Overall, corporate earnings have exceeded expectations in October-December, continuing the trend for the third quarter in a row. The earnings outlook is positive for many sectors, helped by steps the government took before and after the outbreak of the virus to accelerate economic growth.
As a result, analysts have upgraded many stocks and the same scenario is expected to continue. Most experts expect about 30 percent growth in FY22 earnings, although this is in comparison with the low base of pandemic-ravaged FY21.
"Q3 FY21 had broadbased earnings beat as aggregate sales were higher than estimates by 3.9 percent, EBIDTA by 4.3 percent and PBT by 6 percent. Reported sales increased by 0.6 percent, EBIDTA increased by 16.1 percent and PBT by 37.8 percent YoY. Q4FY21 and Q1FY22 should report good numbers on a low base, although margins have peaked out due to rising commodity prices and bottomed out spends on advertising, marketing and overheads," said Prabhudas Lilladher.
Nimish Shah of Waterfield Advisors feels the pro-growth Budget that focuses on a 35 percent increase in capital expenditure for FY22 will further support economic revival and push up corporate earnings.
"With the massive increase planned in the government capex program, private sector capex is likely to revive in sectors like Infrastructure, Real Estate, Automobiles, Metals and Cement. As a result, these cyclical companies could witness sustainable topline and bottomline growth over next few years," he said, adding with growth coming in these sectors, the NPA concerns of Banks and NBFCs too can abate, leading to a healthier growth of the bottom line.
Markets expect a 30 percent growth in Nifty50 earnings in FY22 and Shah believes that this growth could be led by Financials, Auto and Cyclical sector corporates.
As a result, the market has seen a stupendous rally in past several months, climbing more than 36 percent in last five months.
Brokerages have upgraded these 16 stocks in February to 'buy' for 10-29 percent upside:
"Immense structural opportunity, remarkable track record, return on equity (RoE) of over 40 percent, superior to most consumer peers, and an attractive risk-reward ratio on FY23E earnings, after its recent underperformance, leads us to upgrade Britannia Industries to a buy, with target of Rs 4,120 (based on 45x FY23E EPS)," said Motilal Oswal.
"Recently, in its Investor Day, Hindalco laid out its strategy & capital allocation roadmap for the next five years. The focus of Hindalco is towards expansion of downstream India business and deleveraging the balance sheet. At a consolidated level, Hindalco is expected to generate over $1–1.2 billion cash flow per annum post its normal working capital and maintenance capex," ICICI Direct said.
"Going forward, we upgraded Novelis FY23 EBITDA per tonne estimate to $500 per tonne (from $480 per tonne earlier). We also raise FY23 EV/EBITDA multiple by 0.5x for both domestic and Novelis to 6x and 6.5x, respectively. We continue to value the stock on SoTP basis and arrive at a revised target price of Rs 390 (earlier target price of Rs 309). We upgrade the stock from hold to buy recommendation," the brokerage added.
"While refining margin is yet to recover, BPCL's management has done a commendable job in streamlining the challenges presented in the initial stages like divesting its stake in major JVs and rationalizing employee count. We upgrade the stock to buy," said Motilal Oswal.
"It now appears that the government as well as the company has been making confident strides towards realization of the intended divestment. The stock is trading at 4.8x FY23E EV-to-EBITDA and 1.7x FY23E P/BV. We value it at 2.1x (on par with its FY15-18 period) FY23E book to arrive at target of Rs 520 per share," the brokerage added.
Max Financial Services
Jefferies has upgraded its rating on Max Financial Services to buy and raised target to Rs 1,000 per share after the deal between Max Life and Axis Bank approved by IRDAI.
The global brokerage house raised earnings estimates, saying the visibility of this agreement (Axis-Max) can support re-rating.
L&T Finance Holdings
"L&T Finance Holdings (LTFH) saw liability-side-led NIM expansion and trend may continue in the near term. Moreover, with stressed loans well-provided for, and adequate capitalisation (successful rights issue helps) will be a positive trigger for growth. Asset quality improved, GS-3 has reduced to 5.12 percent (down 7 bps QoQ); with PCR at 64 percent (from 69 percent in Q2)," Sharekhan said.
"Supportive regulatory environment, improving capex and corporate demand are positive triggers for LTFH, we are sanguine on long-term growth prospects. LTFH is available at 1.3x/1.2x its FY2022E/FY2023E ABVPS; considering the improving outlook and challenges receding we have upgraded the recommendation to buy with a revised target of Rs 118," the brokerage added.
"Improving macroeconomic conditions coupled with the focused approach of the bank on growth as well as asset quality paves the way for a healthy revival in performance ahead. Indian Bank has shown an encouraging performance considering the current situation and some green shoots are embedded within these results. Asset quality performance has been improving this quarter while loan growth pick-up along with management guidance of further traction is a positive," ICICI Direct said.
"We expect a gradual improvement in return on assets (RoA) and RoE to 0.7 percent and 12.5 percent, respectively, in FY23. Therefore, we remain positive on the relative performance of the bank. Hence, we upgrade target price to Rs 180 (earlier Rs 88), valuing the bank at 0.9x FY23E ABV. Consequently, we upgrade our recommendation from hold to buy," the brokerage added.
"On the back of the anticipated strong growth in the domestic medium & heavy commercial vehicle (M&HCV) segment coupled with the Zeppelin Foundation (ZF) global supremacy in supplying mobility systems for PVs, CVs and Industrials; products like Electrified power-train tech, active and passive safety systems, CV control systems," said Anand Rathi.
