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Last Updated : May 20, 2020 02:11 PM IST | Source: Moneycontrol.com

Potential earnings cut for FY21: 10 stocks where brokerages have cut target post Q4

The Nifty50 has fallen by about 10 percent so far in April, partly weighed down by dismal results from India Inc. in March quarter and muted management commentary.

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The Nifty50 has fallen by about 10 percent so far in May, partly weighed down by dismal results from India Inc. in March quarter and muted management commentary for the rest of the financial year.

Most analysts expect Nifty to remain range-bound in 8000-9900 band based on the analysis of potential earnings cuts for FY21 and FY22.

“Earnings continue to remain under pressure and our analysts have cut earnings estimates; Autos by 23-108% (ex-TTMT); Financials by 9-70%; IT Services by 8-20%; Consumer Staples by about 4-5%; and Energy by 10-30% for FY21 and an average 10% cut for FY22,” Amit Shah - Head of India Equity Research - BNP Paribas told Moneycontrol.


“We observe, however, the street has been behind the curve in terms of earnings cut, and that can further weigh on the market in the near term,” he said.

Shah expects the market to be range-bound in the near term with some downside risk in the range of 8000-9900. "Having said that, we think the worst is behind us and we do not see the market testing the March 2020 lows," he added.

We have collated a list of stocks from various brokerage houses and analysts which have slashed their target price on stocks post Q4 results:

Nippon Life India AMC: CLSA cuts target to Rs 300

CLSA maintained its buy rating on Nippon AMC but slashed its target price from Rs 380 to Rs 300 earlier. The company posted a sharp drop of 97.6 percent in its net profit at Rs 3.72 crore.

The global investment bank is of the view that volatility will remain which could impact the ability to regain market share. The asset under management (AUM) is down 12 percent led by weak performance in debt, liquid & equity funds.

Volatile markets in March reversed the market share gains. CLSA slashed its FY21/22 earnings by 16 percent but expect 16 percent AUM CAGR over FY20-22.

AU Small Finance Bank: Morgan Stanley cuts target to Rs 2155

Morgan Stanley maintained its overweight rating on AU Small Finance Bank post-March quarter results but slashed its 12-month target price to Rs 2155 from Rs 2270 earlier.

The near-term challenges outweigh long-term opportunities, said the note. The company trades at a significant premium to peer small finance banks and private sector banks like ICICI Bank. The company has few levers in terms of capital raise/stake sale in Aavas.

Cummins: Jefferies cuts target to Rs 320

Jefferies downgrades the stock to underperform from Hold post-March quarter results, and also slashed its target price to Rs 320 from Rs 435 earlier. The company reported about a 30 percent drop in net profit in Q4.

The international brokerage firm is of the view that exports could further drop post the FY20 decline. Excess supply and weak domestic demand would imply price competition. Further de-rating is on the cards as medium-term roe drops below 15 percent.

ICICI Prudential Life: Credit Suisse cuts target to Rs 440

Credit Suisse maintained its outperform rating on ICICI Prudential Life post March quarter results but slashed its target price to Rs 440 from Rs 525 earlier. Private life insurer ICICI Prudential Life Insurance posted a 31.5 percent year-on-year decline in its March quarter (Q4) consolidated net profit at Rs 178.73 crore due to a drop in net investment income and provisions.

However, the company posted a 21 percent YoY growth in the value of the new business (VNB) to Rs 1,605 crore in FY20.

Credit Suisse slashes FY21/22 EPS estimates by 20 percent. The VNB/EV Estimates were also cut by 12%/5%. The stock trades at 1.7x FWD EV.

Biocon: Motilal Oswal cuts target to Rs 305

Motilal Oswal maintained its neutral rating on Biocon post-March quarter results but slashes its target price to Rs 305 from Rs 320 earlier.

Biocon’s 4QFY20 results were considerably affected due to subdued performance of the Biologics segment owing to the COVID-19 pandemic.

Nevertheless, the company remains confident of achieving its target of USD1b sales by FY22 (from USD270m in FY20), led by new launches and increased market share in existing products.

