The September quarter earnings season really boosted the confidence of not only equity markets but also foreign institutional investors, as it indicated that India is on a recovery mode when western nations are still struggling with COVID-19 crisis.
The BSE Sensex, as well as the Nifty50, surged 70 percent from March 23's closing low, while the broader markets outperformed frontliners as the Nifty Midcap index climbed 72 percent and Smallcap spiked 82 percent in the same period.
With the rising recovery rate and falling fatality rate, the market looked optimistic as almost the entire economy has opened. On the back of it, experts expect strong economic and robust earnings growth in FY22.
"The economy has normalised and we are expecting it to start growing from the current quarter. Large companies have gained market share in the current situation because of their ability to manage the environment better in terms of safety of employees, customers & other stakeholders and access to capital," Hemant Kanawala, Head of Equity at Kotak Mahindra Life Insurance told Moneycontrol.
"Also, some of the cost initiatives, like travel cost, taken by the companies look sustainable and keep operating margins above normal levels. Hence, a combination of acceleration in revenue growth and better margins will result in robust earnings growth in FY22," he said.
In fact, the most noted point after the September quarter earnings season was that more than 100 stocks witnessed upgrade in rating to 'buy' from brokerages. The list of stocks which saw an increase in target price was even higher than the rating upgrade.
Here is a list of 35 stocks which could return 11-39%:
Emkay Global upgraded Tata Steel to buy, driven by strong steel and weak raw material cost environment, and the possibility of the divestment of Ijmuiden operations that will deleverage balance sheet faster and re-rate the stock. The brokerage revised its FY21/22/23 EBITDA estimates by 53/6/2 percent. It upgraded to buy with a target of Rs 638 (Rs 463 earlier).
Techno Electric and Engineering
"Better execution led to Techno's Q2 FY21 performance outstripping our expectation. Such execution enabled better cost absorption, leading to a 29.3 percent EBITDA margin (Anand Rathi estimates: 25.5 percent). Management expects robust orders in the medium to long run in distribution & pollution control (FGD), power T&D (evacuation of renewable power) and 'smart' meters. It expects Rs 1,100-1,200 crore EPC revenue in FY21 and a 15-16 percent EBITDA margin, led by execution of half the present order book of Rs 2,120 crore. It has cash and investments of Rs 710 crore," said Anand Rathi which raised earnings estimates for FY21/22 and hence upgraded the rating to a buy, with a target of Rs 257, earlier Rs 230.
"Somany has become prudent with credit control measures aiding working capital management and debt reduction. The consolidated debt was down Rs 84 crore in H1FY21 to Rs 382 crore, driven by working capital optimisation. It will be important to monitor how the sales traction picks up from here coupled with cost rationalisation sustainability," said ICICI Direct which upgraded to buy recommendation (versus hold, earlier) and a revised target price of Rs 290, given the alluring valuations, improved margins trajectory and balance sheet repair initiatives.
"Going ahead, further traction in the international market, new products like oil-free compressors (AB series) would aid growth while green shoots of revival visible in India business would further aid topline. Also, its strategy on cost reduction, focus on cash business would help deal with working capital, debt reduction and liquidity situation," said ICICI Direct which expects revenue, EBITDA and CAGR growth of 7.9 percent, 37 percent, respectively, in FY20-22E. The brokerage revised its target price to Rs 140 and upgraded rating from hold to buy.
"Overall, BEL reported strong execution for Q2FY21 and is expected to maintain the momentum stable for H2FY21 while order inflows may get impacted in the medium term due to a delay or deferral in a few projects but overall expected to be decent in the current environment. BEL is likely to continue its focus to increase contribution from non-defence segment to around 20 percent, albeit with lower margins in the next three to five years," ICICI Direct said.
"Overall strong order book of Rs 52,148 crore continues to provide strong revenue visibility. We expect BEL to report revenue, EBITDA, PAT CAGR of 8.8 percent, 5.2 percent, 4.5 percent, respectively, in FY20-22. We revise the target price to Rs 110 (13.5x on FY22E EPS) and change the rating from hold to buy. Any disappointment on the execution front may significantly impact the operating performance of BEL," the brokerage added.
0---000---00--00--
"CPIL's results are praiseworthy on the MDF business front (coupled with overall outlook ahead), while plywood division recovery commentary is also encouraging. We are also impressed by the sharp improvement in balance sheet wherein CPIL has significantly reduced its debt level from Rs 243.5 crore in Q1FY21 to Rs 85 crore in Q2FY21," said ICICI Direct which upgraded the stock from hold to buy, with a revised target price of Rs 230.
Sharekhan upgraded Grasim to buy with a revised target of Rs 1,010 as it factored in a revised price target of UltraTech, increase multiple for standalone business and reduce holding company discount of subsidiaries.