"We believe Wabco, in the long term, has tremendous growth opportunities. Also, with new products in the pipeline, we expect it to go from strength to strength. Accordingly, we upgrade the stock to a buy, at a higher target of Rs 7,175," the brokerage added.
"We expect the replacement demand for higher tonnage and multi axle vehicles to kick in by second half of FY22 which will lead to significant volume-led operating leverage and margin expansion, accordingly, we believe earnings will be significant in FY22. Lower debt is a positive. We upgrade our rating to a buy, with a target of Rs 149 (29x FY23e)," said Anand Rathi.
Gujarat State Petronet
"GSPL's transmission volumes have grown YoY as industrial PNG demand remains robust and CNG demand has also recovered to normal. In the long run too, the transmission business is expected to report stable volumes in the backdrop of growth in CGD & PNG sectors and increased LNG capacity in Gujarat. The management intends to increase capacity due to new LNG terminals and support pipelines of its subsidiaries for expansion outside Gujarat," said ICICI Direct.
"We roll over our valuations to FY23 and value GSPL standalone business at Rs 179 per share. At the CMP, GSPL's investments in its listed CGD entity Gujarat Gas (54.1 percent stake) and unlisted Sabarmati Gas, is trading at >85 percent discount. We value its investments at Rs 105 per share at 70 percent discount. Hence, we arrive at a target price of Rs 285 (earlier: Rs 250). We upgrade rating from hold to buy," the brokerage added.
"We continue to remain positive regarding the outlook for MRF as demand for TBRs PCRs and two-wheelers have started to return. We expect demand to continue in the following quarters, barring production issues. With operations normalising at MRF, we expect strong revenue growth in FY22. We upgrade our rating to a buy at a target of Rs 104,823 (20x FY23e)," Anand Rathi said.
"The government's priority allocation of domestic gas to CGD sector has enabled Mahanagar Gas (MGL) to access cheaper gas for CNG and domestic business segments (around 85 percent of sales mix). MGL’s strong gas pipeline infrastructure and expanding operations in Mumbai, its adjoining areas and Raigad district will enable it to capture the benefits of the large and growing market given the low penetration. We roll over valuations to FY23E and upgrade MGL from hold to buy with a revised target of Rs 1,340 (13x FY23E EPS) earlier TP: Rs 1,150," said ICICI Direct.
"NCC has reported a mixed set of numbers in Q3FY21. However, we now turn constructive on the company given a) the strong order book position, b) expected pick-up in execution, c) stable margins, d) debt reduction, and e) improvement in working capital cycle. Therefore, we upgrade our rating from hold to buy with a target price of Rs 110 per share (6x FY22E EV/EBITDA) (versus earlier target price of Rs 65 per share)," ICICI Direct said.
"The strong YoY performances in all its categories (cookware up 34 percent, pressure cookers up 29 percent and kitchen appliances up 19 percent) were highlights of TTK’s Q3 FY21. The blended around 9 percent price hike supported the 280bp EBITDA margin expansion. With the demand outlook robust even in January 2021, TTK is well-placed to capitalise on growth opportunities as supply-side constraints have eased in the quarter," said Anand Rathi.
"After its robust performance in Q3 FY21, we have raised our FY21-FY23 PAT around 28 percent, as we factor in the improving demand scenario. We upgrade the stock to a buy, at a higher target of Rs 8,181 (35x FY23e EPS of Rs 233.7). Our previous Hold rating had a target of Rs 6,300," the brokerage added.
"Factoring in the Q3FY21 performance and improvement in demand outlook, we revise our earnings estimates upwards by 3-7 percent for FY22-23. The company’s 'War on Waste' programme is well on track with tight control on inventory position and higher focus on gold on lease replenishment (around 56 percent of inventory). We expect initiatives to improve cash positions and significantly enhance RoIC (from 31 percent in FY20 to around 42 percent in FY23)," said ICICI Direct.
"We build in revenue and earnings CAGR of 14 percent and 22 percent, respectively in FY20-23. Healthy balance sheet, sustained focus on market share gains and better earnings visibility prompts us to upgrade from hold to buy with a revised target price of Rs 1,830 (60x FY23E EPS, previous TP: Rs 1,660)," the brokerage added.
"AIA Engineering reported muted EBITDA growth of 3 percent CAGR over past 5 years, owing to fall in realisations and worsening mix. However, we believe trend is likely to reverse led by a) global metal price rally and reduction in travel restrictions to drive faster customer conversion, b) prudent cost management (margins are up 70bps despite 5 percent fall in realisations and low capacity utilisation of 69 percent in 9MFY21), c) improving sales mix (50,000MT mill liner capacity will be commissioned in 1QFY22) and d) strong cash flow generation profile as its in final leg of capacity expansion which can fuel growth until FY25," said JM Financial.
"We upgrade the stock to buy with revised target of Rs 2,300, as we value the stock at 25x FY23E EPS (in-line with 5-year median multiple). We forecast earnings sales/EPS CAGR of 13 percent/15 percent over FY20-23," the brokerage added.
"Over the longer term, GIL retains its ambition to be a top five shock absorber player globally. Healthy topline outlook, potential for margin improvement, strong financials (debt free balance sheet, double digit return ratios) and EV opportunity help us remain positive on the stock. We introduce FY23E numbers, upgrading it from hold to buy with a revised target price of Rs 150 (i.e. 20x P/E on FY23E EPS of Rs 7.5; previous target price Rs 125)," said ICICI Direct.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.