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Investors are constantly on the lookout for investment strategies that deliver outsize returns. Managing a portfolio that consistently outperforms its benchmark over time is a feat achieved by very few. Often, you will find ‘finfluencers’ on youtube claiming market-beating returns every time they invest. The reality of the stock market however, is that it is volatile, and there will be periods of negative as well as positive returns. 

One way to maximize returns is via screeners that automatically search for stocks that outperform on not one, or two but multiple metrics. The DVM score, for example, looks at several metrics across management quality, financial health, stock valuation, as well as several dozen technicals, to identify high-scoring stocks. With these scores, investors are able to shortlist higher quality stocks for investing. 

In this edition of Chart of the Week, we analyse one DVM screener - the ‘DVM - High Performing, Highly Durable Companies’ screener. This screener selects stocks from the Nifty 500 index that show strong financial durability, reasonable valuation, and positive momentum scores. It is optimised to highlight the top five stocks with the highest durability scores. 

The screener backtest checks for past returns generated, and ran from March 2013 to September 2023, evaluating this strategy’s quarterly performance against the Nifty 500 benchmark. The screener has given cumulative returns of 2,772.8% over 10 years and 6 months, with a CAGR of 37.4%. In contrast, the benchmark’s CAGR stands at 14.5 %.

The heatmap presents a period analysis, showcasing the strategy's quarterly returns from Q1FY14 to Q2FY24. The data reveals that this approach delivered positive returns in 29 out of 42 quarters. It also outperformed the Nifty 500 index in 30 of these 42 quarters. 

The strategy had its maximum drawdown of 29.9% in Q1FY23. The term maximum drawdown represents the biggest observed loss from a portfolio’s peak to its lowest point before a new peak is attained. This strategy is an automated one and did not have a stop loss set, so the drawdowns show the maximum loss potential under this approach. Introducing a stop loss can reduce periods of negative returns and lower maximum drawdowns.

The screener currently has stocks such as Great Eastern Shipping Co, Apar Industries, Natco Pharma, Maruti Suzuki India and Jindal Saw.

In the course of the backtest, Ceat gave the highest returns of 428.8%. On the other hand, Triveni Engineering & Industries’ stock price had the highest fall of 48.8%.  

Greenpanel and Jyothi Labs shine as top performers over the past two years

Greenpanel performs the best in the DVM screener over the past two years

Here, we look at stocks with the highest returns over the past two years from the DVM screener’s backtest. Greenpanel Industries was part of the screener from June 30, 2021, to June 30, 2022. During this period, it provided a return of 85.9%.

Meanwhile, Jyothy Labs entered the screener on June 30, 2023, and exited on September 22, 2023. In these three months, the company gave a return of 61.7%. This can be attributed to the rise in its net profit by 98.7% YoY to Rs 96.3 crore in Q1FY24, aided by increased rural demand. 

The tobacco major, Godfrey Phillips, remained in the screener for two quarters, from September 30, 2022, to March 31, 2023. In this duration, the company gave 58.5% returns. The company's decision in October 2022 to sell its chewing tobacco business and other trademarks allowed it to concentrate on the cigarette business. Consequently, its net profit surged by 70.3% YoY in Q3FY23 to Rs 199.2 crore.

Zydus Lifesciences, a pharmaceuticals major, was in the screener from September 30, 2022, to June 30, 2023. During this period, its stock price rose by 50.7%. On October 3, 2022, the company received the US FDA’s approval for its Mirabegron tablets, which are used to treat overactive bladder. This came with 180 days of shared generic drug exclusivity, caused the stock price to surge by 5.8%. 

Lastly, Kalyan Jewellers India, active in the screener for the past quarter, recently exited but not before registering a 46.7% return. The company’s net profit rose by 33.3% in Q1FY24 to Rs 143.9 crore, aided by expansions in northern regions of India and the UAE. 

Apar Industries and Jindal Saw post 300%+ returns in the past year

Apar Industries leads in one-year gain among active stocks

Let’s now focus on the yearly and quarterly price change % of stocks currently active in the screener. Apar Industries’ stock price rose by 353.1% in the past year and 66.9% in the past quarter. Since its inclusion in the screener on March 31, 2023, the firm has yielded a return of 101.6%. The company’s Q4FY23 net profit rose by 193.8% YoY, followed by a surge of 61.2% YoY in Q1FY24. 

The general industrials company, Jindal Saw, reported a stock price rise of 334.4% in the past year and 38.3% in the past quarter. The company posted net profit gains of 54.2X to Rs 263.1 crore in Q1FY24. On September 18, 2023, the company entered into a joint venture with Hunter Energy Services, a US-based company. As part of this collaboration, they will jointly invest $25 million (approx Rs 208.1 crore) to establish a threading plant in Maharashtra. The investment will replace imports estimated at $200 million per annum.

Meanwhile, Natco Pharma surged by 42.2% in the past year and 26.3% in the past quarter. The shipping company, Great Eastern Shipping Company, also rose by 63% in the past year and 13.8% in the past quarter. It has been active in the screener for the past quarter and has provided 9.2% returns in this period. Shipping stocks surged after global leaders announced a multinational rail and port agreement that would connect the Middle East and South Asia at the G20 summit. This led to the shipping stocks to surge by 12.2% in the past month.

