After a muted June quarter, analysts expect September quarter to be uneventful as well with most brokerages slashing the EPS rating for Nifty in FY20-21.
Elara Capital downgraded Nifty50 EPS for FY20 to 582 (4.3 percent) and FY21 to 701 (4.2 percent) in the past quarter, primarily led by auto, energy and IT.
Most brokerages downgraded earnings estimates as half of the companies they cover missed expectations. As a result, brokerages feel the target for earnings estimates predicted earlier for FY20 is unlikely to be met.
"Earnings downgraded across the board. Our coverage universe pre-ex earnings growth is at a 5-quarter low of 0.2 percent. Ex-PSU oil sector, our coverage pre-ex earnings increased 15 percent and ex-oil & gas, metals & financials, our universe pre-ex profit fell 1 percent," CLSA said.
Of 114 companies it covers, earnings of 36 percent companies were below expectations, 15 percent were in-line and 49 percent were above estimates, it added.
Numbers from sectors like insurance, cement, FMCG, as well as banks were largely in line to encouraging numbers. However, metals, auto, telecom, high debt companies were in any case expected to deliver muted results.
“There is a general slowdown in consumer credit and therefore some pockets of the economy are reeling under the heat of slowdown which may drag further unless the government takes efforts. This weakness is expected to last for 2-3 quarters more,” Umesh Mehta, Head of Research, SAMCO Securities told Moneycontrol.
Here are 10 stocks downgraded by the brokerages post-June quarter:
Divis Laboratories Ltd: Downgrade to Hold | Target Rs 1,670
Divis Laboratories profit grew marginally by about 1.8 percent to Rs 272.44 crore in the June quarter, and revenue rose by 17 percent to Rs 1,163 crore as compared to the same period a year ago. On a sequential basis, profit fell 6.7 percent and revenue declined 8.2 percent in Q1.
Global brokerage HSBC downgraded the stock to hold from buy and slashed its price target to Rs 1,670 from Rs 1,760 after its June quarter earnings missed analyst expectations.
Revenues declined on a QoQ basis on continuous supplies issues faced in Q1. Operating margin was broadly stable, and the fundamentals remained intact. Going forward, the start of supplies from expanded capacity will be crucial to realize operating leverage.
Shree Cements: Downgrade to underperform | Target: Rs 20,800
Company's consolidated profit in Q1 increased 36 percent to Rs 380 crore driven by operating income but was below market expectations. The revenue of the company grew by 7.6 percent to Rs 3,302.8 crore compared to the year-ago period.
On a segmental basis, cement business revenues contracted by 1 percent YoY due to lower cement offtake. CLSA downgraded Shree Cement to 'underperform' from 'outperform' with a target at Rs 20,800 per share at 17.5x one-year forward EBITDA.
The brokerage raised its realization assumptions based on higher spot cement prices, which offset lower volume growth estimate. It raised EBITDA estimates by 1-2 percent.
While having a 'reduce' call on the stock with a target price at Rs 14,630 per share on rich valuations, HSBC said Shree Cement's volumes underperformed peers and were lower than estimates.
Godrej Properties Ltd: Downgrade to Neutral | Target: Rs 910
Despite a decline in its revenues, Godrej Properties reported a nearly two-fold increase in consolidated net profit for the quarter ended June 30 at Rs 89.87 crore mainly on the back of a decline in total expenses. However, the robust numbers failed to impress global investment bank Macquarie.
Reacting to the results, Macquarie downgraded the stock to neutral post-June quarter results but raised its target price to Rs 910 from Rs 900 earlier.
The company remains focused on business development opportunities, and the global investment bank expects Godrej Properties to continue to gain market share in the medium term.
But, for the near term, the global investment bank slashed earnings estimates by 6.6-8.4 percent for FY20-21.
Cipla: Downgrade to sell | Target Rs 460
Cipla’s net profit grew 0.4 percent at Rs 447.2 crore in Q1FY20 against Rs 445.6 crore in the year-ago period. Revenue declined 1 percent to Rs 4,067.39 crore in Q1, compared to Rs 4,109.10 in Q1FY18.
