The June quarter earnings surprised the street and the benchmark indices have since rallied 19 percent. Factors such as global liquidity, the progress on vaccine front and improving economic indicators, too, helped the stock markets that have, so far, gone up 52 percent from their March lows.
"Q1FY21 was indeed an exceptional quarter, given the impact of COVID-induced lockdown, which tested the resilience and agility of business models. As we are nearing the end of reporting season, it has turned out to be a satisfactory one versus the heightened fears and muted expectations," HDFC Securities said.
Key highlights of the quarter: (1) margins beat estimates across sectors such as IT, cement, pharma and staples; (2) positive management commentaries on June/July exit run-rate of revenues as unlocking led to a sharp demand rebound in sectors such as staples, paints, select autos, cement, insurance, IT, metals and energy; (3) continued market share gains for the larger companies versus smaller players and those from the unorganised sector; (4) improving moratorium trends for lenders and (5) sharp uptick in capital markets leading to strong performance for brokers and exchanges, the brokerage added.
Confident about economic recovery following staggered "unlocking" and measures taken by the government to boost growth and earnings growth, the brokerage upgraded a lot of stocks to "buy" in August.
Here is a list of stocks that were upgraded to buy in August:
Zee Entertainment Enterprises: Buy | Target: Rs 235 | Return: 19 percent
Zee's Q1FY21 operating performance was weak with 66 percent ad-revenue de-growth led by COVID but there were several other structural positives. (1) Improvement in C&CE by Rs 300 crore (2) resignation of Subhash Chandra as non-executive director Viz. Indian entrepreneur-promoter rarely step-out (3) decline in inventory post several years of consistent increase (4) improvised disclosure with respect to Zee5 financials and quarterly BS are forthcoming and (5) upbeat management commentary with respect to growth, margin and free cash flow is positive, said Dolat Capital.
"Both P&L and balance sheet to improvise from hereon, multiple re-rating seems inevitable. With concerns starting to get addressed, we upgrade Zee to buy with a revised target of Rs 235," the brokerage added.
Petronet LNG: Buy | Target: Rs 300 | Return: 18 percent
Emkay Global upgraded Petronet LNG to 'buy' with an equal-weight stance and raised the target by 4 percent to Rs 300 as it rolled over to September 2022.
The brokerage also raised FY22/23E EPS by 9 percent/4 percent, building in high Dahej volumes and Kochi regas tariff. PLNG is a value pick on resilient earnings and high ROEs, it said.
"While the Tellurian MoU is on till December 2020 and Petronet LNG is also going for the east-coast terminal, we believe that management is targeting low spot pricing for new LNG and 30 percent base utilization for a new terminal, implying judicious capital allocation," the brokerage said.
EIH: Buy | Target: Rs 95 | Return: 18 percent
"The current pandemic environment has thrown up severe challenges to the entire hotel industry. However, we believe strong players would emerge even stronger out of this crisis once normalcy resumes. EIH, with its strong balance sheet and strategic property locations across key destinations, is among them," ICICI Direct said.
At the CMP, the stock offered healthy upside potential and was trading at a significant discount (at around 50 percent of replacement value). "Hence, we upgrade the stock to buy with a revised target price of Rs 95 per share," it said.
S Chand and Company: Buy | Target: Rs 87 | Return: 14 percent
Prabhudas Lilladher (PL) upgraded S Chand from 'accumulate' to 'buy' by raising target P/E multiple to 5.5x (3.5x earlier) as 1) maiden EBITDA profit of Rs 1.9 crore (PL estimated loss of Rs 23 crore) in a non-seasonal quarter indicates that cost rationalization programme is on track 2) focus on working capital efficiency is clearly evident with pre-tax OCF of Rs 15.7 crore in Q1FY21 and 3) formal induction of National Education Policy (NEP) has laid a strong foundation for growth over the next two-three years as second-hand books will go out of the system.
Hindalco Industries: Buy | Target: Rs 225 | Return: 14 percent
Hindalco’s India business reported a healthy performance for Q1FY21, primarily driven by around 6 percent reduction in aluminium cost of production (CoP) sequentially, ICICI Direct said.
Novelis, too, reported a steady performance in the current challenging scenario. "We have started consolidating Aleris numbers, following the company's reporting practice. We value the stock on SOTP basis and arrive at a target price of Rs 225. We upgrade the stock from hold to buy," the brokerage said.
Balkrishna Industries: Buy | Target: Rs 1,637 | Return: 20 percent
"Balkrishna's growth prospects remain strong, led by robust demand in the agricultural sector in both Europe and the US. Also, FY21 would have margin expansion on account of backward-integration benefits from the carbon black plant. Accordingly, we upgrade rating to a buy, at a target price of Rs 1,637 (earlier Rs 1,258)," Anand Rathi said.
Sharda Cropchem: Buy | Target: Rs 348 | Return: 25 percent
With improving operating environment, FY21 is expected to be a turnaround year for the company with both Europe and NAFTA to be growth levers, Prabhudas Lilladher said. "Cushion on gross margin pressure is expected to continue with better availability and reduction in raw material prices," it said.
The brokerage has increased EBITDA/APAT estimates by 22 percent/38 percent for FY21E and 18 percent/31 percent for FY22E to factor in lower raw material cost and lower than expected hit on forex. It expects Sharda's topline/EBITDA/APAT to grow by 9 percent/22 percent/18 percent between FY20-22E.
