India Inc's December quarter results witnessed headwinds given the tight liquidity situation, currency volatility, slowdown in government spending ahead of elections and global trade issues.
Out of the 50 Nifty companies, 16 (32 percent) reported numbers above expectations, 15 companies' (30 percent) results were in-line with expectations, 10 (20 percent) reported mixed set of numbers and 9 companies (18 percent) were below estimates, Centrum Wealth Research said in a report.
The earnings growth of corporates during Q3FY19 faced headwinds given macro challenges (such as weak rupee, elevated crude oil prices and higher bond yields) and micro challenges (given the delay in order finalisation owing to upcoming elections, weak consumer sentiment and tight liquidity).
Given the current market scenario, the earnings reported by companies suggest a gradual recovery setting in, said the report. But, sustenance of the same would be a key monitorable along with the demand scenario during the pre-election period.
Here is a list of 16 companies which have reported December quarter results which were higher than consensus estimates: Here are recommendations by various brokerages on these stocks. Zee Entertainment: Buy| Target: Rs 575
Zee Entertainment's numbers for the quarter were ahead of consensus estimates which prompted some global brokerage firms such as HSBC and Citigroup to raise its 12-month target price.
Zee registered a 50.3 percent jump in its Q3FY19 net profit to Rs 562.7 crore against Rs 374 crore in the same quarter last fiscal. Revenue of the company was up 17.9 percent at Rs 2,167 crore against Rs 1,838 crore.
Citigroup maintained buy call on Zee post Q3 results and raised its 12-month target price to Rs 575 from Rs 550 earlier. The global investment bank has also raised estimates to post the strong Q3 beat by 5-8 percent. The stock is Citi’s preferred pick as the core TV business remains strong.
“We are seeing some encouraging trends on zee5 which makes an interesting play on online video theme, said the report. Going forward, induction of a strategic partner could be positive for minorities,” added the report.
Reliance Industries: Buy| Target: Rs 1,500
Analysts at several brokerage firms believe that Reliance Industries’ Q3 performance was largely better-than-expected, but there was a surprise element in the petchem show.
CLSA maintained its buy rating with a target price of Rs 1,500 as RIL’s Q3 performance beat estimates across segments other than petchem. It said that the retail performance was stellar. Weak petchem was offset by a strong performance by other segments, analysts at the firm wrote in their research note.
Further, the retail earnings before interest and taxes more than trebled year on year, while consolidated capital expenditure fell 30 percent QoQ. CLSA also believes that Jio may close a deal within H1CY19 to monetise its tower & fibre assets.
Asian Paints: Buy| Target: Rs 1,580
Macquarie upgraded Asian Paints to outperform rating post-December quarter results and also raised its 12-month target price to Rs 1580 from Rs 1180 earlier.
Volume growth has picked up significantly, and the volume growth outlook has also improved which is a positive sign.
The recent price increases with falling input costs will improve margins, said the Macquarie note. The global investment bank also raised FY19-21 EPS estimates by 7-16 percent. The full effect of lower GST rates yet to play out, added the note.
Larsen & Toubro: Buy| Target: Rs 1,786
Morgan Stanley maintained its overweight rating on L&T post-December quarter results. The global investment bank expects relief rally as the market was worried about the cut in order inflow and revenue guidance.
The December quarter demonstrates the core strengths of L&T's business model. The company has diversified order book, strong execution track record, and reasonably strong balance sheet.
HCL Technologies: Buy| Target Rs 1,380
CLSA maintained its buy rating on HCL Technologies post-December quarter results and hiked its target price to Rs 1,380 from Rs 1,350 earlier.
The company recorded a sharp revenue beat, and rebound in organic growth is also positive for the company. Margins remain soft as management continues to trade margins for growth.
The stock is a good buy for rebounding organic growth, IP value as well as cheap valuations, said the CLSA note.
Dr Reddy’s Laboratories: Outperform| Target: Rs 3,200
CLSA retained its outperform rating on CLSA post-December quarter results and raised its target price to Rs 3200 from Rs 2850 earlier.
The cost controls continue to deliver, and a revival in the US growth in FY20 will be a key catalyst. The earnings beat was largely driven by cost-control initiatives.
The US sales improved by 4 percent on a quarter-on-quarter (QoQ) basis and US pricing dynamics remained stable. The global investment bank increased FY19-21 EPS estimates by 2-9 percent.
GAIL India: Buy| Target: Rs 420
CLSA maintained its buy rating on GAIL India post-December quarter results but slashed its target price to Rs 420 from Rs 465.
US LNG arbitrage may stay negative through 2019. The upcoming quarterly results may be quite weak. Futures suggest US LNG will be at a significant premium to Asian spot LNG price, said the CLSA note.