Lastly, auto giant Maruti Suzuki India’s  share price rose by 20% in the past year and 8.4% in the past quarter. The company’s quarterly net profit increased by 143.7% YoY to Rs 2,525.2 crore in Q1FY24. 

In summary, the screening criteria of high returns and durability, results in stocks that can potentially deliver medium to long-term gains with moderate risk, as suggested by the max drawdown of 29.9%. Despite uncertainties like the COVID-19 pandemic, this screener gave a mean quarterly return of 10%. It also consistently held an average stock count of 4.7, implying diversified investment, except for Q1FY21 when it had no stocks. 

Investors should undertake quarterly portfolio reviews and adjustments according to the entries and exits of stocks. And keep in mind as always, that  past returns don't guarantee future outperformance.

1. Ashok Leyland: 

Axis Direct maintains its ‘Buy’ rating on this commercial vehicle manufacturer with a target price of Rs 210, implying an upside of 14.4%. Analysts Aditya Welekar and Shridhar Kallani believe that the company is well-positioned to benefit from the long-term upswing in the commercial vehicle (CV) sector, given its dominant market share and new product launches. They also see its margins improving in the long run due to “operational efficiencies, a material cost reduction programme, softening of commodity costs, and pricing discipline”. 

After interacting with Ashok Leyland’s pan-India dealer network, Welekar and Kallani report a general optimism about the CV upcycle. They note that the demand for medium and heavy commercial vehicles is still strong, while there is a slowdown in the light commercial vehicle segment. The analysts are optimistic about the firm’s strategy to penetrate traditionally weak markets in Northern and Eastern India, grow in the central region, and defend its market share in the southern market. The analysts expect the company’s net profit to grow at a CAGR of 34% over FY23-26.  

2. Astra Microwave Products: 

ICICI Securities maintains a 'Buy' rating on this defence company with a target price of Rs 510, indicating an upside of 20.4%. Analysts Chirag Shah and Vijay Goel emphasize the company's significant strengths in research and development, and  manufacturing. 

The analysts highlight Astra’s ascent up the value chain, transitioning from the manufacturing of subsystems to the development and production of a wide range of high-end, critical microwave and radio frequency-based equipment. They note that the company has a healthy order book, currently standing at Rs 1,580 crore, which is twice its FY23 revenue.

Shah and Goel expect a substantial influx of future orders, given the government's increased capital allocation to the defence and space sectors, which is aimed at reducing defence imports and promoting domestic production. The analysts project impressive growth rates, with EBITDA and PAT expected to grow at a CAGR of 26.3% and 46.7%, respectively, over FY23-25.

3. Bharat Heavy Electricals: 

Geojit Financial Services maintains a 'Buy' rating on this heavy electrical equipment company with a target price of Rs 154, indicating an upside of 21.8%. Analyst Vinod T P holds a positive outlook, primarily because the company, in collaboration with Titagarh Rail Systems, has secured a contract worth Rs 24,000 crore from the Indian Railways. This contract is for the manufacture and supply of 80 Vande Bharat sleeper trains by 2029. Vinod highlights an additional order for an annual maintenance contract, under which Bharat Heavy Electricals will undertake comprehensive maintenance of these trains for 35 years.

The analyst foresees improvements in margins and profitability in the future, driven by increasing revenues in both the power and industrial segments, This outlook is further supported by a robust order book due to the Vande Bharat project, and ongoing efforts towards cost optimization. Moreover, with its well-established reputation and government support, the  company looks well-positioned to thrive in India's evolving energy sector.

4. Maruti Suzuki India: 

Motilal Oswal reiterates its ‘Buy’ call on this car manufacturer with a target price of Rs 11,900, indicating an upside of 13.1%. Analysts Jinesh Gandhi, Amber Shukla and Aniket Desai say, “Stable growth in the domestic private vehicles (PV) market and a favourable product lifecycle augur well for Maruti Suzuki India.” 

The analysts remain optimistic as the company plans to increase its production capacity by another two million units over the next nine years. They notethat Maruti aims to “establish market leadership in the SUV segment”, given its current and upcoming launches in this product category. Moreover, the development of electric vehicles is underway at its Gujarat plant and the first model is to be launched in FY25. The company is also focusing on CNG and other clean fuel options, as it has extended the S-CNG technology to six more models. This would reduce its carbon footprint.

The analysts expect market share gains and margin recovery in FY24, driven by an improvement in supplies, a favourable product lifecycle, a stronger product mix, and operating leverage.

5. Archean Chemical Industries: 

ICICI Securities maintains its ‘Buy’ call on this chemicals company with a target price of Rs 750. This indicates an upside of 24.1%. Analysts Sanjesh Jain, Akash Kumar and Ashvik Jain maintain their stance on the back of recent trends in Bromine prices. They say, “Bromine prices dropped to a 15-year low in China in June but partly recovered in August.” They believe the price fall is due to a mix of greed, speculation and a sudden drop in demand. 

The analysts expect China’s ongoing destocking to last through 2023, positively impacting all bromine producers. This is because China depends on imports to meet its demand, and thus, it cannot create overcapacity. 