The near-term catalyst for the stock is absent. The global investment bank slashed FY20-22 EPS estimates by 9-14 percent for Cipla.
The negative surprise from the June quarter result was a 12 percent YoY decline in India sales. No big launches in the US in the near-term should keep growth outlook muted, said the note.
Bharat Forge: Downgrade to Neutral | Target: Rs 450
BofAML downgraded Bharat Forge to Neutral from buy post-June quarter earnings and has also reduced its target price to Rs 450 from Rs 540 earlier.
Slowing export momentum pose a risk to the near-term earnings. The outlook for exports across Class 8 trucks & industrial forgings has weakened which will keep upside fixed for the stock.
The global investment bank expects the standalone profit margin to shrink by 120 bps in the next 2-year basis. It sees a significant room for growth from defence vertical as well as PV exports.
Apollo Tyres: Downgrade to Neutral | Target: Rs 170
Nomura downgraded Apollo Tyres to Neutral post-June quarter results with a target price of Rs 170. The June quarter was largely in-line with estimates, but the demand outlook has worsened.
Apollo Tyres reported 43.8 percent fall in its Q1FY20 consolidated net profit at Rs 141.6 crore against Rs 251.8 crore in the same quarter last fiscal. Revenue of the company was up at Rs 4,331.3 crore against Rs 4,299.3 crore.
Godrej Consumer: Downgrade to Underperform | Target: Rs 645
CLSA downgraded Godrej Consumer to underperform from buy earlier post-June quarter results with a target price of Rs 645 from Rs 800 earlier.
The company continues to show a volatile earnings trend. Going forward, Indonesia, as well as Gaum cluster, show modest CC growth.
The business may need time to stabilise and pick-up. CLSA feel that the stock may remain range-bound. It slashed its EPS estimates by 3-4 percent for FY20-21.
Ramkrishna Forgings: Downgrade to Hold | Target: Rs 475
Anand Rathi downgraded Ramkrishna Forgings to hold post-June quarter earnings and also reduced the target price to Rs 475 from Rs 758 earlier.
We expect the domestic business to decline, exports continue to grow both in the US and Europe. We continue to expect growth in FY20, and the domestic market to decline, albeit slower than the underlying OEMs," said the note.
The domestic brokerage firm expects revenues to grow 3 percent CAGR for FY19-21 to Rs 1940 crore. It expects earnings to decline by 7 percent CAGR to Rs 103 cr leading to an EPS of 31.7, due to higher depreciation and interest.
Repco Home Finance: Downgrade to Accumulate | Target: Rs 343
IDBI Capital downgraded Repco Home Finance to Accumulate post the June quarter earnings and slashed its target price to Rs 343 from Rs 495 earlier.
Repco Home Finance’s asset quality during Q1FY20 deteriorated by 120bps on a sequential basis to 4.2 percent. The loan growth remained modest at 13 percent on a YoY basis, largely due to sluggish growth of 8 percent in its core Tamil Nadu book while its Non-TN book grew at a robust pace of 19 percent.
NII/PPP has grown by 11/7 percent each on a YoY basis. Growth in the net profit remained muted at 2.5 percent on account of higher provisions during the quarter. However, despite the uncertainties in the sector, it can garner a spread of 3 percent with a comfortable liquidity position.
Gateway Distriparks Ltd: Downgrade to Neutral | Target: Rs 113
Phillip Capital downgraded Gateway Distriparks Ltd to Neutral post-June quarter results and also reduced its target price to Rs 113 from Rs 190 earlier.
The stock trades at 17.9x our FY21 earnings. The leverage profile has increased significantly given economic slowdown and increase in gross debt to Rs 830 crore (Debt to EBITDA of 3.1x) post-acquisition of a stake in Gateway Rail.
"We have valued rail business now at 7xEV/EBITDA FY21 (10xEV/EBITDA of FY20 earlier) at Rs 96 (earlier 140 per) share. Post AS 116, the profitability of CFS business has impacted and we estimate a marginal loss of Rs 5.8 cr in FY21 (excluding SEIS benefit)," said the note.