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Analysts upgrade 31 stocks to 'buy' after Q2 earnings, can return 10-50%

The benchmark indices and broader markets have rallied more than 55 percent from the lows of March 23, though they have been some correction in the last few sessions.

November 03, 2020 / 03:00 PM IST
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The September quarter earnings boosted the market sentiment and brokerage houses introduced their FY23 earnings estimates following positive commentary and gradual economic recovery with the rolling back of lockdown restrictions.

"Q1 FY21 corporate earnings in India were better than pessimistic expectations (due to the COVID lockdown) and this was largely helped by cost reductions by various companies. Q2 FY21 earnings, so far, have largely been coming in better than expected," Sampath Reddy, Chief Investment Officer at Bajaj Allianz Life told Moneycontrol.

The benchmark indices and broader markets have rallied more than 55 percent from March 23's lows, though has been some correction in the last few sessions.

"I think the commentary has turned positive over the last few weeks across a lot of sectors. Demand is coming back not just from rural India but also from urban India due to the onset of the festive season. The September quarter earnings should reflect just that," Vikaas M Sachdeva, CEO at Emkay Investment Managers told Moneycontrol.

"Indian companies have become leaner operationally as well as leverage wise which should reflect in numbers. COVID-19 has accelerated the process of shedding excess fat, both on P&L as well as balance sheet, which should reflect not only in numbers for September quarter earnings but for longer-term earnings too," he said.


Here is the list of 31 stocks upgraded to buy rating in the last 10 days of October and can return 10-50 percent over the next year:


IndusInd Bank

"IndusInd Bank, under the new leadership, is taking the right steps to create a more sustainable, granular franchise. We see a) focus on shoring up provisions (non-specific provisions at 1.7 percent of loans) despite having strong PPOP-profile, b) “retailisation” of deposit base despite decadal low wholesale funding costs and c) a more balanced fee mix which is transaction-oriented than being balance-sheet driven as key indicators for creating a medium-term, steady profitability profile for the bank," said JM Financial. It said the stock was trading at inexpensive valuations and the risk-reward was favourable and upgraded the stock to "buy" with a target price of Rs 750.

Mahindra Logistics

MLL strengthened its already strong liquidity position on balance sheet and further improved its cash conversion cycle in H1FY21. With its asset-light structure, MLL is well placed to face the volatile situation, ICICI Direct said. "Also, its recent performance in the non-auto segment (e-com, pharma, consumer segments), steadily has lowered its dependence on the auto sector (from around 70 percent in FY17 to 60 percent in H1FY21). Also, with a changing client profile, it has been able to leverage the situation by enhancing high margin warehousing, value-added services (up 16 percent in FY20) component in its revenue mix," it said. ICICI Direct remains positive on MLL's prospects on quicker-than-expected recovery in its core segments.

Laurus Labs

Beating estimates, Laurus reported robust Q2 primarily driven by stellar growth in formulations. "We are not concerned with the slight delay in free cash flow (FCF) generation and remain of the view that strong growth momentum will compensate for the same. We build in improvement in CFO/EBITDA from FY22 onwards at 69 percent versus 46 percent expected in FY21. Basis the outperformance, we raise earnings estimates by 35 percent each for FY21/22," said Dolat Capital. The brokerage upgraded the stock to "buy" with a target price of Rs 400.


"BPCL's Q2FY21 result was a beat to our forecast led by better-than-expected refinery margins owing to higher inventory gains and a significant dip in finance cost. Reported gross refining margin (GRM) came at $5.8 per barrel owing to inventory gain of Rs 1,300 crore ($4.3 per barrel) while core GRM stood at $1.5 per barrel, beat to our estimate. Management highlighted that except ATF, growth for most of the product has crossed pre-COVID levels," said IDBI Capital. It rolled over valuation to FY23E and arrived at a new target of Rs 412 from Rs 418 and upgraded the stock to "buy" from "hold".

Suven Pharmaceuticals

Despite pandemic and high base, the company has guided 15-20 percent growth based on a strong order book position, albeit some expected delays, said ICICI Direct. The high capex plan of Rs 600 crore for modernisation and technology upgradation was aimed at catering to the changed priorities and requirements at the behest of the clients, the benefits of which may be visible in the long run. "We continue to emphasise on the strong execution capability and focused approach without the burden of success/failure of the innovative pipeline," said ICICI Direct, which upgraded the stock from "hold" to "buy" with a target price of Rs 400.