Jain, Kumar and Jain say that Archean Chemical’s Q1FY24 result was relatively better despite volatile bromine prices. The resilience is thanks to the company's long-term contracts, and strong performance in the industrial salts segment. The analysts expect Bromine to witness volume recovery by Q4FY24, and prices to firm up only in FY25. They are also optimistic as the company is in the process of commissioning its derivative plant, which increases earnings visibility during the forecasted period.

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

(You can find all analyst picks here

1. Escorts Kubota:

This commercial vehicles company has risen by 21.6% over the past month, on the back of reports that the government is planning a production-linked incentive (PLI) scheme for the railway industry. The capex for the PLI scheme is expected to be around Rs 800-1,200 crore over the next three years. The scheme aims to increase domestic manufacturing of wheels, brakes and transmission systems for Linke Hofmann Busch (LHB) and Vande Bharat train sets.

Escorts Kubota’s order book in the railway segment stands at Rs 950 crore as of Q1FY24 and contributes to 10% of the company’s overall revenue. The management is also focusing on expansion and diversification of the product lines in this segment. It  expects an increase in orders due to the PLI scheme, and this has helped the company appear in a screener of stocks that are up by more than 20% over the past month.

Axis Securities maintains its ‘Buy’ rating on the stock with an upgraded target price of Rs 2,900 per share. The brokerage believes that the introduction of new products, higher revenue from spare parts and exports will aid double-digit growth in the company’s revenue. It also expects the company’s EBITDA margins from all the segments to expand on the back of operating leverage and improvement in the product mix. The brokerage expects its revenue to grow at a CAGR of 12.4% over FY23-26.

2. KEC International: 

This power transmission equipment manufacturer hit its all-time high of Rs 747.7 on Wednesday after announcing multiple order wins during the week. The company won orders worth Rs 1,021 crore on Tuesday, including the construction of a data centre in Western India, the establishment of a manufacturing facility for an FMCG company, transmission and distribution projects from India and the Americas, and overseas order for the supply of cables. It also landed a Rs 1,145 crore order on Wednesday for the design, supply and installation of an overhead transmission line in Saudi Arabia.

KEC International has risen by 7.6% over the past month, outperforming the benchmark index. This surge followed a 36.5% YoY increase in its Q1FY24 profit to Rs 42.3 crore (beating Trendlyne Forecaster’s estimate by 9.9%). Its revenue also grew by 27.9% YoY on the back of a 71% YoY growth in the transmission and distribution (T&D) segment and a 60% YoY rise in the civil segment. The company also appears in a screener for stocks with improving cash flow. 

Vimal Kejriwal, the Managing Director of KEC, said, “Our year-to-date order intake has surpassed Rs 7,500 crore, a robust growth of 30% YoY.” The total order book currently stands at more than Rs 35,000 crore. Management expects to secure orders worth Rs 25,000 crore during FY24. The sector is also likely to benefit from increased government capex spending and a revival in private capital spending. With improving T&D execution and a healthy order book, Geojit BNP Paribas remains positive on KEC International on a long-term basis.

3. Larsen and Toubro:

This construction and engineering firm has risen by 9.4% over the past month, following its announcement of an increased buyback price and an order win worth $3.9 billion from Saudi Aramco.

The company rose 1.7% on Tuesday after it announced an increase in its buyback price to Rs 3,200 from Rs 3,000. At the same time, it reduced the number of shares for the buyback to 3.1 crore from the earlier 3.3 crore. The buyback is set to start on September 18. Due to the recent rise in its share price, the firm features in a screener of stocks trading above their short, medium and long-term moving averages.

The company’s order win from Saudi Aramco is for the second phase expansion of the Jafurah Unconventional Gas Field in Saudi Arabia. ICICI Securities projects that L&T could achieve over 20% YoY increase in order inflow in Q2, excluding services, with this order win. Although the company has given an order inflow growth guidance of 15% YoY in FY24, the brokerage believes that this figure is understated. Accordingly, it has upgraded the stock to ‘Buy’ from ‘Add’ and revised the target price to Rs 3,141. 

On Thursday, L&T also announced a partnership with BAE Systems Inc. to introduce the BvS10, an Articulated All-Terrain Vehicle (AATV), to the Indian market as part of the ‘Make in India’ programme. 

4. Praj Industries

This industrial machinery manufacturer rose by 14.4% over the week ending Friday, hitting a 52-week high of Rs 609.8. It started rising following the launch of the Global Biofuel Alliance (GBA) by Indian Prime Minister Narendra Modi at the G20 Summit on September 11. 

GBA aims to accelerate the global shift towards biofuels and reduce dependence on fossil fuels. 

The street expects Praj to benefit from this as it has a 50-55% market share in the domestic ethanol plant sector. Additionally, it has been expanding its global footprint, with its international order inflow now  35% of total orders in Q1FY24. This is a significant increase from 19% in Q1FY23. 

The Indian government has reiterated its target to blend 20% ethanol with petrol by 2025, a jump from the current 11.5%. Praj Industries is well-placed to capitalise on the Centre’s push to increase biofuel usage. On July 6, the company agreed to form a joint venture with Indian Oil Corp to strengthen biofuel capacities in India.

As of Q1FY24, the firm’s order book stands at Rs 3,780 crore, of which the bio-energy segment accounts for 78%, followed by engineering at 17% and hi-purity at 5%. The company has also begun to gain traction in the compressed biogas (CBG) market, securing orders for five CBG plants worth Rs 500 crore in total.

