Companies have reported strong earnings so far in the March quarter, in line with analyst expectations, as demand recovery and the low base last year sustained the momentum of Q3 results, but now many firms are being downgraded.
Downgrades have outweighed upgrades, reversing the positive trend of the previous two quarters largely because rising COVID-19 infections prompted many states to impose lockdown-like restrictions. Also, higher commodity prices eroded the margins of some companies in Q4FY21.
"The Q4FY21 earnings season has maintained the momentum of the Q3FY21 results season. It has been another strong quarter, aided by the deflated base of Q4FY20 and healthy demand recovery for the large part of Q4FY21 - as attested by high-frequency indicators," Siddhartha Khemka, Head - Retail Research at Motilal Oswal Financial Services told Moneycontrol.
Key drivers of the Q4, FY21 performance were metals, private banks & NBFCs, and Technology stocks.
"In metals, as expected, Tata Steel reported strong margins in India steel operations. In private banks and NBFCs, the healthy performance was attributable to moderation in slippages and improved disbursements/collection efficiency. However, managements sounded cautious about collection efficiencies/asset quality ahead. In IT - It has continued to post strong performance, with robust deal wins and orderbook," Khemka said.
Analysts largely expect the second wave of the pandemic to have an impact in Q1 FY22, but if the cases keep falling, like in the past few days, it would encourage states to ease restrictions and help earnings and markets bounce back in the coming quarters.
Recent data shows that the COVID-19 infections curve has been moving southwards from last week, with daily cases falling below 3 lakh for the first time since April 20, 2021, which has supported the market in last few days.
The BSE Sensex and Nifty50 again started moving towards crucial 50,000 and 15,000 marks, rising more than 3 percent and 6 percent in the year 2021 so far.
"Aggressive lockdown, vaccinations and drop in numbers supported by recovery of growth should revive the markets in one or two quarters," said Santosh Joseph of Germinate Investor Services LLP. He said it is better to focus on individual portfolios and use this opportunity to streamline or rejig the portfolio.
Here are 14 stocks that were upgraded to ‘buy’ rating after quarterly earnings:
"We roll forward to FY23 estimates and upgraded GOAGRO to buy (from accumulate) with SoTP-based target price of Rs 639 (previous 587). The company reported better-than-expected results, driven by higher-than-anticipated margins in Animal Feed and Crop protection segment. We expect decent improvement in volumes & profitability for animal feed, palm oil and crop protection segment driven by 1) cost reduction initiatives and 2) better pricing leading to +30 percent growth in blended EBITDA for FY22, thereby limiting the COVID impact on GOAGRO's out of home consumption products," said Prabhudas Lilladher.
"Fourth quarter of FY21 turned out to be a particularly good quarter for UltraTech with greater demand coming from rural and semi-urban regions, demand in northern region coming with government spending on infrastructure projects, demand in southern parts coming from irrigation projects. Moreover, the company is operating at its full capacity in the East and Central regions. UltraTech being a pan India player remained relatively unscathed from COVID-19 fallout. Rather its pan India presence helped the company to maintain as well as increase its market share by not losing a single customer during these uncertain periods," said KR Choksey.
The brokerage is bullish on UltraTech and has upwardly revised FY22 estimates and introduced FY23 estimates. "We remain positive on the future potential of UltraTech and upgrade rating to buy from accumulate earlier, with a revised target price of Rs 7,415 per share."
"CreditAccess Grameen's gross loan portfolio grew 13 percent YoY, supported by 15 percent growth in standalone entity and 7 percent growth in its subsidiary Madura microfinance. Disbursement for the quarter grew at 42 percent YoY and 3 percent QoQ. Gradual pickup in collection is seen during the quarter, however, a decline on the same is expected in the coming quarter due to lockdown impact," said Geojit Financial Services which upgraded rating to ‘buy’ with a revised downward target price of Rs 767.
"The management has guided for loan growth of around 15-16 percent and also expects recoveries to increase from Q2 onwards. We believe with around 95 percent of secured nature of book and ability to use SARFAESI now higher quantum of recoveries is possible. In turn, this may aid asset quality improvement," said ICICI Direct.
"Near-term uncertainty due to partial lockdowns and early indicators like a drop in collection point towards rising stress. However, we believe low valuations factor in some of the risks and limit downside. Thus, we upgrade our rating from hold to buy with a revised target price of Rs 110 (Rs 130 earlier)," the brokerage added.
"We are increasing FY22 and FY23 EPS by 5.3 percent and 7.6 percent respectively and upgrade rating from hold to buy given that the structural growth drivers are getting better led by 1) Market share gains from both organized and unorganized players 2) strong innovation in Paints and coatings 3) growing usage of Putty and waterproofing led by painter/consumer awareness and inferior construction quality 4) huge growth prospects in small towns and rural India, and 5) endeavour to emerge as a complete home-solution company," said Prabhudas Lilladher, which upgraded rating to ‘buy’ from ‘hold’ with DCF based target price of Rs 3,166 (Rs 2,829 earlier).
"KEC International reported around 19 percent YoY sales growth and a PAT of Rs 194 crore - both in line with estimates. Railways and Civil segments continued to deliver strong sales growth. EBITDAM at 8.1 percent was impacted by Brazilian operations of SAE Towers and commodity price inflation. For FY21, EBITDAM stood at 8.7 percent versus 10.3 percent in FY20. SAE Towers made an EBITDA loss of around Rs 125 crore, denting overall margins by around 100bps," said Emkay Global.