Havells India

The strong performance of the consumer-facing business is likely to continue amid good festival demand and market share gains. :We revise our FY21E, FY22E earnings estimate upward by 76 percent, 14 percent, respectively, and introduce FY23E estimates with revenue, earning CAGR of 13 percent, 20 percent, respectively, for FY20-23E," said ICICI Direct. It rolled over valuation on FY23E, valuing the company at 41x FY23E earnings. ICICI Direct upgraded the stock from "hold" to "buy" rating with a revised target of Rs 835.

Cholamandalam Investment and Finance Company

Prabhudas Lilladher upgraded Cholamandalam Investment and Finance Company (CIFC) to buy on resilient asset quality. The brokerage gave three reasons for its decision: (a) improved collection efficiency (current: 95 percent, 100 percent by Oct’20 as billing cycle nears completion) (b) sufficient provision buffers (Stage 2 provisions: 19 percent versus 12 percent earlier and Stage 3 at 43 percent (c) Tailwinds supportive of growth (market share maintenance in high yielding VF disbursements, LAP traction supported by GoI schemes).

Zensar Technologies

"The company witnessed healthy traction in order booking. This, coupled with bottoming out of retail vertical, improvement in cloud revenues and ramp-up in the financial services vertical, will lead to a healthy improvement in revenues in the long term. Further, improving margins are expected to boost the bottomline," said ICICI Direct.It upgraded the stock from to "buy" from "hold " with a revised target price of Rs 210.

Bank of Baroda

"BOB posted a strong earnings beat and carries better-than-peers COVID-19 provisioning buffer at 0.26 percent of loans but more would have been ideal. We upgrade the stock to buy with a target of Rs 55, factoring in better growth/asset-quality outlook, leading to better earnings momentum, higher retail orientation, reasonable capital position and favourable risk-reward at current valuations among PSBs," said Emkay Global.

Hero MotoCorp

"For HMCL, we build 10.2 percent sales, 4.5 percent PAT CAGR in FY20-23E. We believe the company's served segments will continue to see healthy demand traction," ICICI Direct said. HMCL offered a play on rural revival post-COVID and two -wheeler premiumisation, however, margin uptick could be limited in the medium term. "We upgrade HMCL to buy valuing it at Rs 3,450. The company’s strong financials (debt free b/s, consistent cash generation, robust dividend payout) make it a portfolio play," ICICI Direct said.

Axis Bank

"We like Axis' aggressive stance to front-load provisions, which may depress RoA/RoE at 0.7 percent/7 percent in FY21 but should improve to 1.4 percent/13 percent by FY23, aided by better growth, cost ratios and contained provisions. We upgrade Axis to buy and revise the target to Rs 620 (from Rs 520), valuing core bank at 1.5x Dec’22 ABV and subs at Rs 23," Emkay Global said.


The company was aggressive in its approach to grow foods and other new-age product portfolios. With single-digit growth in hair oil & high growth in foods and new launches, the company would be able to grow volumes by 8-10 percent, ICICI Direct said. "The stock is trading at 37x FY23E earnings. We upgrade rating on Marico from hold to buy with a revised target price of Rs 440 per share," it said.

RBL Bank

"Capping of potential losses in the high-risk businesses of Cards and MFIs, improvement in rating profile and less vulnerability of the corporate portfolio and impressive handle over cost leads us to upgrade earnings estimates (10-13 percent for FY21/22) and rating (from add to buy) on the stock," said Yes Securities.

"With normalization of credit cost in key product lines, we expect return on assets (RoA) to bounce back sharply to 1.3 percent. The in-process capital raise will bolster CET-1 to 17.5 percent, thus strengthening the balance sheet and positioning the bank well to pursue growth in ensuing quarters," the brokerage added.

Dr Reddy's Labs

Dr Reddy's continued to be one of the best plays in the large-cap pharma due to control on overheads, focus on branded generic in EM markets, strategic launches, monetising R&D and renewed focus in India formulations,said Prabhudas Lilladher. "It also has clean bill of health from key regulators which is an additional launch pad for growth. We believe DRRD has a strong product pipeline for US market with gCopaxone, gNuvaring, gRevlimid and gVascepa lined up in FY21-23E," said the brokerage. It upgraded the rating to "buy" from "accumulate" and raised the target to Rs 5,964 from Rs 5,648 as it incorporated Wockhardt acquired brands and COVID led products in estimates.

ICICI Prudential Life

"We like IPRU's re-engineered business model, which is focused on a more diversified product mix (increasing PAR + NPAR) along with an increased protection share. This is expected to drive margins higher by 405bps YoY in FY21 to 25.8 percent. We expect VNB to grow at FY21-23 CAGR of 14.9 percent. Given the improved margin trajectory, we upgrade VNB estimates over FY21-23 by 7.6-9.8 percent," said HDFC Securities.

