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Many investors closely track portfolios of ace investors to know which stocks these superstarsare bullish and bearish on in the market. We looked at the stocks superstar investors bought in Q4FY22 here.

Now, we check the stocks superstar investors like Rakesh Jhunjhunwala, Sunil Singhania, Dolly Khanna, and Ashish Kacholia, among others, sold during Q4FY22. 

Rakesh Jhunjhunwala reduced his stake in multiple companies

Rakesh Jhunjhunwala’s biggest stake cut was in the auto sector. He reduced his stake in the tractor manufacturing company Escortsto below 1% from 5.2%. The stock fell 14.8% from the beginning of 2022 till April 28. This could be attributed to sluggish rural demand, as Escorts tractor wholesale sales fell 32.8% YoY to 21,895 units in Q4FY22. 

The ace investor also sold a 0.2% stake in Wockhardtbringing his holding to 2.1%. This stock has tanked 26.5% in 2022, as of April 28.

Jhunjhunwala also cut his stake in the state-owned steel maker SAIL(Steel Authority of India) to below 1% from 1.09% in Q3FY22. The stock is down 11.2% from the beginning of 2022 till April 28, 2022. It rose 24% after hitting a 52-week low in February but then gave up some of its gains.

Jhunjhunwala also reduced his stake in Aptechby 0.1% to 23.4%, in TV18 Broadcastby 0.3% to 1.2% and in Indian Hotels Companyby 0.1% to 2.1%. He also pared his holdings in Titan Company, Crisil, and Delta Corp, bringing his share in these companies down to 5.1%, 5.5% and 7.5%, respectively.

Sunil Singhania’s Abakkus Fund sold small stakes in multiple companies 

Sunil Singhania’s Abakkus Fund sold a 0.2% stake in plastic products company Surya Roshniin Q4FY22, bringing the fund’s holding down to 1.2%. In Q4FY22, the company’s stock price fell by 29.1%. The fund also sold a 0.2% stake in HSIL, bringing down the holding in the company to 1.9%. 

In Q4FY22, Singhania’s fund reduced its stake in Jindal Stainless (Hisar) by 0.1% to 3.8% and in Paras Defence and Space Technologiesby 0.1% to 1.3%. He also sold 0.1% stake in ADF Foodsand Saregama Indiabringing the fund’s holding down to 1.6% and 1.4% respectively, in these companies.

Ashish Kacholia sold stake in Mahindra Logistics, now holds below 1%

Ashish Kacholiabought a 1.1% stake in Mahindra Logistics in Q3FY22, but in Q4FY22 he sold part of his holding and now owns less than 1% of the company. The company’s stock price saw a huge dip in Q4FY22, falling as much as 40.8% since January, but recouped some of the losses since then. 

Kacholia also sold his stake in Poly Medicure and now holds below 1% stake in the company. This company’s stock price fell 16% from the start of January to February end.

The marquee investor also sold a 0.6% stake in Vishnu Chemicals. He reduced his holdings in small quantities in companies like Somany Home Innovationto 1.3%, Mold-Tek Packaging to 3.1%, and ADF Foodsto 1.1%. 

Dolly Khanna reduces stakes in textile, auto ancillary and cement companies

Dolly Khannasold a 0.6% stake in Talbros Automotive Componentsbringing her holding down to 1.1%. This could indicate that she expects that the semiconductor shortage and high metal prices will continue to hamper the auto industry. 

The ace investor also sold a 0.2% stake in the cement and construction company KCP, bringing her stake down to 3.7% and reduced her stakes in cement and infrastructure companies like Rain Industries,NCL Industries,and Tinna Rubber & Infrastructure, cutting each stake by 0.1%. 

She also pared her stake in textile manufacturer Deepak Spinnersto 1.4%, and in Monte Carlo Fashionto below 1%.

