Apr 21, 2017 07:21 PM IST | Source:

This week in earnings: Hits that you may have missed

The two small caps that really stole the show were both from the auto ancillary segment – Jay Bharat Maruti and Bharat Seats.

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Todays L/H

Tata Consultancy Services, Yes Bank and IndusInd Bank grabbed the headlines this week on the earnings front. But there were quite a few surprises from some well-known and some rather unknown names.

The two small caps that really stole the show were both from the auto ancillary segment – Jay Bharat Maruti and Bharat Seats.

Bharat Seats Ltd is a joint Venture of Suzuki Motor Corporation, Maruti Suzuki India and Relans for the manufacture of complete seating systems and interior components for the automotive and surface transport.

Maruti Suzuki India Limited (MSIL) holds 29.3 percent equity stake in Jay Bharat Maruti. This company is engaged in the manufacturing of sheet metal components and assemblies, besides design and development of dies and moulds, automotive machines and equipment. It is a tier- 1 supplier to the automotive OEM.

Incidentally, since both the companies are co-owned by Maruti, the standout performance of the parent company had a positive rub off on the supplier.

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However, the significant run up in the stocks would warrant cooling off for a profitable accumulation.

The other company that reported stellar number, but on expected lines, was Hindustan Zinc. The company’s cost leadership will ensure healthy free cash-flows especially given limited capex spends. Despite strong improvement in the earnings profile over the next two to three years, we remain a bit uncomfortable with the expensive valuation.

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The last in our list of winners is HOEC (Hindustan Oil Exploration). It is a pure E&P player with a smart mix of onshore and offshore fields which are at various stages of development. It has seven blocks – four producing blocks in Gujarat and Tamil Nadu, one development block in Assam and two blocks where development has been deferred. While it continues to report strong numbers, the 150 percent rally in the stock has rendered the valuation expensive.

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The big miss for the week was VST Industries. The cigarette company that sells under the brand Charminar Specials, Shah-I-Deccan, Qila, and High Court, didn’t live up to expectations. The miss came after the stock rose by nearly 78 percent in the past one year and 30 percent in six months.

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Falling neither in the category of winners nor the losers were two mid-sized IT companies – Cyient and Mindtree.

For Mindtree, the result optically was unimpressive on account of a foreign exchange loss. However, the 2 percent sequential growth in revenue, 80 basis points expansion in EBITDA margin to 14.2 percent and healthy guidance of low-double-digit growth in FY18 were positive takeaways that are worth noting.

Cyient maintained its revenue traction in the fourth quarter of FY17. Revenue grew by 3.6 percent quarter on quarter in constant currency, margin contracted by 10 basis points and after-tax-profit grew by 11 percent. The company has guided for double-digit growth in the service business.

While the numbers may not be stellar enough to be called a winner of the earnings season, the relative underperformance of the sector and undemanding valuation beckons attention.
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