Prabhudas Lilladher is optimistic about the firm’s long-term growth prospects and expects its margins to remain healthy due to a pickup in export orders and normalising commodity prices. According to Trendlyne’s Forecaster, the stock holds a consensus recommendation of ‘Strong Buy’ from six analysts. 

5. Narayana Hrudayalaya: 

This healthcare facilities stock has outperformed the Nifty Healthcare index by 9.6% over the past month, rising 9.8% in just the past week, according to Trendlyne’s Technicals. This surge comes as the company announces its entry into the health insurance segment. The firm expects approval from the Insurance Regulatory and Development Authority of India (IRDAI) by the end of 2023. Narayana Hrudayalaya also plans to open clinics and pharmacies across India to increase its revenue sources. According to Vice-Chairman Viren Shetty, this “expansion into health insurance, clinics and pharmacies will integrate its hospital chains end-to-end and improve profitability”.

The firm reported a 19.4% revenue growth in Q1FY24, backed by improved surgical volumes and higher revenue per patient. Hospitals in the Bangalore region clocked 22% revenue growth YoY, followed by Mysore-Shivamogga hospitals at 16%. Its Cayman Islands facility registered a 32% YoY growth amid increased volumes in its newly opened oncology block. EBITDA margins also improved by 470 bps YoY due to better price realisation per bed. 

The company has a capex plan of Rs 1,110 crore for FY24, mainly for assets with a lower turnaround time like diagnostics, clinics, and enhanced bed capacity. The stock shows up in a screener for companies with high TTM EPS growth

Geojit BNP Paribas upgrades its rating for the company to 'Accumulate' from 'Hold', citing the firm’s focus on  revenue growth through capacity expansion and the margin-accretive revenue growth from its Cayman Islands operations. 

Trendlyne's analysts identify stocks that are seeing interesting price movements, analyst calls, or new developments. These are not buy recommendations.

The party on D-Street began on September 11, as the Nifty 50 made history and hit 20,000 for the first time ever. It crossed that level today, closing at 20070. Strong investments by domestic funds and retail investors have driven the rally, even as FIIs turned net sellers in September.

New Delhi was gleaming this month after the city got a $120 million facelift, with new murals, fountains and statues installed ahead of the G20 summit. The success of the summit has added to the optimism. 

A new economic corridor that links India with the Middle East and Europe, was announced at the summit. It includes an extensive rail and shipping network that will enable faster transportation of goods and services. 

But while India is making its presence felt on the global stage, analysts are concerned about its market valuations, especially in the small and midcap segments. According to Bloomberg, the Nifty Smallcap 100 and Nifty Midcap 100 are trading ahead of their five-year average PE valuations. 

Nifty smallcap outperforms benchmark since June 2023

The Nifty Smallcap is at its most overbought level since 2014, considering its 14-week relative strength index. Anish Tawakley, head of research at ICICI MF, observed that the relentless smallcap buying has made largecaps a better bet, “We are more comfortable with large-cap valuations. People are getting very optimistic in the small and mid-cap space around relatively weak business models.” 

Higher mutual fund investments have played a major part in this rally.

Smallcap funds remain popular among mutual fund investors

Although many stocks in the small-cap universe have already run up, there is still steam left in a few. In this week’s Analyticks:

• Rough diamonds?: Six undervalued smallcaps with promising futures
• Screener: Smallcaps with ‘Buy’ consensus from analysts and positive Forecaster growth

Let’s get into it.

Hidden gems: Six promising smallcaps with healthy valuations

With the smallcap sector hotter than ever, it's time to ask: where should you invest? With experts worrying about high valuations in smallcap stocks, we looked for companies whose growth and future outlook made them stand out.

We found six stocks from the BSE SmallCap index with strong TTM growth, trading at lower than their industry valuation. These stocks are priced lower than their 5-year average PE , and analysts are bullish on their future growth.

AIA Engineering: Strong demand puts spending plans into high gear 

This capital goods player has seen close to 30% revenue growth on a trailing 12-month basis, thanks to robust realisations and strong demand in the mining sector. Its EBITDA margins rose sharply in Q1FY24 due to lower freight costs. AIA Engineering is trading at a 25% discount to the industry PE ratio. 

The company is adding to its grinding media capacity in the current fiscal year. It also plans to upgrade its plants and invest in warehouses and renewable energy systems. Overall, its planned capex for the next two years is 56% higher than in FY22 and FY23. 

AIA Engineering’s management has guided for a volume growth of around 10% in FY24. It is bullish on the demand trends in North and Latin America. Analysts see the company’s revenue growing at 10% CAGR in the next two years. 

AIA Engineering to accelerate investments, revenue to rise in double-digits

Mahanagar Gas: Record margins are fuelling profits 

This city gas distributor has delivered a top-line growth of over 45% on a TTM basis. In Q1FY24, its margins rose to record levels due to lower gas costs. Commenting on this, Ashu Shinghal, the Managing Director at MGL, said, “With APM gas prices capped at $6.50 per MMBTU for two years, we are seeing very stable gas costs.”

MGL’s margins have improved in the past four quarters

Currently, MGL is trading at a discount of over 30% compared to its 5-year average PE ratio. Analysts see sales volumes improving as the company passes on the benefits of lower costs to its customers. The recent acquisition of Unison’s three geographical areas will also boost volumes. 