"Both of Grasim's key verticals witnessed strong sequential improvement in OPM led by demand improvement, lower input costs and fixed cost reduction leading to higher-than-expected standalone net earnings for Q2. Divestment of low RoCE Fertiliser business to improve focus on core businesses. Partnership with Labrizol to help increase chlorine integration. Confidence in demand environment led to increasing capital expenditure for capacity expansion in both Viscose and Chemical divisions," the brokerage added.
JB Chemicals & Pharmaceuticals
"As operations normalise in H2, we expect JBCPL to report steady improvement with EBITDA margins at 23-24 percent for FY21. We have assumed a flattish EBITDA in FY22E as we believe the management transition and business restructuring would take some time. Starting FY23E, we believe the cost efficiency benefits would kick in along with newer product launches in India. This should aid in margin expansion. We pencil in 110 bps improvement in EBITDA margins at 24.5 percent in FY23," Dolat Capital said.
"Strong free cash flow (FCF) generation and no major capex requirements in the near term could be used for inorganic expansion. We assume JB Chemicals to report 12 percent revenue CAGR and 14 percent CAGR at bottom-line with improving operating performance over
FY20-23," the brokerage added.
"IRCON international Q2FY21 PAT came 18 percent higher than our estimate. Execution has seen an improvement on QoQ basis and company highlighted in October 2020, its execution run rate is matching pre covid levels. For FY21, Ircon guides for revenue of Rs 4,900-5,200 crore. Order book as on Q2FY21 equals to 7x TTM revenue and this include Rs 2,300 crore orders won in Q2FY21," said IDBI Capital which upgraded the rating to buy.
Yes Securities upgraded Aurobindo to buy on back of robust Q2 and solid injectables outlook and revised target to Rs 1,030 based on 15x September 2022 EPS.
"Our upgrade is premised on 1) increasing confidence on around 8-10 percent US growth driven by injectables business as also scope for sustained growth beyond FY23 as 3 depot injections come in to play 2) Margin to sustain around 22 percent on back of stability in injectables pricing; better margin in vaccines business to partly offset loss of export incentives 3) Balance sheet in very good shape after $550 million Natrol sale deal which leaves surplus cash – a change from net debt situation a month back," said the brokerage.
"With gradual improvement in labour and supply chain coupled with strong orderbook of Rs 10,640 crore and various opportunities available in metro and high speed rail segments, we expect strong PAT growth of 265.1 percent/ 43.2 percent in FY22/ FY23. Thus, we upgrade to buy with a revised target of Rs 162," Dolat Capital said.
"Currently, company has healthy order book of Rs 520 crore which provides future revenue visibility. Going forward, company expects sectors like infra, water, power, mining, Oil & Gas, ports, pharma, data centers etc. to be a major growth drivers. We have increased our FY21 PAT estimates by 3 percent to factoring higher other income. We continue to value the company at 11.5x FY22E PE for a target price of Rs 1,301 (unchanged). We upgrade rating on the stock to buy from accumulate, due to its inexpensive valuations," Arihant Capital Markets said.
"Supported by strong user-industry demand and better utilisation, Neogen’s Q2 revenue and EBITDA grew respectively 6 percent and 5 percent y/y. We are positive on the long-term outlook for the company and expect revenue/EBITDA/ PAT to clock 32/34/49 percent CAGRs over FY21-23, driven by coming expansions, rising demand for pharma and agro intermediates and focus on value-added products. Further, the company entered into long-term contracts, providing future revenue assurance," said Anand Rathi which upgraded recommendation on the stock to buy with a target of Rs 800 (earlier Rs 660).
"Minda Industries (MIL) reported healthy Q2FY21 results. We continue to like MIL for its demonstrated history of industry-beating growth and constant kit value increases via product portfolio upgradation," said ICICI Direct which upgraded MIL to buy, valuing it at Rs 410.
"Exide Industries reported better than expected results as sales/EBITDA/net profit were higher than our forecasts by 11/19/27 percent. We raise FY21 sales/EBITDA/EPS estimates by 6/11/14 percent respectively given better than expected Q2FY21 results. We also raise FY22 estimates by 4/7/9 percent. Our SOTP based target price (based on FY23 earnings) stands at Rs 196 (Rs 165 earlier)," said IDBI Capital which upgraded the stock to buy from an accumulate.
"Considering improvement in labour availability and execution levels, we expect NCC to report healthy revenue and PAT growth from Q3FY21E and the pace of which will increase in FY22E. Considering, strong orderbook and order inflows gaining traction, we upgrade to buy with target of Rs 47," said Dolat Capital.