Vijay Kedia didn’t make major changes to his portfolio in Q4FY22 

Vijay Kediasold a 0.3% stake in the IT software and consulting company Ramco Systems in Q4FY22 bringing his stake down to 2.4%. Ramco Systems reported losses in three consecutive quarters since Q1FY22. The losses stood at Rs 6.1 crore in Q1FY22, Rs  17.2 crore in Q2FY22, and Rs 11.1 crore in Q3FY22. He also sold a minor portion of his stake in Tejas Networksand now holds 3.4%.

Porinju V Veliyath reduces his stakes in paints and consumer appliances

Porinju V Veliyathsold a 0.7% stake in decorative paints and industrial coatings maker Shalimar Paints, bringing his holding down to 1.6% at the end of Q4FY22. This can be because oil & gas prices are expected to remain high due to geopolitical tensions, which will lead to higher input costs for paint makers. The marquee investor cut his stake in Somany Home Innovationto below 1% from 1.6%. The company sells consumer appliances under the brand name ‘Hindware’, ‘Moonbow’ and furniture under the brand name ‘Evok’. 

Radhakishan Damani sold a minor stake in Metropolis Healthcare & Blue Dart

Radhakishan Damani sold a minor stake in stocks like Metropolis Healthcare and Blue Dart Express bringing his holding down to 1.1% and 1.4%, respectively, in these companies. Metropolis Healthcare’s stock price fell 40.8% in Q4FY22.

1. Bajaj Finance: This NBFC’s stock fell on the bourses despite robust Q4FY22 results. The company’s net profit surged 80% YoY to Rs 2,419.5 crore, in line with Trendlyne’s Forecaster estimates. Asset quality improved as gross NPAs fell 19 bps YoY to 1.6%. Total AUM (assets under management) has seen a rise of 29% YoY to Rs 1.97 lakh crore. These numbers however, did not enthuse investors or even brokerages.

HDFC Securities increased its target price marginally by 0.2% to Rs 6,430, on account of lower credit costs. However, it maintained its ‘Sell’ rating because of Bajaj Finance’s higher operating expenses. Operating expenses for the company rose 30.7% YoY to Rs 2,100.6 crore. The brokerage believes that operating expenses will be a cause of concern throughout FY23 affecting net interest margin (NIM). NIM fell 20 bps to 12.8% in Q4FY22.

Motilal Oswal expects NIMs growth trajectory to remain affected in face of increasing borrowing costs. NIMs weren’t affected much in Q4FY22 because of the excess liquidity Bajaj Finance carried. The brokerage also expects operating expenses to remain elevated due to investments in tech (Phase-2 of digital transformation) and investment in human capital. However, it expects the NBFC to deliver an RoA (return on assets) of 4.2-4.4% over FY23-24.

2. Cyient: This IT Services company’s stock rose 10% after it announced its Q4FY22 results. Cyient’s net profit rose 17% QoQ to Rs 154.2 crore, beating the Trendlyne’s Forecaster estimates by 20.7%. Revenues increased by 2% QoQ to Rs 1,320.6 crore and operating profit margin of the company rose marginally by 8 bps QoQ to 17.98%. The company derives over 83% of its revenues from the services segment. This segment grew marginally by 1.5% QoQ driven by aerospace, portfolio, and communications verticals. Revenue from the design-led manufacturing (DLM) segment fell 8.5% YoY to Rs 197.6 crore due to semiconductor supply-side challenges, which are expected to persist in FY23. 

Cyient’s revenue is heavily concentrated in aerospace, rail transportation, and communication segments. To diversify its revenues, the company signed an agreement to acquire a 100% stake in Citec for 94 million euros (around Rs 800 crore) in an all-cash deal on April 25. Citec is expected to help Cyient diversify its presence in energy, industrial and plant engineering (EIP), which currently accounts for 2% of its revenues. In addition to this, Cyient also announced that it will acquire Grit Consulting for about Rs 283 crore ($37 million) on Thursday. Grit Consulting is a Singapore-based consulting firm with expertise in asset-intensive industries like metal mining and energy.