MGL’s margins may normalise in the upcoming quarters, but will stay considerably higher than the all-time rock bottom levels of FY23. Hence, analysts see MGL’s profits rising by over 20% YoY in FY24.

MGL may see robust profit growth on higher margins

Safari Industries: Riding on the travel industry boom

This luggage maker has seen a revenue jump of over 50% YoY on a TTM basis. Safari Industries is trading at a 25% discount to the industry. The company has also outperformed its peer VIP Industries, in both growth and returns.

Safari Industries has outperformed VIP on all counts

Safari’s EBITDA margins have risen steadily over the past six quarters, on lower input costs and an increase for in-house manufacturing. Just last month, the company added new production capacity of 1.25 lakh units. Traditionally a mass category player, Safari has also entered the premium market with its new ‘Urban Jungle’ brand. 

According to the consensus estimates of analysts, Safari Industries’ revenue may rise at a CAGR of over 20% in the next two years. This is thanks to more people travelling for leisure, and ongoing growth in business travel. 

Safari may clock topline growth of over 20% in the next two years 

Triveni Engineering: Sweet returns through distillery expansion 

This sugar and ethanol maker’s revenue has risen by nearly 25% YoY on a TTM basis. Triveni Engineering’s distillery segment, which is ethanol sales, has seen impressive growth in the past years. Oil marketing companies are also raising prices under their ethanol blending programmes. 

Triveni’s distillery sales volumes have consistently risen 

Triveni Engineering plans to invest Rs 700 crore across its businesses in FY24. It is also expanding its distillery capacity over the next two years. The rising prices of sugar are helping the company’s sales realisations, and analysts see a profit CAGR of over 25% in FY23-25.

Triveni is ramping up distillery capacity, to post robust profit growth

However, one risk for Triveni is a  possible ban on sugar exports, which could affect its profitability. Last year, the company exported 1.9 lakh tonnes of sugar at record prices. The industry body and the government may take the final call on an export ban by October 2023. 

HG Infra: Pre-election spending to build up order book 

This construction major has posted a 23% growth in standalone revenue on a TTM basis. A specialist in road and highway projects, HG Infra Engineering’s order book grew by over 50% in FY23. This provides good revenue visibility. 

The Centre has sped up its capex ahead of the upcoming elections, in the hope of wowing voters. Reports suggest that the Roads Ministry plans to spend 90% of its budget by December itself. This bodes well for order inflows to HG Infra. The company expects to receive orders worth Rs 7,000-8,000 crore in FY24. A strong line-up of projects from the NHAI and Indian Railways is also anticipated. 

According to consensus estimates of analysts, HG Infra’s revenue and profits may rise at a CAGR of over 15% in the next two years. 

HG Infra’s robust FY23 order book projects 15%+ CAGR growth

Blue Star: Strength in B2B business may boost revenue

This consumer durable maker has clocked a revenue growth of 18% on a TTM basis. Blue Star is trading at a discount of over 30% compared to its 5-year average PE, despite the stock gaining 38% over the past year. Its performance in Q1FY24 was supported by its projects and commercial air conditioning business.

Commenting on the demand scenario, Nikhil Sohoni, the CFO at Blue Star, said, “With continued investments in the infrastructure sector, we expect strong demand for our B2B products. While the summer season impacted the room AC category, we hope that the demand will revive in the festive season”. 

Blue Star may register over 15% revenue CAGR between FY23 and FY25

To meet demand, Blue Star is increasing its production capacity for both room and commercial AC units at Sri City. Analysts forecast that the company’s revenue will grow by over 15% CAGR in the next two years. Profits will also grow faster as the benefits of operating leverage kick in. 

Screener: Smallcaps with buy consensus from analysts, and positive growth forecasts in the upcoming quarter and year

Craftsman Automation set for highest revenue growth in Q2FY24 and FY24

Following the recent market rally, investor appetite for growth stocks is surging. This screener shows stocks from the BSE Small Cap index that had robust growth in Q1FY24, with positive revenue and net profit growth forecasts for Q2FY24 and FY24. These stocks also have a ‘Buy’ consensus from analysts, according to Trendlyne’s Forecaster. Note that this is a growth-focused screener and does not check for valuation.

Major stocks that appear in the screener are Craftsman Automation, CreditAccess Grameen, Equitas Small Finance Bank, APL Apollo Tubes, CE Info Systems and Cyient.

Craftsman Automation’s revenue is projected to grow by 51% YoY in Q2FY24. Its annual revenue is expected to rise by 44.2% in FY24. ICICI Securities anticipates accelerated revenue growth on the back of its acquisitions, higher sales of utility vehicles and a revival in the production of two-wheelers.

CreditAccess’ revenue is expected to grow by 47.8% and 34.2% in Q2FY24 and FY24, according to Trendlyne’s Forecasters. Geojit BNP Paribas expects the lender to sustain its revenue growth, led by improved loan disbursements and customer additions.

Equitas Small Finance Bank’s Q2FY24 revenue is set to expand by 26%, according to the Forecaster. According to BNP Paribas, the bank’s revenue growth will be aided by an increase in loan disbursements in the microfinance, consumer vehicles and affordable housing segments, combined with new product launches.

