Short Call | Old habits die hard , Azad Engg bulls have a free hit, Trent on record-breaking spree, Kalpataru, Ashok Buildcon in focus

The regulator’s warnings notwithstanding, normalcy should return from next week

“A lot of people when they get negative on the market put 50 percent in cash, but unfortunately a lot of times that’s just about when the market's about to rally.” - Peter Lynch

The carnage in small and mid-cap shares may have soured the mood on Dalal Street, but people are not giving up hope yet. Understandable, considering that for a long time, the buy-on-dips strategy has worked like a charm. Some fund managers like Kotak Mahindra’s Harsha Upadhyay feel that the market momentum is broken for the time being despite the overall macro and corporate earnings picture being quite robust.

The popular view right now is that the regulator’s warnings notwithstanding, normalcy should return from next week now that advance tax payments—a major source of liquidity drain—has been done with. The other narrative is that the market has overreacted to the Tibrewala episode, and that rising stock prices will make people forget about it.

Sceptics point out that FIIs have not been rushing to buy, and for some reason if more local players decide to wait it out some more time, the correction could go on for longer.

Kalpataru Projects (Rs 1024, +3%)

The company said it has won Rs 2,445 crore worth of orders. Out of this, Rs 2,366 crore worth of orders have been bagged by its transmission and distribution (T&D) business.

Bull argument: This comes on the heels of the company winning an EPC order from Saudi Aramco. Domestic institutions have been steadily increasing exposure to the stock 11 quarters in a row. Foray into the new underground tunnelling segment and emerging opportunities related to construction for data centres, airports, and industrial plants will provide further growth triggers, says Sharekhan.

Bear argument: Gross borrowings still on the higher side. Stock reasonably valued after doubling over the last 10 months. Upsides, if any could be gradual.

Ashoka Buildcon (Rs 163.15, 11.75%)

Shares jumped after the company entered into a share purchase agreement to buy 50 percent stake in GVR Ashoka Chennai ORR (CORR).

Bull argument: Conclusion of asset monetisation expected to reduce debt currently around Rs 7,200 crore, says IDBI Capital. Operating margins

stabilising and H1FY24 order book of Rs 14,800 crore equals to two times the expected FY24 revenue, IDBI Capital says.

Bear argument: The company has cancelled old orders worth Rs 22 billion during the year. EBITDA margins were down sequentially and the company expects the margin to remain subdued for this quarter and the next.

Azad Engineering (Rs 1223, +0.33%)

The company inked a Rs 290-crore contract with GE Vernova for supplying rotating airfoils.

Bull argument: Earlier this week, Azad Engineering signed a long-term agreement with Baker Hughes. The company is backed by Sachin Tendulkar, PV Sindhu, Saina Nehwal and VVS Laxman. Gross debt has reduced  to Rs 30 crore as of February 6, 2024, from Rs 325 crore in September 2023.

Bear argument: For a company with annual sales of barely Rs 300 crore, the market cap is around Rs 7,200 crore. Gross debt almost the same as annual sales. Trailing twelve month PE multiple is 849. A low equity base could have a lot to do with the spectacular run up in stock price.

Trent (Rs 4,076, 3.5%)

The stock continues to hit record highs.

Bull argument: The company has managed to show strong growth in both topline and bottomline for three quarters in a row despite the general slowdown in consumer businesses. Well capitalised balance sheet, efficient working capital management.

Bear argument: Sky-high valuations of 179 times trailing 12-month earnings. Unless the company is able to maintain its pace of scorching growth, big upsides look unlikely.

With contributions from Ananthu, Yash and Anishaa