Experts feel companies could post double-digit earnings growth soon because the corporate investment cycle has started and the risk appetite is improving and GDP growth outlook is strong
The fourth quarter corporate earning season is just around the corner and that will be one major trigger for the market in the short term, aside of the general elections. The Q4FY19 earnings are expected to be a repeat of Q3 with financials driving the performance.
Experts feel companies could post double-digit earnings growth soon because the corporate investment cycle has started and the risk appetite is improving and GDP growth outlook is strong. Low base effect is expected to aid growth numbers further.
“We expect Nifty50 earnings to grow by a CAGR of 19% for the next three years (FY18-21E). Based on forward PE of 17-18x, we get the one year forward Nifty50 range of 12,500-13,000,” Rusmik Oza, Head of Fundamental Research, Kotak Securities told Moneycontrol.
“Between the three year period of FY19-21E the maximum growth in earnings is likely to come in FY20 because of lower base and steep jump in earnings of banking & finance sector, which accounts for the maximum weight in the Nifty50,” he said.
Here is a list of top 10 stocks that could double their net profit on a year-on-year (YoY) basis in March quarter:
GE T&D | Rating: Neutral | Net Profit Growth: 117% YoY
Motilal Oswal expects GE T&D to register revenue growth of 32 percent on a YoY basis at Rs 1,070 crore in 4QFY19. The revenue growth will supported by the weak base of 4QFY18.
The brokerage firm expects the company's operating profit to be at Rs 100 crore in 4QFY19 as against Rs 17.9 crore in 4QFY18.
Operating margins are expected to improve 740 bps at normalised level to 9.6 percent. Margins in 4QFY18 (2.2 percent) were impacted by weak execution leading to operating deleverage.
Alkem Laboratories | Buy| Net Profit Growth: 166% YoY
Motilal Oswal expects the company to witness a strong revenue increase of 31 percent on a YoY basis led by strong growth in India and international business.
The domestic business is expected to grow 43 percent on a YoY basis to Rs 1,370 crore. The US business is expected to grow about 51 percent YoY led by new product launches.
Revenue from other international markets is expected to grow at a much lower rate of 17 percent YoY, offsetting growth to some extent.
Granules India | Buy| Net Profit Growth 234% YoY
Motilal Oswal expects more than 200 percent growth in net profit to Rs 57.5 crore on account of margin expansion and lower tax rate. Topline or net sales is likely to increase 29 percent to Rs 651.80 crore for the quarter ended March.
“We expect Granules India (GRAN) to post strong 29 percent YoY sales growth in 4QFY19 at Rs 650 crore on the back of enhanced traction in the formulation business and commercialization of its new API/PFI facility,” said the report.
The brokerage firm remained positive on Granules India as it is almost through with its capex cycle and the company is in the process to reap benefits on the back of increased revenue from US formulations, better capacity utilization which will further improve return ratios as well.
Strides Pharma | Buy| Net Profit Growth 505% YoY
Motilal Oswal expects the company to report more than 500 percent rise in net profit for the quarter ended March to Rs 63 crore. Sales are expected to rise 41 percent to Rs 938 crore in the same period on account of high growth expected in the US business.
“We expect US business to clock revenues of Rs 340 crore for the quarter compared to Rs 130 crore recorded in 4QFY18. Africa business is expected to grow 14 percent on a YoY basis,” said the report.
Motilal Oswal expects 290bps QoQ improvement in EBITDA margin at 15.9 percent due to better product mix with increased US business, thus driving operating leverage for Strides.
Allcargo Logistics | Buy| Net Profit growth 177% YoY
Motilal Oswal expects the company's net profit to grow nearly 200 percent to Rs 51 crore for the quarter ended March while the net sales are likely to rise 22 percent to Rs 1,881 crore in the same period.
Allcargo's Multimodal Transport Operations (MTO) has reported healthy margins in the past, and the P&E segment (Project & Engineering Solutions) is also likely to report a positive EBIT.
The brokerage firm estimates 14 percent EBITDA CAGR and 15 percent PAT CAGR over FY19-21 and expects return ratios to improve from ~9.5 percent in FY18 to 10.8 percent in FY21 driven by margin expansion.
Equitas Holdings | Buy| Net Profit Growth 109% YoY
Kotak Institutional Equities expects Equitas Holding to record over 100 percent growth in the net profit at Rs 35 crore for the quarter ended March while net interest income (NII) is likely to grow 43 percent to Rs 248.50 crore in the same period.
The investment bank expects AUM growth of ~40 percent on a YoY basis (similar to 3QFY19). The net interest margin (NIM) was stable on a QoQ basis at 9 percent.
Operating expenses are likely to be flat on a YoY basis resulting in improvement in cost-income ratio to 60 percent from 75 percent in 4QFY18.
“We expect impairment ratios to show further improvement with gross NPLs of less than 3 percent on the back of loan growth and normalized slippages trends. Commentary on the listing would be a key monitorable,” said the report.
Federal Bank | Buy| Net Profit Growth 135% YoY
Kotak Institutional Equities expects the bank's net profit to grow over 100 percent on a YoY basis to Rs 145 crore for the quarter ended March while the net interest income is likely to rise by 20 percent to Rs 933 crore in the same period.
Kotak expects the loan growth to be solid at 24 percent YoY aided by strong momentum in the retail business and SME business. The net interest margin (NIM) will show marginal improvement QoQ to 3.2 percent.
“We expect slippages at 2 percent of loans though we wait to see if there is further stress from Kerala floods. RoA progression closer to 1 percent by 4QFY19 would be a key monitorable,” said the report.
ICICI Bank | Buy| Net Profit Growth 179% YoY
Kotak Institutional Equities expects its net profit to grow nearly 200 percent on a YoY basis to Rs 1,020 crore for the quarter ended March while the net interest income is likely to rise 19 percent to Rs 6,021 crore in the same period.
Kotak Equities expects core earnings (base quarter had listing gains of ICICI Securities) trajectory to remain strong led by a recovery in loan growth (~15% YoY) and better NII growth (20% YoY) and a decline in credit costs.
Slippages will be sharply lower at less than 2 percent of loans and NIM will be stable QoQ at 3.4 percent.
“We expect a reduction in gross NPLs on the back of resolution as well as write-offs.'Watchlist' loans will decline QoQ and provision coverage ratio will improve QoQ,” it said.
Shriram Transport | Buy| Net Profit Growth 337% YoY
Kotak Institutional Equities expects the net profit to grow over 300 percent on a YoY basis to Rs 144 crore for the quarter ended March while the net interest income is likely to rise 9.5 percent to Rs 1,807 crore in the same period.
“We expect loan growth at 4 percent QoQ in 4QFY19 from 1 percent QoQ decline in 3QFY19 aided by improvement in the liquidity environment. However, the rise in marginal funding costs will put pressure on NIM,” said the report.
Coal India | Buy| Net Profit Growth 268% YoY
Kotak Institutional Equities expects the company's net profit to grow 268 percent on a YoY basis to Rs 1,294 crore for the quarter ended March while revenue is expected to fall 0.7 percent to Rs 25,108 crore in the same period.
“We expect over 2.9 percent YoY growth in volumes with dispatches of 163 million tons in 4QFY19. Blended realizations will remain flat at Rs 1,495/ton in 4QFY19E, the benefit of an increase in notified prices was there in 4QFY19 as well, and higher e-auction realizations are offset by the lower quantum of e-auction sales,” said the report.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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