"At standalone level, Greenply generated operating cash flow Rs 130 crore in 1HFY21 (versus Rs -14 crore in 1HFY20) as it tightened its receivables and is now almost net debt free. Also, Greenply exuded confidence of 400bps EBITDA margin expansion over next 3 years on the back pricing improvement, efficiency and cost controls," said JM Financial which raised estimates to reflect margin improvement (assume 50bps by FY23 over FY20) and raised September 2021 target to Rs 120 (Rs 100 earlier).
The brokerage upgraded rating from hold to buy as stock is trading at compelling valuations of 12.2x FY22 EPS, especially considering robust return profile.
Prabhudas Lilladher incorporated INDR's guidance in assumption and upgraded to buy (earlier hold) led by increase in earnings estimate by 14/18/8 percent for FY21/22/23 mainly due to EBITDAM expansion of 200-300bps.
"INDR earnings were in line with our estimate, led by growth in export formulation while India formulations suffered due to lockdown and lower demand for acute products (55 percent of India revenue). We believe, over the last few years INDR was in CAPEX mode and growth suffered due to regulatory issues. With guidance of limited CAPEX, regulatory issues resolved and restructured sales force, INDR is poised to grow on better contributions from two key markets, US and India," said the brokerage.
"We cut FY21 EBITDA estimates by 48 percent but keep FY22/FY23 estimates broadly intact as we expect normalcy to resume within the next 6 months given 1) strong content slate and 2) improved visibility on re-opening schedules of various states (Maharashtra, the most critical state with around 20 percent of screen mix for INOL, has given permission to re-open from November 5)," said Prabhudas Lilladher.
The brokerage valued INOL at an EV/EBITDA multiple 10x (no change) and upgraded the stock to a buy (accumulate earlier) with a revised target of Rs 322 (Rs 323 earlier) as current price offers good entry point for long term gains. "INOL's low gearing (net debt of Rs 120 crore) and stringent cost control give us additional comfort until normalcy resumes."
"Cipla's Q2 was a beat operationally as digital and cost efficiency led initiatives drove margins. Change in capital allocation (focus on India business -Rx, Tx & OTC convergence), phasing out of R&D investments (calibration in US investments) and focus on deepening penetration in ROW forms core strategy of Cipla. Approval for gProAir (queries should be responded by partner towards end of this year) and a launch of gAdvair are expected to be the key catalysts in near term. We see increasing visibility over the medium-term earnings, given signs of improving execution in India and strong US build-out. Cipla remains our top pick in the large cap space," said Dolat Capital.
"Alkem has built a decent platform for growth in the US with its diversified manufacturing base (6 FDA approved facilities including 2 in the US), pipeline of around 90 ANDAs (only 50 percent commercialized) and front-end presence. US business targets 12-15 filings and around 10 launches per annum. With sales force expansion spend in base and enhanced digital marketing tools, we expect steady EBITDA margin at around 20 percent over FY21-23 versus 17 percent earlier. No major capex, compliant facilities and improving profitability in the US is expected to boost FCF/EBITDA conversion rate at around 70 percent by FY23," Dolat Capital said.
"Driven by its US/Africa branded business, Ajanta's Q2 FY21 revenue grew 11.4 percent YoY to Rs 720 crore. A better product mix in branded generics (70 percent of sales) pushed its gross margin up 420bps to 78 percent. Lower R&D/marketing overheads expanded the EBITDA margin 1,067bps to around 38 percent. Earnings are likely to be driven by its branded generics in India, the Rest of Asia and Africa, on improving prospects. Besides, it plans to file 10-12 products in the US in FY22," said Anand Rathi which believes the stock is available at attractive valuations of 19.3x/16.3x FY22e/23e earnings.
The brokerage upgraded the stock to buy, with a higher target of Rs 1,980 (earlier Rs 1,614).
"Bajaj's all-round Q2 performance was driven by a strong comeback in the consumer products (to continue), healthy margins (may not sustain) and continued debt reduction (at Rs 560 crore, to reduce further). Considering management’s focus on growth/margins in CPs, tightening WC leading to FCF and shrinking debt in EPC, we expect healthy liquidity and significant interest-cost savings in coming years. Thus, we are positive on Bajaj and upgrade the stock to buy with a target of Rs 637, earlier Rs 462," Anand Rathi said.
Dolat Capital increased revenue/ EBITDA/ APAT estimate by 11.1/12.6/30.2 percent for FY21 considering H1FY21 results. However, the brokerage broadly maintained FY22 estimates and introduced FY23. JKLC has announced 2.5 mtpa including 1.5 mtpa clinker (to be commissioned in Q3FY24E) greenfield expansion with a capex of Rs 1,400 crore to be done at its subsidiary UCWL to capture growth in demand.
"Considering, strong performance on volume front in Q2FY21 and strong guidance given by management for FY21E, we upgrade to buy with a revised SOTP of Rs 393.