L&T Technology Services: Edelweiss cuts target to Rs 1394

Edelweiss Securities Ltd maintained its buy rating on L&T Technology Services post-March quarter results but slashed its 12-month target price to Rs 1394 from Rs 1885 earlier.

L&T Technology Services (LTTS) reported a USD revenue decline of 2 percent on a QoQ basis in Q4FY20. The management refrained from guiding for FY21 but mentioned they expect revenue to slide in Q1FY21 and the recovery to take place thereafter.

“While we remain bullish on the long-term prospects of the fast-growing ER&D and believe LTTS is in a pole position to benefit thereof, the near-term pain from COVID-19 forces our hand to cut LTTS’s EPS by 15% each for FY21E and FY22E,” said the note.

LTTS had just started recovering from its worst phase in Telecom & HiTech, but COVID-19 and the crash in oil prices, respectively, have once again derailed the process, and that is a cause for worry.

M&M Financial Services: Investec cuts target price to Rs 230

Investec Bank maintained its buy rating on M&M Financial Services post-March quarter results but slashed its target price to Rs 230 from Rs 400 earlier.

“We believe MMFS does not face a dilution risk as it is well capitalised (Tier-1 @ 15.4%) and has strong operating profitability (5% to assets). It does not face liquidity challenges and should be a beneficiary of reduced competitive intensity,” said the note.

MMFS is trading at 5x times its normalised EPS (FY22E). “Given this construct, we retain BUY on the stock while highlighting that it is cyclical and near terms, earnings are likely to remain depressed,” said the note.

CDSL: ICICI Securities cuts target to Rs 260

ICICI Securities maintained its buy rating on CDSL post March quarter results but slashed its 12-month target price to Rs 260 from Rs 275 earlier.

CDSL is a balanced play on market growth with non-market linked revenues providing steady earnings with total cash of Rs7.2bn and free cash of Rs4.4bn lending business stability.

The near-term challenges include weak outlook on market-linked revenues and rising cost profile, which offset an otherwise healthy FY20 revenue performance. “We expect revenue/PAT to witness CAGRs of 2.3%/0.6% between FY20-FY22E. Growth is expected to be lower due to decline in market-linked revenues in FY21E,” said the note.

Factoring-in the lower earnings growth, lost opportunity in growth drivers like NAD being transferred to Digilocker and SEBI allowing eight other entities to undertake E-KYC using Aadhar, ICICI Securities slashed its forward core multiple EPS from 30x to 25x.

Zensar Technologies: Investec cuts target price to Rs 140

Investec Bank upgraded Zensar Technologies to buy post-March quarter results but slashed its target price to Rs 140 from Rs 180 earlier.

Zensar reported a revenue decline of c.1.9 percent on a QoQ basis in USD terms in Q4FY20 after a 6 percent sequential decline in Q3FY20. Q1FY21E is also likely to see a decline due to Covid-19 led demand issues.

“We model in 11% revenue decline in USD terms in FY21E followed by a 9% growth in FY22E. We cut our FY21E/FY22E EPS estimates by 10%/32%. The stock currently trades below its FY20 book value of Rs92,” said the note.

“The management sees no risk of impairment to goodwill and hence we believe potential downsides on the stock are low,” it said.

Maruti Suzuki India Ltd: Edelweiss cuts target to Rs 5136

Edelweiss Securities maintained its hold rating on Maruti Suzuki post March quarter results but slashed its 12-month target price to Rs 5136 from Rs 5208 earlier.

Maruti Suzuki (MSIL) reported 8 percent higher-than-expected adjusted Q4FY20 EBITDA of INR16.7bn (down 26% YoY) due to gross margin improvement.

Going ahead, we believe the performance will be driven by i) availability of finance; ii) pricing discipline (retention of commodity benefits, lower discounts); iii) cost control, and iv) demand revival (low probability).

“We are cutting FY21/22E core EPS by 50%/26% to factor in weak demand, but raising the target multiple from 25x to 27.5x, as sharp earnings cut cycle is now largely behind,” said the note.

Incrementally earnings would be more sensitive to pricing discipline rather than a volume decline, it said. While MSIL’s franchise remains undisputed, an unexciting product cycle could weigh on market share/margins.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on May 20, 2020 02:11 pm