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Top stocks recommended by CLSA after June quarter earnings

Updated : 2019-08-08 14:58:55

Shares of telecom and financial services companies were most preferred by domestic mutual funds and foreign portfolio investors during the quarter ended June 30, according to a CLSA report. Among financials, mutual funds favored banks, whereas FPIs picked non-banking financial companies, noted CLSA. The investors sold autos and staples amid consumption worries. Among large caps, domestic MFs are significantly underweighted on HDFC, Reliance Industries and ITC, while FPIs are significantly underweighted on Infosys, RIL and State Bank of India, according to the report. Here are the top stock ideas by CLSA following June quarter earnings:

HCL Technologies (Buy | TP: Rs 1,380): CLSA said the IT firm delivered a stellar revenue beat with organic growth accelerating above larger peers TCS, Infosys and Accenture. It is a unique large-cap IT firm that is winning share like its larger peers but trades cheaper than its underperforming midcap peers, it added. While CLSA increased US dollar revenue and Ebit estimates, a tax increase drives a 3 percent cut in its FY21-22 EPS. (Image: Company)
HCL Technologies (Buy | TP: Rs 1,380): CLSA said the IT firm delivered a stellar revenue beat with organic growth accelerating above larger peers TCS, Infosys and Accenture. It is a unique large-cap IT firm that is winning share like its larger peers but trades cheaper than its underperforming midcap peers, it added. While CLSA increased US dollar revenue and Ebit estimates, a tax increase drives a 3 percent cut in its FY21-22 EPS. (Image: Company)
Tata Steel (Sell | TP: RS 320): The brokerage said Tata’s Q1 consolidated Ebitda fell a sharp 26% YoY as weakening margins took a toll on financial performance. “Global steel prices remain under pressure CYTD and we believe hopes for any big rally are fading now, given easing iron ore prices and the unseasonal inventory build-up in China to a five-year high,” said CLSA. The brokerage cut FY20 earnings by 22 percent and lowered the target price from Rs 395 to Rs 320. (Image: Reuters)
Tata Steel (Sell | TP: RS 320): The brokerage said Tata’s Q1 consolidated Ebitda fell a sharp 26% YoY as weakening margins took a toll on financial performance. “Global steel prices remain under pressure CYTD and we believe hopes for any big rally are fading now, given easing iron ore prices and the unseasonal inventory build-up in China to a five-year high,” said CLSA. The brokerage cut FY20 earnings by 22 percent and lowered the target price from Rs 395 to Rs 320. (Image: Reuters)
Hindustan Petroleum (Sell | TP: Rs 210): HPCL’s Q1 profit after tax fell 53 percent YoY and 73 percent QoQ but came above our estimate due to lower-than-expected inventory loss and higher-than-modelled foreign exchange gains. A worrisome global refining demand-supply may limit gains in GRMs, noted CLSA. “HPCL has one of the largest shares of fuel oil in its production slate and this makes it vulnerable under IMO, which could lead to a collapse in fuel-oil spreads,” it said. Investors may prefer cheaper global peers to play higher diesel-fuel oil spreads under IMO, according to CLSA. (Photo: IANS)
Hindustan Petroleum (Sell | TP: Rs 210): HPCL’s Q1 profit after tax fell 53 percent YoY and 73 percent QoQ but came above our estimate due to lower-than-expected inventory loss and higher-than-modelled foreign exchange gains. A worrisome global refining demand-supply may limit gains in GRMs, noted CLSA. “HPCL has one of the largest shares of fuel oil in its production slate and this makes it vulnerable under IMO, which could lead to a collapse in fuel-oil spreads,” it said. Investors may prefer cheaper global peers to play higher diesel-fuel oil spreads under IMO, according to CLSA. (Photo: IANS)
Lemon Tree (Buy | TP: Rs 81): CLSA said a combination of airline industry challenges, elections liquidity crunch and an overall consumption slowdown led to weak ADR growth. “We cut our FY20/21 estimates by 27%/23%, as we build in Ind AS 116 impact; we also lower our ADR estimates.” The brokerage lowered the price target from Rs91 to Rs81. (Image: Company)
Lemon Tree (Buy | TP: Rs 81): CLSA said a combination of airline industry challenges, elections liquidity crunch and an overall consumption slowdown led to weak ADR growth. “We cut our FY20/21 estimates by 27%/23%, as we build in Ind AS 116 impact; we also lower our ADR estimates.” The brokerage lowered the price target from Rs91 to Rs81. (Image: Company)
Adani Ports (Buy | TP: Rs 510): The Adani group company solidified its leadership, with its overall 1Q volume up 19 percent versus major ports at 2 percent, according to CLSA. The conclusion of the group’s gas JV with Total and the start of LNG and LPG terminals at Mundra are key to improving visibility. ADSEZ committed to its lofty buy-back, which is key in sustaining its high ROE. “This strategic asset should deliver 16 percent growth in port Ebitda over FY19-21CL,” said CLSA. (Image: Company)