You can find some popular screenershere.

Oil is not a dependable bet. Like other commodities, its price seesaws in unpredictable ways, and many analysts who tried to predict the future price of oil have got their fingers burned (remember the $200 price per barrel predictions in early 2022?)

Oil-producing nations have also taken a hit recently from the price volatility.

For a time, things were good. The OPEC countries saw windfall profits from April 2022 to January 2023 due to the Russia-Ukraine war. But the trend has since reversed. Excess supply is sloshing around in the market, and the unexpected slowdown of China's economy has hit oil prices hard.

in response, OPEC cut oil production, which drove oil prices higher by 18% since June 2023. But the cuts didn't have the full price impact they had hoped for. The S&P had projected that oil prices would be around $90 in 2023, but the ramp-up in Iranian oil production has cut short the rally, pushing prices down to $84 from a recent peak of $88.

In the meantime, India and China have benefited from cheap Russian Ural. But the price gap between Russian Ural and Saudi crude on delivery has narrowed,  from a $20 difference in the first quarter of 2023 to $8 in August. 

In this week’s Analyticks:

• Oil price dynamics: Oil prices are defying analyst predictions
• Screener: Commodities stocks with the highest revenue and net profit growth in Q1FY24

Let’s get into it.

As oil consumption slows, OPEC makes production cuts to keep prices up

GDP growth hasslowed down for most countries this year, resulting in lower crude oil consumption. China, the largest crude oil importer, and other developed nations are consuming less oil than expected.  The increasing adoption of electric vehicles across Europe, the US, and China has also limited the demand for crude.

The slowdown in consumption has resulted in higher inventory levels over the past four quarters.

Production cuts will lower inventory levels in the second half of 2023

To improve their revenue streams and get a better price for their oil, the OPEC cartel collectively reduced oil production by 1.2 million barrels per day. They are now looking to extend these cuts beyond September 2023. 

Saudi Arabia faces a potential budget deficit

Saudi Arabia depends on oil and petroleum for nearly 75% of its budget revenue. The surge in oil prices in 2022 gave  the Saudis a fiscal surplus of $27.7 billion. The country used the money to increase its defense spending. It also spent around $6 billion to acquire famous football players for its sports teams - including Portugal's Cristiano Ronaldo and Brazil's Neymar. 

However, with oil prices below $80 in the first half of 2023 and exports falling to a 19-month low, Saudi Arabia has had to pause its spending spree. Now the country is staring at a possible fiscal deficit. It already saw a budgetary deficit of roughly $2.2 billion in the first half of 2023.

Saudi Arabia saw budget surplus in 2022, after eight years of deficit 

According to the IMF, Saudi Arabia needs oil prices to be above $81 in 2023 to break even in its budget spending. TheIMFhas cut the Saudi economy's GDP growth forecast for 2023 from 3.1% to 1.9%, owing to lower oil prices and production cuts.

Saudi Arabia’s breakeven price of crude to meet its expenses stands at $81 per barrel in 2023 

As India and China turn to Russian Ural, Europe has replaced Asia as the top destination for Saudi crude oil. But Europe has not entirely compensated for Asia’s demand decline. To boost oil prices, Saudi Arabia inJune 2023 announced a voluntary production cut of 1 million barrels per day till September, on top of OPEC’s production cut of 1.2 million barrels per day.

Russia's cash crunch is also forcing it to cut oil production

The other big oil producer, Russia finds itself in a tough spot due to its expensive military campaign in Ukraine, and price caps on Ural exports imposed by the US and its allies. The Russian Ural, which is trading at a significant discount to crude, is being snapped up by India and China.

But higher volumes sold have not been able to make up for the revenue loss due to the price cap. This has led to a fiscal deficit of $28.3 billion fir Russia in the first half of 2023.

Russia is expected to have a budget deficit of 2.6% in 2023

Russia sold its oil for around $50-55 per barrel in the first half of 2023, but higher Ural prices in the second half of 2023 (around $60) are expected to reduce its deficit. To increase its revenue, Russia raised taxes on oil exports by 8% in August 2023.

Russia is taking steps to raise its oil price. It has pledged to reduce its crude exports by 5,00,000 barrels per day in August and an additional 3,00,000 barrels per day in September. A recent drone attack by Ukraine on a Russian oil tanker has also raised concerns about Ural supply, causing Ural prices to breach the $60 cap.

India walks the line, buying Russian oil at rates above price caps

China and India have been vocally against the price cap on Russian oil. They argue that since they aren't involved in the Russia-Ukraine conflict, their economies shouldn’t suffer. Finance Minister Nirmala Sitharman insisted that India will buy Russian Ural above the $60 price cap as long as it is cheaper than the market rate.

Right now, there are ways to get around the price cap. Unlike the free on board (FOB) basis, India’s crude import price is decided on a delivery basis (which includes the price of crude, insurance, shipping and other handling charges). This limits the transparency on the final price India is paying to Russia. 

India’s on-delivery price of Russian Ural for June stood at $68.2, while for Saudi crude oil it was $81.8. However, the latest data from Argus Media suggests that August's Ural crude delivered to India’s west coast is around $82. 