"We roll forward to September 22 estimates and upgrade the stock to buy (from accumulate) with a revised target price of Rs 348 based on 13x Sep’22 earnings," it said.
Hero MotoCorp: Buy | Target: Rs 3,235 | Return: 10 percent
"For HMCL, we build 8.3 percent sales CAGR, flattish volume CAGR in FY20-22E. HMCL's dominant presence in rural geographies (around 50 percent of sales) and market leadership in the domestic motorcycle segment places it in a sweet spot to capture post-COVID consumer trends, in our view. Hence, we upgrade it to buy, valuing the company at Rs 3,235 (20x P/E on FY22E EPS of | 161.8)," said ICICI Direct, which believes market share gains, positive demand outlook and strong financials merit higher multiples than peers.
Firstsource Solutions: Buy | Tartget: Rs 66 | Return: 17 percent
FSL has seen healthy margins despite a significant fall in revenues. "We expect revenues to improve led by increased contribution from top client, new logo wins in BFS & media & communication, traction in UK BFS & retail business and improvement in the mortgage business. Also, the strategy of increased penetration in the technology segment, cross-selling of platforms business and hiring of leaders to boost its digital business will be the long-term driver of revenues," ICICI Direct said.
Further, the brokerage expects healthy traction in margins to continue in coming quarters. Based on this, ICICI Direct revised revenue, EPS estimates upwards, prompting it to upgrade the stock from hold to buy with a revised target price of Rs 66 per share.
Amber Enterprises: Buy | Target: Rs 2,051 | Return: 11 percent
Amber would be the primary beneficiary of the government's focus on import substitution in room air-conditioners, Anand Rathi said.
"About 3 million units are imported yearly of around 7 million, which can increase to 14 million in the next four-five years. The sharper focus on import substitution, supported by a favourable policy intended to create an entire ecosystem for component manufacturing (excluding compressors) augurs well for Amber and can consolidate its leading position," Anand Rathi said.
"Capex required to capitalise on opportunities in the component ecosystem and funding for it are key monitorables. We are positive on Amber and upgrade the stock to a buy, with a revised target price of Rs 2,051 based on a sum-of-parts evaluation on FY23," the brokerage added.
Symphony: Buy | Target: Rs 1,070 | Return: 27.5 percent
After a lockdown-affected tepid Q1 FY21 and channel partners loaded with stock, the near-term outlook for Synphony’s domestic operations is sombre, Anand Rathi has said. Global uncertainties, too, can impact the performances of subsidiaries in China, Mexico and Australia. "For these reasons, we lower our FY21e/FY22e 23 percent/27 percent after the Q1 FY21 results. However, the robust balance sheet (Rs 450 crore free cash at end-Q1 FY21) and no major capex commitment is reassuring in challenging times," the brokerage said.
"As we take a longer view on the stock and roll over our estimates to FY23, we upgrade the stock to a buy with a target of Rs 1,070," it added.
Tata Power: Buy | Target: Rs 66 | Return: 16 percent
While clarity was pending with regard to new regulations for Indonesian coal mines (concerning tax and royalty), at current levels, the risk-reward is favourable, Motilal Oswal has said.
"Divestment-related measures (International Shipping business, Arutmin, and Tata SED) and approval for the infusion of Rs 26 billion from promoters would continue to aid debt reduction," the brokerage added.
"Debt reduction should lead to lower interest costs, and with normalisation in its EPC businesses and some working capital, we expect EPS to increase at a 9-10 percent CAGR over FY20-23. The approval of a tariff hike at Mundra, the merger of CGPL & Tata Power Solar with TPWR, and favourable InvIT valuations provide upsides. Upgrade to Buy, with TP of Rs 66 per share," the brokerage added.
TTK Prestige: Buy | Target: Rs 6,300 | Return: 16.5 percent
"With its robust manufacturing capacity, diversified product range and all-India operations, TTK is favourably placed in Indian kitchen appliances, resulting in maintaining PEx of 35x as we roll over to FY23 earnings. As prospects are improving gradually after a tepid Q1 FY21, it is well set to bounce back once normalcy returns. Strong balance sheet with Rs 390 crore free cash, is a major comforting factor in challenging times," Anand Rathi said.
"TTK has been growing in markets where the general trade channel is operational for Q1 FY21 and is capitalising on rising e-commerce as a sales avenue, while modern retail has yet to turn operational."
Its superior after-sales service is helping it attract customers in challenging times and is emerging as a key differentiator compared to local and regional peers, the brokerage said.
Based on its strengths to navigate challenging times and deliver robust returns in FY22 and FY23, Anand Rathi upgraded the stock to a 'buy' with a target of Rs 6,300.
Gujarat State Petronet: Buy | Target: Rs 247 | Return: 20 percent
"Q1FY21 volume was lower on the back of disruptions in industrial activities but has normalised. GSPL is a structural story of higher volume on growing demand & increased LNG regasification capacity," said HSBC.
The brokerage upgraded the stock to 'buy' from hold and raised target to Rs 247 from Rs 236 per share earlier, CNBC-TV18 reported.
The brokerage says a step-change in volumes for the rest of the year is likely and expects demand to increase from power and other industries in the near term.
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