ICICI Securities maintained its ‘Buy’ rating after the Citec acquisition was announced, it believes the acquisition will reduce the revenue cyclicality by diversifying the revenue mix. However, ICICISec expects Cyient to face difficulty cross-selling in new geographies as more than 75% of Citec’s revenue comes from Finland and Sweden.

3. Hindustan Unilever (HUL): This FMCG stock gained the most in the last few weeks, in spite of analysts cutting their target prices. HUL’s Q4FY22 results have been in line with Trendlyne’s Forecaster estimates. However, its Q4 results did not impress analysts. Net profit grew 5% YoY to Rs 2,307 crore, and revenue rose 10.2% YoY (Rs 13,846 crore) helped by hike in prices.

Brokerages like Axis Securities, Motilal Oswal, ICICI Securities, and HDFC Securities have slashed their target prices for HUL because of slowdown in rural demand, input cost inflation, and delay in demand recovery. With the ongoing geopolitical tensions in Europe, rising commodity prices have further added to the woes of consumer facing companies hitting their gross margins. HUL’s gross margins fell 300 bps YoY to 49.5% in Q4FY22. ICICI Direct expects inflation woes to drag profit and margins in FY23-24 hence cutting its earnings estimate for the company by 10%.

4. KPIT Technologies: This IT services company’s stock rose by 12.5% on Wednesday after it declared its Q4FY22 results. The company’s net profit rose 14.6% QoQ to Rs 80.5 crore and revenue rose 5.3% to Rs 664.8 crore, in line with Trendlyne’s Forecaster estimates. Revenue growth was led by autonomous and connected domains across commercial vehicles (8% QoQ) and passenger vehicles (2.4% QoQ). Even with supply-side constraints and fresher additions, EBITDA margin improved by 15 bps QoQ to 18.6%, led by offshoring. Offshoring consistently increased in FY22, rising by 10% YoY over FY21, and resulting in higher volume growth and improved margins.The management expects offshoring to continue to increase, which will offset the impact of wage inflation and supply-side constraints in FY23.

The software company won a $74 million deal with a European OEM (original equipment manufacturer), and the management expects 80% of the revenue to be delivered over the next 5 years. Total deals won during Q4FY22 stand at $125 million (excluding the $74 million deal with the European OEM). KPIT Technologies is solely engaged in automotive software integration and its domain expertise makes it a niche player in the market. This makes it well placed to benefit from the increased R&D (research and development) spend on CASE (connected, autonomous, shared, electric) vehicles by OEMs. The management expects revenue growth of 18-21% YoY CC (constant currency), and EBITDA margin in the range of 18-19% for FY23.

5. Varun Beverages: This PepsiCo bottling company’s stock rose 4% intra-day on Thursday after it announced its Q4FY22 results. Its net profit rose 98.2% YoY to Rs 271.1 crore and revenue grew 26.2% YoY to Rs 2,867.5 crore. The sharp rise in net profit was driven by improvement in margins, reduction in finance costs, and higher profitability from international markets. With the scorching heat wave in India, demand is expected to spike in the peak months of April-June. The management believes it is well-placed to cater to the surge in demand and expects to optimize its capacity utilization across all plants and enhance its reach across established and underpenetrated markets during the peak months. The company plans to expand into underpenetrated markets like Bihar, Odisha, Chhattisgarh, Jharkhand, and Madhya Pradesh, where per capita consumption is low. The company commissioned a manufacturing plant in Bihar this quarter to expand its manufacturing presence in the underpenetrated market where it sees a huge potential to gain market share. For medium to long-term, the management expects to deliver a healthy volume growth on the back of an improving demand environment.

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

Even as inflation eats at the FMCG industry’s margins, Nestle India’s March 2022 quarter was stable.

Nestle India’s stock fell 2% after the company announced its results, but has recovered some of its losses. Negative impact on the stock was mainly because of operating margin which fell two percentage points to 23.2%, and net profit fell 1.25% YoY to Rs 595 crore  during the quarter. This is despite a 10.2% YoY revenue growth, which beat the street’s estimates. 

