due to sharp increases in raw material costs and employee expenses. The firm's revenue growth of 49.5% YoY was not enough to offset the effects of rising input costs. It shows up in a screener for companies with net profit declining sequentially over the past three quarters.
However, Tejas Networks has not lost its positive momentum entirely. It achieved robust top-line growth in its domestic and international segments. The company's order book for the wireless business at the end of Q1FY24 stood at Rs 1,909 crore, with 86.5% of the orders coming from the Indian market. Arnob Roy, the Chief Operating Officer of Tejas Networks, said, “Around 50-60% of the company’s total order book will be executed by the end of FY24.” In addition, the recent deal win from TCS adds to the already healthy order book. However, the focus falls on order execution to bring the firm back to profit from loss.
5. FSN E-Commerce Ventures (Nykaa):
This internet and catalogue retail company plunged over 8% on Monday after reporting a 27.4% fall in its Q1FY24 net profit, missing Forecaster estimates by 83.2%. The net profit decline can be attributed to increased costs of raw materials, finance, and employee benefits. The slowdown in discretionary spending also dragged the net profit down during the quarter. However, its revenue has improved by 23.8% YoY, driven by the beauty & personal care (BPC) and fashion segments.
During the quarter, Nykaa’s GMV (gross merchandise value) grew by 24% YoY. Specifically, the GMV of the BPC segment (constituting 63.7% of the total GMV) rose by 24%, while the fashion segment’s GMV (24.5% of the total GMV) increased by 12% YoY. Nykaa’s BPC business has remained strong despite a slowdown in discretionary spending, while the fashion segment saw muted growth. Falguni Nayar, the CEO, said, “During the quarter, growth in fashion has been below our long-term expectation. I think it was a particularly tough quarter for fashion and the industry is hoping for a revival." She has also highlighted that the company remains focused on its own brands as it is key to profitability. Own brands now constitute 14% of Nykaa’s overall Fashion GMV, up from the earlier 12%, and they achieved a 30% YoY growth in Q1.
ICICI Securities highlights that the company’s EBITDA margins have expanded at a slower pace than expected. Nykaa’s EBITDA margin improved 120 bps YoY to 5.2%, largely driven by lower marketing & advertising expenses. However, the management foresees margin expansion through the scaling up of its eB2B business and the optimisation of marketing spends. The brokerage has downgraded its rating to ‘Add’ with an unchanged target price of Rs 165. As a result, Nykaa makes it to a screener of companies with broker downgrades in price or recommendation in the past month.