Russian Ural prices are at a discount of 16.6% compared to Saudi crude on a delivery basis

With the Ural price now significantly above the $60 per price cap, freight cost adjustments will be too large to go unnoticed. India and Russia need to find financiers, insurance providers, and shipping lines unaffected by Western sanctions. China, on the other hand, can substitute Russian Ural with Iranian oil. For India discounted Russian oil is the only way out to soften the blow of rising crude prices. 

India is now limiting its Russian imports

India depends on imports to fulfill 85% of its crude consumption, with Russian crude accounting for about 45% of these imports. India cannot buy more Russian oil because it has limited storage space (strategic reserves), which can hold only 9.5 days' worth of crude. And due to India's minimum purchase agreements with other traditional suppliers, it can't replace all of them with Russian imports. 

As the discount on Russian oil narrows, it becomes less appealing to export refined oil to Europe. This and India’s limited refining capacity for Russian Ural has restricted Ural imports to 2 million barrels per day.

Russian oil imports to India peak at 2 million barrels per day

While India has maintained a steady supply of refined oil exports to Europe so far, rising Ural prices could pose a challenge in India avoiding sanctions. As Western scrutiny intensifies, it remains to be seen whether India will persist in purchasing Russian Ural above the $60 cap. 

Screener: Oil, cement, utilities stocks with the highest revenue and profit growth in Q1FY24

HPCL shows strong growth in QoQ revenue and operating profit margin

As prices of raw commodities soften, margins for companies in key sectors have improved, resulting in increased profits. This screener shows stocks from the oil & gas, cement & cement products and utilities sectors with the highest growth in revenue and net profit in Q1FY24, along with an expansion in operating profit margin.

Significant stocks that appear in the screener are GMR Airports Infrastructure, Tata Power, Hindustan Petroleum Corp, JSW Energy, Bharat Petroleum Corp and ACC.

Hindustan Petroleum Corp’s revenue grew by 10.3% QoQ to Rs 1.2 lakh crore in Q1FY24, while its net profit improved by 87.5% QoQ to Rs 6,765.5 crore compared to a loss in Q1FY23. The oil & gas company has also posted an operating profit margin of 8.1% during the quarter. This was aided by a decline in the cost of raw materials due to an 8.7% decline in Brent crude oil to $72.7 per barrel.

Another oil & gas company, Bharat Petroleum Corp, also gained from the decline in crude oil prices. Its operating profit margin increased by 17.1% QoQ in Q1FY24. This contributed to a 54.9% YoY increase in net profit to Rs 10,644.3 crore during the quarter.

Cement company ACC’s revenue improved by 8.6% QoQ to Rs 5,278 crore in Q1FY24. Its net profit improved by 97.8% QoQ to Rs 466.1 crore, aided by a reduction in power &  fuel and employee benefit expenses. This led to an improvement in margins, with the operating profit margin rising 5.3 percentage points to 14.8%.

You can find more screeners here.

1. Tanla Platforms: This software and services company’s share price grew by 79.4% in the past quarter and hit its 52-week high of Rs 1,317.5 on Monday. In Q1FY24, the company’s profit improved by 12.6% QoQ, while the revenue increased by 9.3%, beating Trendlyne’s Forecaster estimates by 16.2% and 7.6%, respectively. The company also features in a screener for stocks with QoQ growth in net profit and increasing profit margin.

The revenue from the enterprise communications segment(90% of total revenue) has also risen by 9% QoQ, marking growth after four quarters in a seasonally weak period. It was driven by an increase in transactional app-to-customer messaging volume and a price hike in the international long-distance segment. The Chairman and Chief Executive Officer Uday Reddy said, “We are now in the phase of price expansion and expect further increases in  Q2.” The firm anticipates price hikes in its domestic business to drive growth.

Tanla Platforms recently acquired ValueFirst Digital Media for $45.5 million, leading to a gain in market share of over 35% in India. Speaking about the acquisition, Reddy said, “We expect to achieve double-digit EBITDA in a couple of quarters.” 

The digital platforms segment’s revenue also grew by 8% QoQ, driven by Wisely, a patented anti-phishing platform. Wisely has completed proof-of-concept with three leading banks and has a revenue potential of Rs 50-100 crore per year. “The focus in Q2 will be on accelerating the go-to-market strategy and commercial holders,” Reddy added.

HDFC Securities is optimistic about Tanla Platforms and expects a revenue CAGR of 24% over FY24-26, led by a revival in the enterprise business and new product launches in the platform business. 

2. Cipla: This pharma company’s stock surged by 9.6% on Thursday, and hit a new all-time high of Rs 1,219.4 per share, as its net profit jumped by 45.1% YoY to Rs 995.7 crore in Q1FY24. This helped the company beat Trendlyne’s Forecaster estimates for net profit by 22.7%. Its revenue has also risen by 17.7% YoY to Rs 6,329 crore, helped by increased sales from India, the US, and South Africa, with improvements in the prescription, trade generic, and consumer health segments.

Cipla’s EBITDA margin also expanded by 230 bps YoY to 23.6%, owing to lower raw material costs and reduced price erosion in the US market due to declining competition. This helped the company appear in a screener of stocks with increasing net profit and profit margin (YoY). 

Umang Vohra, Managing Director and Chief Executive Officer (CEO) of the company, said, “The company plans to launch 30 to 35 products in the Indian market, which will contribute to 2.5-3% of revenue. A large number of these products will be in the respiratory segment.” The management is optimistic about revenue growth in the US business.

