This week, we take a look at the top analyst picks from the cement & construction and general industrials sectors.
1. Cummins India:
BoB Capital Markets keeps its ‘Buy’ rating on this industrial machinery manufacturer with a target price of Rs 2,200. This implies an upside of 23.7%. In Q2FY24, its net profit grew by 23.1% YoY to Rs 329.1 crore but its revenue fell 1.8% YoY.
Analysts Vinod Chari, Swati Jhunjhunwala and Arshia Khosla attribute its net profit growth to strong performance in the industrial and distribution segments, which have expanded by 23% and 20% YoY respectively. They add that the firm’s EBITDA margin benefitted from lower commodity costs and a larger share of high-powered products in the mix. The analysts believe that the company’s market leadership helped increase its margin, as it was able to maintain its prices despite low input costs.
Chari, Jhunjhunwala and Khosla see sustainable long-term growth in the domestic power market and believe that the company is well-positioned to adapt to the new emission norms. They expect the firm’s net profit to grow at a CAGR of 15.7% over FY23-25.
2. Ashoka Buildcon:
HDFC Securities maintains its ‘Buy’ call on this highway developer with a target price of Rs 202, indicating an upside of Rs 44.5%. In Q1FY24, the company’s net profit increased by 76.4% YoY to Rs 112.3 crore, while its revenue grew by 19% YoY to Rs 2,195.3 crore, in line with the brokerage's estimates.
According to analysts Parikshit D Kandpal, Nikhil Kanodia and Manoj Rawat, the growth in EBITDA margin (up 463 basis points QoQ to 9.2%) is from declining overhead expenses. As the company didn't receive any new orders in Q2FY24, its order book stands at Rs 14,800 crore. The company has set its FY24 inflow guidance at Rs 5,000-6,000 crore due to a shorter ordering period in an election year, and weaker-than-expected NHAI ordering.
Despite these challenges, the analysts remain optimistic about Ashoka Buildcon on the back of its “strong order book, improving visibility on asset monetization, and likely cash inflow from asset monetization”.
3. JK Cement:
Motilal Oswal reiterates its ‘Buy’ call on this cement manufacturer with a target price of Rs 3,900. This indicates an upside of 13.9%. In Q2FY24, the company reported a 58.5% YoY rise in net profit to Rs 178.1 crore, while its revenue grew by 23.7% YoY. According to analysts Sanjeev Kumar Singh and Mudit Agarwal, the EBITDA of Rs 4,700 crore is led by higher white cement volumes in its UAE subsidiary, JK Cement (Fujairah), and lower costs.” The white cement volume included a one-off large order (40,000-tonne shipment) to Australia.
The management of JK Cement expects demand to remain strong, barring some moderation in November 2023 due to festivals and state elections. The analysts state that cement prices have increased in the company’s key markets. They say, “JK cement has shown strong volume growth, aided by capacity expansion,” and estimate its volumes to grow at a 12% CAGR over FY24- 26, higher than the industry’s average growth rate.
4. GE T&D India:
ICICI Securities maintains its ‘Buy’ rating on this industrial machinery company and raises the target price to Rs 460 from Rs 315. This implies an upside of 19%. In Q2FY24, the company posted a net profit of Rs 75.6 crore, compared to a net loss of Rs 13.5 crore in Q2FY23. Its revenue fell marginally by 0.4% YoY to Rs 697.8 crore.
Analysts Mohit Kumar, Ashwani Sharma, Bharat Kumar Jain and Nikhil Abhyankar remain positive about the company as its order inflow in Q2 grew by 121% YoY and operating margins expanded by 791 bps YoY to 8.7%. They expect an uptick in demand from the transmission segment, stating, “Transmission capital expenditure is likely to see a huge uptick, driven by the need to build renewables infrastructure. To accelerate the build-out, the government has launched a Rs 2.4 lakh crore plan for the new grid.”
The analysts cite the firm’s robust order pipeline and improving margins for the increased target price. They expect the company’s revenue to grow at a CAGR of 17.8% over FY23-26.
5. HG Infra Engineering:
Axis Direct maintains its ‘Buy’ rating on this construction & engineering firm but cuts the target price to Rs 1,090 from 1,140. This indicates an upside of 28.9%. In Q2FY24, its net profit increased by 17.3% YoY to Rs 96.1 crore and revenue grew by 20% YoY.
Although analysts Uttam K Srimal and Shikha Doshi are positive about the company’s prospects, they have reduced the target price due to the management’s revision of order inflow guidance to Rs 5,000-6,000 crore from Rs 8,000-9,000 crore in FY24. The company cites delays in tendering by the National Highways Authority of India for the revision.
However, the analysts are confident about the company’s strong order pipeline and its focus on diversification. They note, “The company is looking to diversify more in railways, metros, and solar projects. The management expects 20-25% of its order book to come from non-road projects in the next 2-3 years.”
Overall, they expect the firm’s strong order book, execution prowess, asset monetisation and diversification into other sectors to drive healthy revenue growth. The analysts project the company’s net profit to grow at a CAGR of 16.2% over FY23-25.
Note: These recommendations are from various analysts and are not recommendations by Trendlyne.
(You can find all analyst picks here)