"We expect the company to witness a gradual improvement in revenues mainly led by improved deal wins, traction in digital and CLX revenues. Hence, we revise our revenues, EPS estimates & target price upwards. This coupled with reasonable valuation, healthy balance sheet & the company’s aspiration to reach industry level growth prompt us upgrade stock from hold to buy rating with a revised target price of Rs 830," said ICICI Direct.
"Driven by 21/16/14 percent YoY growth in industrials, agriculture and large engine, Kirloskar Oil Engines’ Q2 FY21 Rs 660 crore revenue was better-than-expected (Anand Rathi estimates: Rs 570 crore). Power generation revenue fell 23 percent YoY, mainly due to lower MHP sales. Other segments in PG have started seeing traction and the overall PG business was 80 percent of last year's levels. The company expects the situation for PG to improve gradually. Exports were up 8 percent YoY aided by fire-fighting equipment. With likely improvement in the PG business and healthy traction in the other segments, we upgrade rating to a buy, with a higher target of Rs 130 (12x FY22e), earlier Rs 124," said Anand Rathi.
"We expect normalcy to resume in the next 6 months as escapism will become even more relevant post-COVID. We upgrade the stock to a buy (accumulate earlier) with a revised target of Rs 1,447 (Rs 1,435 earlier). Our EBITDA estimates are broadly unchanged (increase of 2.5 percent/2.0 percent for FY22/FY23 respectively) while target EV/EBITDA multiple is also intact at 12x and our upgrade is primarily driven by the recent correction in stock price which provides an attractive entry point," said Prabhudas Lilladher.
"TRCL surprised in Q2 with realization improvement. Strong Q2 earnings and improvement in market-mix and trade sales lead to a further upgrade of 16 percent in EBITDA estimates for FY21-23. We upgrade the stock to Buy with a target of Rs 1,015," said Emkay Global.
Sharekhan upgraded recommendation on Sun Pharmaceutical Industries from hold to buy with a revised target of Rs 612.
"Q2 performance was strong with revenue and earnings beating estimates. Management expects domestic formulations business to improve further led by new launches and a gradual improvement in the acute therapies, while the chronic segment is likely to grow strongly. Pick up in the specialty business and sturdy new product pipeline would enable US business growth. Improved growth prospects, healthy balance sheet, and improving return ratios would be key positives," said the brokerage.
Sharekhan upgraded Triveni Turbine (TT) to buy with a revised target of Rs 85, considering the improving business environment and valuation comfort.
"Operationally strong quarter due to favourable raw-material cost and cost rationalization along with lower tax, leading to a lower decline of PAT. Order inflow improved 22 percent QoQ with stable order book YoY. Balance sheet remains strong with strong cash position and current order book remaining healthy at 0.9x its TTM consolidated revenue. Order enquiry pipeline remains healthy both in domestic & export market," said the brokerage.
"KEI is increasing its focus on retail. Distribution expansion will propel growth in the retail segment. It is also pursuing the EHV cable business where there is limited competition. We like KEI in the cable and wire space and upgrade our rating to buy with a target of Rs 440, valuing the stock at 12x Sep 22E," said Dolat Capital
"Prudent management, lower restructuring pipeline and improving collection efficiency bode well for a high margin/ RoA generating bank. Provision buffer at 2.8 percent of advances provides comfort. Focus on expanding in housing segment to reduce balance sheet risk while improving business parameters will aid earnings profile and return ratios to return to >3 percent RoA and >20 percent RoE," said ICICI Direct which maintaind target price to Rs 400 per share and upgraded from hold to buy as stock price moderated from highs and valuations look reasonable now.
"The company is fully focused on reducing consolidated debt to below Rs 15,000 crore before embarking on any capex plans (Net debt EBITDA to be at 2.1x FY23). We roll forward to FY23, arriving at our fair value of Rs 260 per share (versus Rs 220 earlier) and upgrade rating to buy (from hold earlier). pick up in construction activity in 2H leading to higher long product prices and resumption of old iron ore stock dispatch from Sarada mines remain near term triggers for the name," said JM Financial.
"Q2 results were lower than I-direct estimates on margin and profitability front. Revenues were in line with I-direct estimates. Despite pandemic and high base, the company has guided 15-20 percent growth based on strong order book position (albeit some expected delays)," said ICICI Direct.
"Regarding the optically high capex plan of Rs 600 crore for modernisation and technology upgradation, we believe this has to do with the need to cater 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," the brokerage added.
Security & Intelligence Services
"Even as the business run rate and balance sheet/liquidity position are now better versus pre-COVID and some investor concerns (e.g. debt appetite) are addressed, the stock is still languishing around 40 percent below pre-COVID level, trading at 16x FY23E EPS. We expect the fundamental improvement to be a key and quick value driver, going ahead. We upgrade the stock to buy (from hold) with a revised target price of Rs 450," ICICI Direct said.
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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