The FMCG space is walking on a tightrope, balancing volumes and margins while operating under high commodity price inflation, reduced customer purchasing power, and slowing rural growth. While the management believes that the company has a long runway for growth, the street is keenly watching how urban-centric Nestle, with its premium product portfolio, navigates inflation pressures. 

Quick Takes:

• Nestle’s domestic revenues at Rs 3,794 crore, grew 10.2% YoY aided by price hikes in Q1CY22
• Operating margins contracted 252 basis points YoY to 23.2% due to sharp inflation in key raw materials in Q1CY22
• Raw materials like edible oil, wheat, crude and coffee are witnessing 10-year high cost inflation
• Maggi, KitKat, Nescafe and Nestle Munch reported strong growth momentum, milk product portfolio witnessed high competitive pressure
• The company plans capex of Rs 1,900 crore for the next 3-4 years 
• Nestle’s  e-commerce channel’s revenues grew 71% YoY, and contributed 6.3% to domestic sales

Strong revenue growth in Q1CY22, but margins falter

The maker of Maggi, Nescafe and Kitkat delivered a resilient March 2022 quarter performance. Domestic revenues at Rs 3,794 crore constituted 96% of total revenues and exports were stagnant at Rs 157 crore. The domestic revenue growth was supported by price hikes in Maggi, Nescafe and milk portfolio. Operating margins fell 252 basis points (bps) YoY to 23.2% as raw material costs surged 22% YoY in Q1CY22. The company is facing sharp price increases in edible oil, wheat, coffee, fuel and milk.

On a sequential basis, price hikes implemented during the quarter led to operating margins improving mildly by 8 basis points. Other income down 28% YoY and lower operating margins led to net profit falling 1.25% YoY. Net profit was reported at Rs 595 crore in Q1CY22 compared to Rs 602 crore, a year ago. 

Maggi, KitKat, Nescafe perform well, milk products face challenges

Nestle has four business segments - milk products and nutrition, prepared dishes and cooking aids, confectionery and beverages. 

Prepared dishes and cooking aids constitute Maggi, Maggi sauces, Masala-ae-Magic and Maggi Pazzta. Maggi noodles reported strong growth momentum aided by a mix of volume growth and price hikes. Maggi volume growth received impetus after the commissioning of the Sanand facility in Q4CY21, which mainly caters to the instant Maggi noodles category.

Nestle’s market share stands at 60% in the instant noodles category. According to the management, Maggi Sauces and Maggi Masala-ae-Magic growth during Q1CY22 was impacted by a gradual shift from in-home to out-of-home consumption and opening up of schools and offices.

The confectionery segment is driven by KitKat and Nestle Munch, which reported double-digit growth supported by media campaigns, strong festive interventions and focused distribution drives. Nestle’s market share in the wafer chocolate category stands at 64% in India. In beverages, Nescafé Classic and Sunrise delivered double-digit growth aided by strong winter season consumption. Nestle is the market leader with 50% market share in the instant coffee segment. As out of home consumption increases, both confectionery and beverages (ready to drink) segments are expected to continue with their strong growth momentum.

Milk products and nutrition contribute nearly 40% of the total revenue mix. The segment comprises baby food products like Cerelac, Ceregrow, Lactogen, Lactogrow, Nangrow and milk products like Milkmaid, EveryDay and Nestle Nourish (milk, curd, slim milk, probiotic curd). While the nutrition category comprising baby food was well supported by price hikes, the milk products category faced challenges from competition in Q1CY22. Milk products and nutrition segment has grown in single digits only for the past seven years. The segment also reported lowest YoY revenue growth across all four segments in CY21.

Nestle is a dominant player in infant food (Cerelac) and infant formula milk (Lactogen) segments, with 96% and 74% market share respectively, in India. The company is also doing well in the baby food category with Ceregrow and Nangrow. 