Given a revised margin trajectory and recent stock price correction, the brokerage upgraded the stock to a buy with a higher DCF-derived target price of Rs 495.

SBI Life Insurance

"SBI Life delivered 28 percent YoY growth in GWP mainly from renewal & single premium, while some recovery in regular premiums. This has led to APE recovery with de-growth of -4 percent/-15 percent YoY in Q2/H1FY21 vis-à-vis -32 percent YoY de-growth in Q1FY21. New business was driven by group savings, protection and recovery in ULIP. This change in business mix kept the margins steady at 18.8 percent (PLe of 19.6 percent) as recovery in ULIP offset the protection margin benefit. Improving protection mix and other higher margin products will help it deliver margins of 19-20 percent by FY22-23E and see strong recovery in business momentum," said Prabhudas Lilladher.

With the recent underperformance, SBI Life looked attractive, it said, upgrading the stock to "buy" from "accumulate" and retained the target of Rs 920.

Persistent Systems

HDFC Securities upgraded Persistent Systems to "buy" due to a structural pivot towards growth acceleration, following underperformance in FY16-20 period. "The company's relative outperformance in FY21 and growth acceleration (20 percent EPS CAGR over FY20-23E) is driven by (1) recovery in Technology Services (deal sourcing, partnerships, client mining, and improving annuity), and (2) better operational rigour and business synergies improving the operating profile translating into 22 percent FCF CAGR over FY20-23," said the brokerage.


"Atul's Q2 revenue/EBITDA/PAT recovered well, rising 52 percent/65 percent/ 48 percent QoQ even as low demand from certain user industries tempered its YoY performance," said Anand Rathi. The brokerage said it was upbeat on the company's future performance, considering its greater focus on retail and branded products, ongoing capex to support revenue growth coupled with strong performances across business verticals, subsidiaries, associates and JVs. Anand Rathi upgraded its recommendation to "buy", at a target of Rs 7,500 from Rs 5,550.


HDFC Securities upgraded Subros to buy (add earlier) as the EBITDA margin surprised at 11.7 percent (versus 9.5 percent in FY20), led by higher localisation levels. The management highlights that the double-digit margin range is sustainable, driven by its cost-cutting initiatives and improving production levels.

The brokerage believes that the parts supplier would benefit from a revival in passenger car volumes and the company's diversification initiatives.

Music Broadcast

"Radio remains the worst hit media segment during COVID-19 induced lockdown. While a sharp sequential recovery was witnessed, ad flow is still lower compared to pre-COVID level. The upcoming festive season will be crucial for ad recovery, especially in metro cities. We believe a full recovery in ad revenue is still a few quarters away. Strong liquidity position and reduced opex will offer comfort to MBL in the near term. Issue of NCRPS is a positive and will provide value to shareholders," said ICICI Direct which upgraded rating on the stock to buy (versus hold, earlier) with a target price of Rs 25 per share.

JK Tyre & Industries

"We build 7.7 percent sales, 47.6 percent PAT CAGR in FY20-23 (tracking lower interest costs), with margins seen improving to 14.1 percent by FY23 on the back of continued tight cost controls, operating leverage benefits. In our view the stock is available at reasonable valuations at CMP. Thus, we upgrade the stock from hold to buy with a target price of Rs 100," said ICICI Direct.

UltraTech Cement

UltraTech Cement (UTCEM) reported another healthy performance in Q2FY21, driven by a healthy volume growth (8.2 percent YoY) and steady 2.5 percent realisation gains, said Centrum Broking. "UTCEM's pan-India presence immunes it from regional risk; leadership position, sharp focus on cost controls, and continued attention on improving balance sheet health (that will only improve as the acquired assets consolidate) will help UTCEM only gain earnings in the next two years. Factoring the same we have upgraded earnings estimates and upgraded UTCEM to buy (earlier add) rating with a revised price target of Rs 5,179 (earlier Rs 4,106)," it said.


ICICI Direct believes the company is well poised to capture the improving growth in the technology space led by less exposure to impacted verticals, improved traction in deal wins, capability to mine clients, market share gains via vendor consolidation, low legacy exposure and traction in Blackstone portfolio.

In addition, the brokerage expects margins to witness a gradual improvement led by higher utilisation and offshoring. "Further, healthy balance sheet could help the company in inorganic revenue growth opportunities. Hence, we upgrade the stock from hold to buy with a revised target price of Rs 1,600," said ICICI Direct.