Tech Mahindra: Buy| Target: Rs 880
Centrum maintained its buy rating on Tech Mahindra post-December quarter results with a target price of Rs 880. Tech Mahindra’s December quarter results beat our estimates on top-line, EBITDA margin and PAT.
“We expect Tech M to deliver 4.7 percent USD revenue growth in FY19E. Though Telecom vertical is showing traction over the past two quarters, we expect the Telecom vertical revenues to decline by 1 percent YoY for FY19E,” said the report.
Tech Mahindra trades at 30 percent discount to Infosys. The potential for growth acceleration in FY20E led by Telecom revival and cheap valuations leads us to remain bullish. “We value Tech M at 14x FY21E EPS, which yields a TP of Rs880/sh. Resume coverage with a Buy rating,” said the report.
Sun Pharma: Buy| Target: Rs 560
Most global brokerage firms have maintained buy recommendation on Sun Pharma after India’s largest drugmaker said its net profit jumped 286.1 percent to Rs 1,241.1 crore in the third quarter ended December 2018.
Global brokerage firms have a target price in the range of Rs 535-560 on Sun Pharma which translates into an upside of 22-28 percent return in the next 12 months.
CLSA which marinated its buy rating on Sun Pharma post Q3 results recommends a target price of Rs 560. The December quarter results were good even after adjustments.
Coal India: Buy| Target: Rs 275
CLSA maintained its buy rating on Coal India post December quarter results but slashed its target price to Rs 275 from Rs 310, maintaining the buy rating. The demand outlook looks decent, according to CLSA. CLSA cut its FY19-21 EPS estimates for Coal India by 3-5 percent due to lower volumes.
Oil & Natural Gas Corporation: Buy| Target: Rs 180
HSBC maintained its buy rating on ONGC post December quarter results with a target price of Rs 180. Oil and Natural Gas Corporation posted a 64.8 percent jump in third-quarter profit, boosted by higher revenue from offshore operations.
Its profit increased sharply to Rs 8,263 crore in the quarter ended December 2018, from Rs 5,015 crore a year earlier and revenue from operations climbed over 20 percent to Rs 27,694 crore, while revenue from offshore operations rose 19.1 percent, ONGC said.
Current oil prices put ONGC in a sweet spot, the brokerage said, adding rising gas production & gas prices are expected to drive earnings growth.
Kotak Mahindra Bank: Buy| Target: Rs 1,500
Analysts largely remain positive on Kotak Mahindra Bank’s Q3 performance, but believe that its subsidiaries show was a key negative. They remain upbeat on the banking business.
CLSA maintained its buy rating on Kotak Bank with a target price of Rs 1500 and said that it sees 21 percent CAGR in its standalone earnings. The key positive from results was 23 percent growth in net interest income (NII), led by a 23 percent rise in loans. Better growth and RoE improvement remain key in sustaining premium valuations.
State Bank of India: Buy| Target: Rs 380
CLSA retained its buy call but raised the target price to Rs 380 from Rs 370 earlier.
SBI is the preferred pick among PSUs, said the note from CLSA. The profit was ahead of estimates which was aided by higher treasury gains. The key positive was the decline in slippages.
Bajaj Finserv: Buy| Target: 6900
Sharekhan maintained its buy rating on Bajaj Finserv post December quarter results with a target price of Rs 6900. Bajaj Finserv (BFS) posted modest overall performance in Q3FY2019.
The lending subsidiary, Bajaj Finance Limited (BFL) posted a strong set of numbers for Q3FY2019.
The life insurance business, BALIC, and BAGIC (the general insurance business) saw subdued PAT performance despite strong overall growth as the company had to make provisions against an expected loss of one investment.
Bajaj Finance: Buy| Target: Rs 3000
JM Financial maintained its buy rating on Bajaj Finance with a target price of Rs 3000 post December quarter results. Bajaj Finance (BAF) delivered a stellar performance in a tough liquidity environment.
“Going forward, BAF remains well-positioned to deliver sustainable profitable growth driven by a) strong customer acquisition engine, b) increasing rural footprint with diversified product offering, c) rising contribution of fee income, d) superior asset quality and e) well capitalised with CAR of 21 percent,” said the report.
Axis Bank: Buy| Target Rs 730
Centrum upgraded Axis Bank to buy from hold earlier post December quarter results and raised its target from Rs 560 to Rs 730. The main reasons: a) better-than-estimated revenue, core-operating profit and earnings, b) reduction in the pool of stressed assets/healthy provision coverage ratio, c) strong capital position and d) promising start under the new MD and CEO, Mr. Amitabh Chaudhry.
Axis Bank has identified key focus areas and has laid out an ambitious target to achieve 18 percent RoE in the medium term. Improved micros and favourable macros will translate into enhanced RoE of 15.6 percent by end-FY21E.
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