Speaking on the milk product category’s muted growth, Suresh Narayanan, Managing Director at Nestle said, “We are not an empty calorie (low margin) business.” Nestle milk products like slim milk, yogurt and probiotic products are premium priced compared to close peers Amul, Mother Dairy and Godrej Jersey, which have given Nestle tough competition over the past few years. 

Premiumisation and innovation to combat inflation 

After a 1-3% price hike in Q4CY21, Nestle again raised prices of Maggi, Nescafe, KitKat, Nestle Milk during the January-March 2022 period. The company also indicated that further price hikes might be taken to combat raw material price inflation which is currently at a 10-year high. Unlike other FMCG players with high crude exposure in their home care (detergents) and personal care segments (soaps and shampoos), Nestle’s raw material basket is agriculture-based with wheat, edible oil, coffee and milk as its major constituents. 

Milk prices are seeing an uptick after a two-year period of low prices, driven by increase in animal feed (soyabean, maize etc) prices and high energy and logistic costs. Dairy farmers are expected to pass on high price hikes to end users in the coming quarters. 

The milk and nutrition portfolio is expected to witness  price increases in the near term. Wheat prices are up 15-20% YoY in April 2022 driven by high international prices (spillover effect of the Russia-Ukraine war) and also as wheat and corn commodities are diverted for ethanol production. High wheat prices are going to increase baby food and confectionary product prices. Coffee prices are on the rise due to adverse weather conditions in Brazil, the world's largest coffee producer and low productivity in Vietnam. International coffee prices increased more than 25% since August last year. Price increases in Nescafe, coffee premixes and ready to drink variants might be on the cards again, in case international coffee prices rise further. 

According to the management, edible oil (palm oil) prices increased 90% from its 10-year mean historical levels for Nestle. Palm oil prices are expected to increase further with the Indonesian ban on exports. Indonesia accounts for about 60% of total palm oil output globally. Palm oil is used in noodles, chocolates, sauces, and pasta categories. Thus Maggi, KitKat, Munch, Maggi sauces and pasta are expected to witness price hikes in the near term. And lastly high crude prices (up 80% YoY) will increase packaging costs. 

Impact of rising prices on consumer demand

The management is confident of navigating through the decade-high commodity cost inflation by taking judicious price hikes and maintaining its operating margins. But will these price hikes impact demand? 

“We are not a bar of soap or biscuits present in almost every household”, Narayanan said, adding that Nestle’s premium products are relatively lower penetrated compared to other FMCG companies and have a long runway of growth. 

Catering to its urban centric consumer profile which constitutes 75-80% of its revenue base, Nestle also firmed up its innovation pipeline. Nearly 100 new products have been launched since 2016. Various Maggi variants, coffee premixes, new KitKat and Munch flavours, Nesplus (breakfast cereals) to name a few and also a new health science portfolio with products like Optifast (low calorie diet) and Nestle Resource (high protein powder). 

There are twenty more new products in the pipeline and the company also plans to add new categories in its product portfolio.  The company expects its premiumisation strategy and innovation agenda will support its revenue growth in the current high inflation scenario. Nestle's capex plan is around Rs 1,900 crore for the next 3-4 years.

Nestle’s new products contributed 5% to the revenue base in CY21. With judicious pricing, a strong distribution network and ecommerce penetration, Nestle can take the competition head-on in all its product categories. Nesplus competes with Kelloggs, Nestle Resource combats large established brand, Ensure and Milo is fighting against Horlicks, Bournvita and Boost. 

The management is highly optimistic even in the weak demand environment, but it’s worth remembering that consumer buying calculations change rapidly when inflation keeps rising Regardless of brand appeal, all businesses are vulnerable to more frugal customers. 

For now at least, Nestle’s management is upbeat. “Maggi was not built in a day,” Narayanan said,  “nor was Nescafe or KitKat. We have the stomach, courage, and wherewithal to make it happen.”