As the dust surrounding the election finally settles, the volatility index India VIX has dropped by over 50% since June 4, after peaking at around 31.7 the day the Lok Sabha election results were announced. Markets breathed a sigh of relief after the Centre signaled continuity, with the BJP-led NDA alliance forming a government with Narendra Modi re-elected as Prime Minister for a third term. There were no changes in significant ministries such as Finance, Highway, Defence and Home. 

Markets are now looking ahead to the upcoming results season for the first quarter of the current fiscal year. In this week’s Chart of the Week, we take a look at a screener of companies that have high Forecaster earnings per share (EPS) growth estimates for Q1FY25. We also look at their trailing twelve-month price-to-earnings (PE TTM) ratio to assess their current valuations.

In the interactive chart above, each bubble represents a company, with its size directly proportional to its EPS growth estimate. Companies with expensive valuations having high PE TTM are shown in red, while those with comparatively cheaper valuations are in green.

Companies with high EPS growth estimates are trading at expensive valuations

Beauty products retailer FSN E-Commerce Ventures (Nykaa), has the highest EPS growth estimates among its Nifty500 peers at 400% YoY for Q1FY25. With such high EPS growth expectations by institutional analysts, the share price has risen steadily and the stock is at an eye-popping valuation, with a PE TTM of 1,514. Nykaa launched ‘Nysaa’ in Q4FY24 for the GCC market which includes UAE, Saudi Arabia, Qatar, Oman, Kuwait and Bahrain. Management believes that GCC’s beauty and personal care market size of around $30 billion offers headroom for high growth. Nysaa’s e-commerce platform was launched in Jan’24 and its first offline store was opened in Mar’24 in Dubai.

Another retail player, Trent has seen its share price surge 206% in the past year, and it currently trades at a PE TTM of 125.4. The company is seen doubling down on the expansion of its value retail segment ‘Zudio’ with stores growing from 352 in FY23 to 545 in FY24. Motilal Oswal expects it to further grow at a CAGR of 24.5% in FY25-26. Forecaster estimates EPS growth of 285% in Q1FY25.

Similarly, electronics manufacturer Dixon Technologies saw its share price rise 147.3% in the past year, boosted by the PLI and Make in India government schemes. Analysts are bullish on this stock and project an EPS growth consensus of 100% YoY in Q1FY25. The stock is currently trading at an expensive valuation given its future growth prospects, with a PE TTM of 182.9. The company is a top pick for premium smartphone makers like Apple and Google to localise their production in India.

PSU companies with high EPS growth estimates trade at cheaper valuations

With the current government’s infra outlay, analysts expect PNC Infratech to post EPS growth of 239% in Q1FY25. The company is trading at PE TTM of 13.4 as it declined by 10.1% after the Central Bureau of Investigation (CBI) investigated a few of its officials related to a Rs 10 lakh bribery case. However, analysts remain bullish on this stock, with expectations of new orders from the re-elected ministry. 

Another PSU, Punjab National Bank, is also trading at a very inexpensive valuation with a PE TTM of 15.6, with Forecaster estimating EPS growth of 177% in Q1. Over the past three fiscal years (FY21-24), its EPS grew at a CAGR of 47.2%. Even though the net interest margins have declined owing to the fairly high cost of funds, the bank benefited from lower provisions, which declined by 59% YoY thanks to lower NPA provisions and provision reversals.

Meanwhile, oil & gas company Petronet LNG is expected to report EPS growth of 149% in Q1FY25. The stock currently trades at a PE TTM of 13.3. The newly formed government has revived talks on the inclusion of natural gas under the GST scheme. Analysts expect this move to lower prices by $0.8-0.9 per mmBtu, leading to faster adoption and volume expansion.

Cement & construction firms with high growth prospects trade at fair valuations

Analysts are bullish on cement-producing companies as their operating margins have improved in recent quarters due to debt repayment and industry consolidation. Forecaster estimates Q1FY25 EPS growth of 84.2%, 115.5% and 67.5% for Dalmia Bharat, Birla Corporation, and JK Cement, respectively. Both cement and construction firms stand to benefit from the government’s budget outlay of Rs 11,11,111 crore. Construction firm Larsen & Toubro is currently trading at a PE TTM of 39.7, with Forecaster estimating EPS growth of 55.2% in Q1.

On the other hand, auto manufacturer Tata Motors is also trading at a PE TTM of 10.5. Forecaster estimates EPS growth of 121.3% in Q1FY25 as the company cleared off its debt taken by domestic business in the previous quarter, leading to lower financing costs and better profitability in the upcoming quarters. Margins have also risen in recent quarters driven by demand for luxury Jaguar Land Rover vehicles.