"Order inflow during the year grew 5 percent to Rs 11,800 crore. Order book stood at Rs 19,100 crore, with additional L1 orders of over Rs 6,000 crore. Non-T&D orders form 38 percent of the order book," said the brokerage which assumed coverage on KEC and upgraded it to a ‘buy’ from ‘sell’, with a March FY22 target of Rs 460.
"Improving deal wins in IGCB, IGTB and iSEEC, increased penetration in the US & Europe market, digital-ready product portfolio, healthy pipeline, huge addressable & underpenetrated market and improved annuity revenues bode well for revenue growth. In addition, healthy margins prompt us to revise our EPS estimates upwards by around 10 percent and around 13 percent for FY22E & FY23E, respectively. This, coupled with improving cash flows, prompts us to upgrade the stock from ‘hold’ to ‘buy’ with a revised target price of Rs 875 (earlier target price Rs 640)," said ICICI Direct.
"Led by pick-up in industrial activity domestically and in exports, Grindwell Norton posted 42 percent YoY revenue growth in Q4 FY21. Both segments grew: abrasives (up 38 percent YoY) and ceramics & plastics (up 57 percent YoY). The EBITDA margin continued to see sequential improvement to 22.5 percent, led by higher utilisation, tight cost controls, a favourable product mix and periodic price hikes," said Anand Rathi.
The brokerage believes the company's focus on exports by penetrating new regions and innovative products to cater to new industries with an increasing number of applications are likely to drive growth. Based on better demand outlook (domestic and exports) and sustained margins at higher levels, Anand Rathi raised target multiple to 40x, thereby arriving at a target of Rs 1,350, and upgraded the stock to ‘buy’.
"HDFC's asset quality remains stable with gross stage 3 assets stood at 2.34 percent versus 2.28 percent QoQ (versus 2.28 percent YoY) better transit over COVID-19 impact. Also, restructured assets stood at 0.8 percent (lower than 0.9 percent Q3FY21) of AUM which majorly comprises of one large real estate builder group (0.5 percent of AUM). PAT grew by 42 percent YoY (up 9 percent QoQ) led by lower ECL provisions (down 44 percent YoY). NII grew by 14 percent YoY led by improvement in margins," said IDBI Capital.
"Collection efficiency for individual loans for March month stood at 98 percent versus 97.6 percent for December month. Disbursements for individual loan segment grew by 60 percent YoY reflects housing demand remains robust. March 2021 witnessed the highest ever levels in terms of receipts, approvals and disbursements," said the brokerage which upgraded ‘buy’ rating with a new target at Rs 2,950 (earlier Rs 2,825).
"We like the improvement in margins, diversified channel and distribution mix coupled with likely improvement in productivity and higher demand. This augurs well for healthy momentum and profitability. We, hence, increase the valuation multiple. We believe the risk reward trade-off is positive yet," said KR Choksey which upgraded the rating of SBI Life Insurance to a ‘buy’, with a target of Rs 1,200 per share.
"The company is witnessing a healthy deal pipeline and growing deal sizes, which will help improve revenue growth, going forward. In addition, ramp up in BFS & Insurance, revival in travel segment, traction in healthcare and strategic acquisition of SLK global will help drive long term revenues. This, coupled with improving margins, prompt us to have a positive view on the stock from a long-term perspective," said ICICI Direct which upgraded the stock from ‘hold’ to ‘buy’, revising the price of Rs 3,985 from Rs 3,300.
"IndusInd Bank's NII grew 9.4 percent YoY as NIM was up 31bps YoY to 5.14 percent. Core fee income also improved 8.4 percent YoY. Loan book expanded 2.6 percent QoQ to Rs 2,12,595 crore, whereas deposits climbed 7.1 percent QoQ to Rs 2,56,205 crore. Gross NPA and net NPA jumped to 2.67 percent and 0.69 percent (versus 1.74 percent and 0.22 percent in Q3FY21) due to higher amount of restructured advances," said Geojit Financial Services.
"NRI and affluent banking, tractor financing have acted as growth catalysts for this fiscal. The bank’s yield margins are expected to improve due to exposure to relatively risky assets. However, the overall asset quality stress is well in-line with the risk-return expectations of the investors," said the brokerage which upgraded rating to ‘buy’ with a revised target price of Rs 1,072.
"LTI's ability to deliver end-to-end solutions right from cloud migration, core modernisation, data analytics and customer experience have enabled it to register industry leading growth. In addition, with the company's ability to win large deals, presence in niche verticals, effectively mine clients, adding Fortune 500 clients, and digital prowess bode well for long term revenue growth. This, coupled with healthy margins and recent correction in the stock prompt us to upgrade the stock from ‘hold’ to ‘buy’, with a target price of Rs 4,580," said ICICI Direct.
Emkay Global upgraded SCUF to ‘buy’ from ‘hold’ as the Q4FY21 performance justifies that its struggle for liquidity is finally over.
"Diversification in the lending profile (SME, PL, 2W, gold loans, Housing and LAP) and improving asset quality profile indicate likely earnings surprises in future," said the brokerage which raise earnings estimates and adjusted book value (adjusting for slippage estimates) for FY23 by 11.8 percent and 16.3 percent, respectively, and introduced FY24 estimates.
"Accordingly, we increase target to Rs 1,950 (Rs 1,165 earlier), and upgrade to buy on favorable risk-reward," the brokerage said.
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