Adani Ports (Buy | TP: Rs 510): The Adani group company solidified its leadership, with its overall 1Q volume up 19 percent versus major ports at 2 percent, according to CLSA. The conclusion of the group’s gas JV with Total and the start of LNG and LPG terminals at Mundra are key to improving visibility. ADSEZ committed to its lofty buy-back, which is key in sustaining its high ROE. “This strategic asset should deliver 16 percent growth in port Ebitda over FY19-21CL,” said CLSA. (Image: Company)
Pidilite (Sell | TP: Rs 1,076): The company’s Q1 net profit grew by 22 percent YoY and gross margins expanded by 0.9 percent YoY as it benefited from lower input cost prices, said CLSA. Domestic volume grew by 6 percent YoY even as management highlighted the general slowdown in demand. “We raise our FY20/21CLestimates by 2 percent as we lift our margin estimates. We believe valuations at 57x FY20CL offer limited upside,” said CLSA. The brokerage increased the price target from Rs1,060 to Rs1,076.
Pidilite (Sell | TP: Rs 1,076): The company’s Q1 net profit grew by 22 percent YoY and gross margins expanded by 0.9 percent YoY as it benefited from lower input cost prices, said CLSA. Domestic volume grew by 6 percent YoY even as management highlighted the general slowdown in demand. “We raise our FY20/21CLestimates by 2 percent as we lift our margin estimates. We believe valuations at 57x FY20CL offer limited upside,” said CLSA. The brokerage increased the price target from Rs1,060 to Rs1,076.
Mahindra and Mahindra (Sell | TP: Rs 495): M&M’s earnings outlook has deteriorated, led by weakening tractor demandand a sharp fall in volumes of its legacy SUVs, noted CLSA, adding that higher exposure to diesel SUVs also makes it more vulnerable to upcoming emission norms. “We see a cumulative 12% volume and 28% net profit fall over FY19-21. Rising investments in subsidiaries remain a concern, especially given their subdued profit contribution,” said CLSA. The brokerage cut the target price from Rs 590 to Rs 495. (Image: Reuters)
Mahindra and Mahindra (Sell | TP: Rs 495): M&M’s earnings outlook has deteriorated, led by weakening tractor demandand a sharp fall in volumes of its legacy SUVs, noted CLSA, adding that higher exposure to diesel SUVs also makes it more vulnerable to upcoming emission norms. “We see a cumulative 12% volume and 28% net profit fall over FY19-21. Rising investments in subsidiaries remain a concern, especially given their subdued profit contribution,” said CLSA. The brokerage cut the target price from Rs 590 to Rs 495. (Image: Reuters)
Ramco Cements (Buy | Rs 970): A low base and better-than-expected cement pricing and cost parameters allowed Ramco Cement to report 44 percent YoY growth in operating Ebitda, said CLSA. External debt has risen 20% since March 2019 but gearing is fairly comfortable after strong discipline shown over the past few years, and now Ramco needs to expand as capacity utilisation is at c.90 percent, it said. “Note that south and east pricing is a concern, but Ramco is much better placed than all its peers in the region,” CLSA said. (Image: Company)
Ramco Cements (Buy | Rs 970): A low base and better-than-expected cement pricing and cost parameters allowed Ramco Cement to report 44 percent YoY growth in operating Ebitda, said CLSA. External debt has risen 20% since March 2019 but gearing is fairly comfortable after strong discipline shown over the past few years, and now Ramco needs to expand as capacity utilisation is at c.90 percent, it said. “Note that south and east pricing is a concern, but Ramco is much better placed than all its peers in the region,” CLSA said. (Image: Company)
Cipla (Sell | Rs 460): The drug firm reported a subdued Q1, blighted with several one-offs, said CLSA, adding that the negative surprise was a 12 percent YoY decline in India sales as Cipla realigned distributors in trade generic business with sales expected to normalise only by Q3. “No big launches in the US in the near term should keep growth outlook muted unless limited competition drug gProventil gets an approval by FY21,” noted the brokerage.  (Image: Reuters)
Cipla (Sell | Rs 460): The drug firm reported a subdued Q1, blighted with several one-offs, said CLSA, adding that the negative surprise was a 12 percent YoY decline in India sales as Cipla realigned distributors in trade generic business with sales expected to normalise only by Q3. “No big launches in the US in the near term should keep growth outlook muted unless limited competition drug gProventil gets an approval by FY21,” noted the brokerage.  (Image: Reuters)
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