Bajaj Auto

"Bajaj Auto (BAL) reported a steady Q2FY21 performance. For BAL, we build 2.8 percent, 7.4 percent, 5.6 percent volume, sales, PAT CAGR in FY20-23. Margins are seen improving to 18.4 percent by FY23 tracking improvement in operating leverage, cost actions. We value BAL at a revised target price of Rs 3,570 using SOTP method and upgrade the stock to buy. In our view the stock offers adequate valuation comfort at CMP considering expected all-round uptick in coming times," said ICICI Direct.

Asian Paints

Asian Paints reported stellar numbers with one of the best quarterly EBITDA margins in Q2FY21. Despite being a lean season on account of monsoons, the strong decorative volume growth was attributable to pent-up demand in rural and semi-urban regions led by repainting/maintenance activities, ICICI Direct said. "We believe normalisation in metro regions, revival in the real estate industry and intact repainting demand from semi-urban, rural India would drive paint demand, going forward," it said.

The brokerage said favourable raw material prices would likely to keep gross margins elevated in the coming quarters even with a change in product mix.

Bajaj Finserv

"Leaving FY21 behind, front-loading provisions for asset quality stress, Bajaj Finance management has guided for strong improvement of 25-27 percent growth in AUM and credit cost at 160-180 bps from FY22," said ICICI Direct.

Tight control on cost and focus on improving collection would serve the company well in a changed environment. Demand for protection and guaranteed products was seen driving life-insurance premium and VNB margins ahead, it said. "Higher acceptance of health insurance bodes well for premium accretion ahead, though claims are seen to be gradually increasing as normalcy resumes. With plans to enter into asset management, license for AMC has been applied," said ICICI Direct. It upgraded target to Rs 7,000 from Rs 6,400) and the stock from "hold" to "buy", anticipating healthy growth in earnings at around 19 percent CAGR in FY21-Y22E and prevailing steep holding company discount.

Bajaj Finance

"Leaving the year FY21 behind and front loading provisions for asset quality stress, the management has guided for strong improvement from FY22E. They believe transformation has led to lower operating costs, while business velocity to surge ahead. Given lower moratorium and meagre restructuring till date, return ratios are well placed to witness improvement ahead. The stock valuations look reasonable for long term earnings growth guidance of 23-24 percent. We upgrade the stock from hold to buy and revise target price to Rs 3,850," said ICICI Direct.

Mahindra CIE Automotive

"Post the blip in CY20E, financial performance is stated to improve meaningfully over CY20-22. It will be a function of revenue growth and margin expansion with the consequent decline in balance sheet leverage and improvement in return ratios matrix. We value MCI at Rs 170 (i.e. 6.5x CY22E EV/EBITDA) and upgrade the stock to buy," said ICICI Direct.

The company's strong parentage and excellent cash generation track record remained long-term positive drivers. "With limited capex spend, going forward, its present CFO, FCF yield is at around 8 percent, 5 percent, respectively, offering high margin of safety," it said.

Colgate-Palmolive (India)

"Colgate reported a strong set of numbers with 5.3 percent revenue growth led by 7.1 percent domestic business growth. The growth opportunity in oral care space is limited given high penetration and slow rate of habit change (brushing twice a day). However, Colgate has been able to improve margins on a continuous basis with periodic favourable conditions. We expect similar conditions would drive earnings growth (8 percent CAGR in FY20-23E). The dividend payout has considerably increased in last few years," said ICICI Direct. It upgraded the rating from "hold" to "buy" with the revised target price of Rs 1,700 per share.

Larsen & Toubro Infotech

Larsen & Toubro Infotech (LTI) reported a healthy set of Q2FY21 numbers both on the revenues and margins front. LTI is expected to be a key beneficiary of recent trends of multi-year technology transformation phase. "In addition, the company’s ability to win large deals, effectively mine clients, adding Fortune 500 clients and acquire new clients will enable it to deliver industry-leading revenue growth in coming years. This, coupled with a healthy margin performance prompt us to revise our EPS estimates upwards," said ICICI Direct, which upgraded the stock from "hold" to "buy" with a revised target price of Rs 3,570.

Granules India

Granules India's long-term investments in backward and forward integration from APIs to FDs was bearing fruits as was demonstrated by the "extraordinary" last two quarters, KR Choksey said. "The management is optimistic of growing its PAT at a CAGR of 30 percent on the base of FY21 on the back of new product launches, increase in market share of existing products & improving product mix. The company was also able to achieve the highest ever EBITDA margin during the quarter and aims to maintain it on the back of backward integration & improvement in product mix," KR Choksey said.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Nov 3, 2020 03:00 pm

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