Short Call | Profit party peters out in FY25; DMart, Sagility India in focus

Short Call

Even with a flashy 10 percent topline growth, listed firms have been partying hard with a 20 percent profit bump post-Covid and into FY24.However, 2025 and FY25 might stop the celebrations, with earnings likely to sputter out.

So what's dragging the sentiment? A mixed bag of worries: exports are still snoozing, the government isn’t splurging on capex, private players are sitting on their wallets, and households are pinching pennies amid weak income growth.

However, according to a report by Nuvama Institutional Equities, government spending, which would mean a pick-up in capex, could provide some near-term spurt. The real game-changer, though? A double whammy of credit flow and export revival to keep our growth engine humming.

"Demand is weak, cost efficiencies are already extracted, and policy is neutral/restrictive while valuations are elevated," the report added. So what needs to change? The markets need a strong wake up call, either in the form of stimulative policies or growth-focused strategies.

Avenue Supermarts (Rs 4,023, +11%)

Strong Q3 update: revenue up 17.5% YoY to Rs 15,565 crore

Bull case: DMart's revenue growth exceeding expectations, driven by store expansion and strong same-store sales growth, highlights its robust market position. Additionally, its shift towards private labels positions it well against increasing competition, with CLSA projecting significant upside potential for the stock.

Bear case: Despite positive revenue growth, concerns around competitive pressures from quick commerce and margin challenges could weigh on DMart's growth momentum. Macquarie's cautious stance reflects these headwinds, especially given the typically weaker performance in Q3.

Sagility India (Rs 52.82, 5%)

Axis Capital initiated coverage with 'buy' call, sees 20% upside

Bull Case: Sagility has made progress in diversifying its client base. The company’s focus on the healthcare vertical is supported by a large total addressable market (TAM) and a history of successful execution. Axis Capital emphasizes Sagility’s strong fundamentals, steady leadership, and differentiated positioning in the BPM sector as key factors underpinning its optimistic outlook.

Bear Case: Axis Capital identified high client concentration and the potential impact of generative AI in certain service areas as key risks.

(With inputs from Lovisha.)