Post results announcement, Motilal Oswal Financial Services maintains its ‘Neutral’ rating on the stock with a target price of Rs 1,130 owing to limited upside at the current price. This indicates a potential downside of 4.2%. However, the brokerage is optimistic about the company's profitability growth, as it expects a revival in the US market and strong performance in the branded generics segment in India and South Africa.

According to reports, the promoters of Cipla are considering  selling a portion of their overall stake in the company. However, Cipla has issued a clarification stating that they are not aware of any specific event that requires disclosure under the listing regulations.

3. Nestle India: This FMCG stock declined by 3.3% in Thursday’s intra-day trade after announcing its Q2CY23 results. This is despite its net profit rising by 35.5% YoY and revenue growing by 15.4% YoY. However, this has not cheered investors as its revenue growth seems to be mostly led by price hikes, with underlying volume growth of 4-5%. According to reports, its volume growth is below the street’s estimates.
   
   Although the firm saw healthy growth on a YoY basis, its net profit and revenue fell by 5.2% and 3.6% QoQ respectively. The stock shows up in a screener for companies with declining revenue, profit and operating profit margin on a QoQ basis. 

The company’s top-line growth is driven by a 14.6% YoY increase in domestic sales, with healthy contributions from categories like milk products, beverages and nutrition, despite inflationary pressures. Suresh Narayanan, Chairman and MD of the firm, said, “Our RURBAN strategy was successful as we expanded our distribution footprint in key portfolios, leading to higher penetration. We witnessed strong growth across megacities and metros, robust performance in Tier 1 to 6 towns, and continued strength in rural markets.” 

The company’s gross margins have expanded by 80 bps YoY to 54.6%, aided by stable fresh milk prices and declines in prices of edible oils, wheat, and packaging materials. However, its beverages segment saw inflationary pressures due to elevated robusta (coffee beans) prices, which are expected to remain volatile. ICICI Securities believes that a correction in milk prices will free up more resources for advertising spends and innovation to drive growth.  

4. Mphasis Ltd: Thesoftware and services firm saw its stock price increase by 22.3% in the past month, according toTrendlyne’s Technicals. On July 20, the company announced its Q1FY24 earnings, reporting a decline of 3.2% QoQ on a constant currency basis. However, the stock rose 5.3% the next day. This rise was primarily driven by high deal wins in the quarter, which amounted to $707 million, almost twice the average of the past four quarters. 

The decline in revenue was on account of a cut down in discretionary spending by clients in the banking and mortgage sector. The firm is trying to diversify itself by acquiring deals in the non-banking and financial services (BFS) sector. Nearly 60% of the deal wins are from non-BFS verticals in the quarter.

The firm has launched an AI business unit which bagged nearly one-third of the deal wins in Q1FY24. This includes one deal with a ticket size greater than $100 million. Its EBIT margins expanded by10 bps QoQ to 15.4%. The company plans to increase its margins to around 16% in the following quarters by improving the productivity of its offshore workforce. Its net profit declined by 2.2% QoQ. Mphasis shows up in ascreener for stocks with strong momentum, with prices above short, medium and long-term averages.

Commenting on the earnings, Mphasis CEONitin Rakesh said, “Revenue growth will pick up in FY24 as the firm currently has a good pipeline of deals. The mortgage industry will also ramp up from current levels.”

HoweverICICI Securities holds a less favourable view. It cites the global slowdown and banking crisis in the US and Europe, which have led to delayed decision-making around discretionary projects and spending cuts in banking and capital markets. This will lead to muted growth for Mphasis. The brokerage has downgraded its rating from ‘Hold’ to ‘Sell’.

5. Jyothy Labs: This personal products company has risen over 25% since Monday after reporting robust Q1FY24 results, beating consensus estimates. This recent surge has driven the company’s share price up by 84.2% in the past year. However, over five years, the share price has grown by only 36.2%. 

During the quarter, Jyothy Labs’ revenue increased by 15.1% YoY to Rs 687.1 crore, beating Trendlyne’s Forecaster estimates by 4.7%. This was fueled by strong performance across the company’s major segments. Its net profit jumped by 101.7% YoY to Rs 96.3 crore, and beat estimates by 27.2%. This was due to moderating input costs and an increase in the disposable income of consumers. 

The company’s fabric care segment (which markets Henko and Ujala, and contributes 43% of the total revenue) has seen an 18% YoY rise in revenue. Its dish wash segment (that houses brands like Exo Bar and Pril) also improved by 11% YoY. 

Managing Director M R Jyothy said, “The company will deliver double-digit revenue growth, and EBITDA margin will be in the range of 15-16% in FY24.” She also highlighted the company’s plan to strengthen distribution, increase marketing investment, and optimize cost structures. 

Following the company’s strong performance, ICICI Securities maintains its ‘Buy’ rating but raises its target price by 16.8% to Rs 340. The brokerage says the company remains its top pick in the consumer staples space and is positive about the management’s strategy of prioritising market share gains and volume growth. As a result, the company features in a screener of stocks where brokers have upgraded their recommendations or target prices in the past month.

Trendlyne's analysts identify stocks that are seeing interesting price movements, analyst calls, or new developments. These are not buy recommendations.