Domestic stock markets have remained volatile so far this week. Barring Monday, the BSE Sensex has ended in the negative terrain following their global counterparts as investors remained cautious after the Manchester terror attack, Moody’s China downgrading and release of US Fed minutes. The BSE Sensex has opened on Thursday on a strong note. At 9.59 am on Thursday, Sensex was trading 125.12 points up at 30,426.76, while NSE Nifty was trading 40.25 points up at 9,400.80. As the results season is underway, the markets are also eyeing the companies’ earnings for further cues. Some of the prominent companies that have announced their fourth-quarter earnings so far include Gail, Tata Motors, State Bank of India (SBI), Bank of India, Hindustan Lever (HUL), JSW Steel, Dish TV and Bajaj Auto.
Jimeet Modi, CEO, SAMCO securities said on corporate earnings vis-a-vis stock markets,” PSU banks had reported mild profits after previous year of heavy write-offs but in some cases the asset quality had further deteriorated during the quarter but the stock prices have still defied the gravity. Many of the PSU banking shares have doubled in just four months, such price actions are totally divergent from the underlying fundamentals. Therefore a serious correction is overdue in the market in order to correct such anomaly erupting in many pockets of stocks. Even good numbers too are very well known and discounted in the market.”
The Indian markets’ performance so far has been strong. On the year-to-date basis, Sensex has risen 13.9 per cent. It had settled at 26,595.45 on Jan 2, 2017, while on May 24, 2017 it closed at 30,301.64.
We take a look at numbers of 5 top companies and what the brokerage house recommend about their stocks
Tata Motors posted a 16.79 per cent decline in the March quarter net at Rs 4,336.43 crore on slowdown in the domestic business, terming 2016-17 as a year of “homemade misses”, and promised to work on execution. The Tata group company also posted a 35 per cent drop in 2016-17 post tax profit at Rs 7,454 crore at a consolidated level. Total revenues moved up to Rs 15,206 crore in the fourth quarter from the year-ago’s Rs 14,258 crore on a standalone basis. The company’s stocks on Wednesday jumped over 4 per cent adding Rs 5,587 crore to its market valuation driven by robust performance of its British subsidiary Jaguar Land Rover (JLR). Most of the brokerage house after the results have given Buy rating on the stock post its Q4 results
Brokerage House: Kotak Securities
Target Price(TP): Rs 539
Tata Motors fourth quarter results was better than our and street expectation. Standalone business continued to report losses, on expected lines. JLR’s performance improved QoQ and was better than expected. While results were lower YoY, there was a substantial improvement over 3QFY17. Despite growth in volumes, we expect the standalone business to continue to report losses in FY18/FY19 – though the quantum of loss is expected to come down. On the back of healthy demand across key geographies and new products, JLR’s volume growth outlook remains
GAIL India posted 69 per cent drop in fourth-quarter net profit as it wrote down the value of its investment in Dabhol power plant. The net profit for the January-March quarter of the last fiscal was Rs 260.16 crore, or Rs 1.54 per share, as compared to Rs 832.13 crore, or Rs 4.92 a share, net earnings in the same period a year before. The company’s turnover was up 16 per cent at Rs 13,644 crore.
Brokerage House: Edelweiss
Target Price: Rs 380
GAIL posted subdued Q4FY17 numbers with EBITDA at INR15bn (down 10% QoQ) coming 14% below estimate. The earnings miss was driven by one-off factors—supply disruption in spot LNG driving a temporary spurt in spot LNG price resulting in lower transmission volumes and higher feedstock cost for petchem. GAIL is confident of successfully placing upcoming US LNG (starting March 2018). Of 5.8MMT US LNG, the company has already contracted supply of 1.5MMT (~1MMT via time swaps, 0.5MMT deal with Shell) and will additionally replace 3.5MMT of current spot LNG supply with US LNG. The brokerage house expects GAIL’s fortunes to revive led by: 1) turnaround in petchem business on benign LNG cost and full utilisation of expanded capacity; 2) cyclical revival in LPG earnings on oil recovery & lower feedstock costs; and 3) strong prospects in transmission. We forecast 23% EPS CAGR over FY17-19 and maintain ‘BUY/SO’ with TP of INR430. The stock currently trades at 13x FY19E EPS and 1.4x FY19E BV.
BANK OF INDIA
Bank of India (BoI) narrowed its losses to Rs 1,046 crore in the quarter ended March 31 from Rs 3,587 crore in the year-ago period, helped by a reduction in provisions for bad loans, better recoveries, and healthy interest income. For the full year ((FY17), the bank had posted a net loss of Rs 1,558 crore as against a net loss of Rs 6,089 crore in the fiscal ended March 31, 2015. The bank’s asset quality worsened with gross non-performing assets (NPA) at 13.22 per cent as against 13.07 per cent last year. Net NPAs, however, improved to 6.90 per cent from 7.79 per cent.
Brokerage House: Sharekhan
Target price: Rs 176
The brokerage house said the bank has been struggling with its fragile asset quality and tepid credit off-take. Notwithstanding its pan-India network and corporate clients, we believe that it needs to do more to have a better grip on its asset quality. BoI will need to reduce the pace of its slippages to be able to take benefit from the ongoing economic revival.
Lupin posted a 49.61 per cent fall in consolidated net profit to Rs 380.21 crore for the fourth quarter ended March as compared to a net profit of Rs 747.88 crore in the corresponding quarter of previous fiscal. The net profit fell following an increase in expenses and impact of foreign exchange fluctuation. The consolidated total revenue from operations stood at Rs 4,253.30 crore for the quarter under consideration as against Rs 4,197.42 crore for the same period year ago. Net profit for the fiscal year ended March this year stood at Rs 2,557.46 crore.
Brokerage House: Edelweiss
Target price: 1,220
The brokerage house said that it expects US business growth to remain disappointing during FY18/19. This will lead to 4% EPS CAGR over FY17-19E and RoCE to dip from peak of 40% in FY15 to 15.7% in FY19E due to inorganic initiatives and higher capex. We have revised down FY18/19E EPS 20%/14% to incorporate weaker-than-expected US business.
Direct-to-home operator DishTV reported a consolidated net loss of Rs 28.33 crore for the fourth quarter ended March 31 as against net profit of Rs 482.77 crore in January-March a year ago. Total income from operations was down 12.44 per cent at Rs 718.98 crore during the quarter under review as compared to Rs 821.15 crore in the corresponding quarter a year ago.
Brokerage house: Edelweiss
Target price: 91
Dish TV’s Q4FY17 sales and EBITDA came below the brokerage house expectations due to lower net additions and fall in ARPU. Key positives were: (i) Videocon d2h’s merger is on track & expected to be completed by October; and (ii) churn was stable at 0.9%. Key negatives were: (i) ARPU fell to INR135 QoQ from INR152 as HD customers opted for SD packs due to demonetisation (we believe this will continue in H1FY18); and (ii) lower additions of 0.165mn versus 0.23mn estimate due to demonetisation impact. We expect ARPU to remain under pressure in FY18 (estimate 2% YoY increase) due to the addition of lower ARPU consumers and net additions will also be tepid (estimate 1.1mn) due to higher competition from Freedish. However, we perceive tariff order implementation, GST and Videocon d2h merger as potent catalysts.
Disclaimer: The recommendation on the stocks are from brokerage houses and not a recommendation from Financial Express online.