Stocks Recommendations for Q4 Earnings Season: If one has followed the gyrations of the equity markets in FY22, there is a lot of hope riding on the fourth-quarter earnings of Indian companies even as inflation, a war, and the unfriendly central banks have dented sentiment. The next leg of the market trend is likely to be led by Q4 earnings – starting with IT majors like TCS and Infosys. HDFC Bank is scheduled to announce its numbers on April 16.
Analysts at Kotak Institutional Equities expect the aggregate net profit of the companies belonging to the BSE-30 Index to expand by 26 per cent year-on-year for Q4FY22. Nifty 50 companies may report net profit growth of 27 per cent.
This would mean that earnings per share of the BSE-30 companies would improve to Rs 2,680 for FY23 and further to Rs 3,000 for FY24. This robust growth would be led by banks, oil and gas companies, utilities, metals and mining, and consumer durables.
Financial companies such as banks are expected to report robust balance sheet growth after a weak streak in the past few quarters. Further, the pick-up in economic activity would lead to a reduction in stressed assets which would further boost profitability.
Here are Five Stock Recommendations From Angle One Ltd. for the Upcoming Earnings Season:
Sobha Limited- Target Rs 1,050
Rationale
The company operates in Residential & Commercial real estate along with the contractual business. Companies 70 per cent of residential pre-sales come from the Bangalore market which is one of the IT hubs in India, we expect new hiring by the IT industry will increase residential demand in the South India market. We have seen a strong consolidation among listed players in India, post-Demon, RERA, IL&FS crisis. Listed players have gained market share in new launches in the last 2-3 years, we expect this to continue in coming quarters. Ready to move inventory and under-construction inventory levels have moved down to their lowest levels. Customers are now having a preference for branded players like Sobha Developers Company expected to launch 17 new projects/phases spread over 12.56mn sqft across various geographies. The majority of launches will be coming from existing land banks. The company has a land bank of approx. 200mn sqft of salable area.
Oberoi Realty- Target Rs 1,250
Rationale
Oberoi Realty is a real estate company, focusing on the MMR region, having business vertices of residential and commercial real estate. The company has reported a strong set of numbers in Q2FY22 and we expect residential real-estate growth momentum to continue for the next couple of quarters as in Q3FY22. It owns Oberoi Mall (0.5 msf), Commerz (1.1 msf) and the west hotel (269 room keys). We expect occupancy levels to improve in CY2022. Good consolidation is seen across India among top-10 players, who now hold 11.2 per cent market share as compared to 5.4 per cent in 2017. We believe that top-10 players will continue to gain market share.
HDFC Bank- Target Rs 1,859
Rationale
HDFC Bank is India’s largest private sector bank with an asset book of Rs. 11.3 lakh crore in FY21 and a deposit base of Rs. 13.4 lakh crore. The Bank has a very well spread out book with wholesale constituting ~54 per cent of the asset book while retail accounted for the remaining 46 per cent of the loan book. Q1FY22 numbers were impacted due to the second Covid wave which has led to an increase in GNPA/ NNPA by 15/8bps QoQ to 1.5 per cent and 0.5 per cent of advances. Restructured advances at the end of the quarter stood at 0.8 per cent of advances as compared to 0.6 per cent in Q4FY21. The bank posted NII/PPOP/PAT growth of 8.6 per cent/18.0 per cent/16.1 per cent for the quarter despite higher provisioning on the back of strong loan growth of 14.4 per cent YoY. NIMs for the quarter declined by~10bps sequentially to 4.1 per cent due to interest reversals and changes in product mix. The management has indicated that 35-40 days of collections had been lost but expects healthy recoveries from slippages in 2QFY22 which should lead to lower credit costs going forward. Given best in class asset quality and expected rebound in growth from Q2FY22 we are positive on the bank given reasonable valuations at 3.0xFY23 adjusted book which is at a discount to historical averages. We value the stock at3.7xFY23 adjusted book and arrive at a target price of Rs. 1859.
Ashok Leyland- Target 164
Rationale
Ashok Leyland Ltd (ALL) is one of the leading players in the Indian CV industry with a 32 per cent market share in the M&HCV segment. The company also has a strong presence in the fast-growing LCV segment. Demand for MHCV was adversely impacted post peaking out due to multiple factors including changes in axel norms, an increase in prices due to implementation of BS 6 norms followed by a sharp drop in demand due to the ongoing Covid-19 crisis. While demand for the LCV segment has been growing smartly post the pandemic, demand for the MHCV segment has also started to recover over the past few months before the 2nd lockdown. We believe that the company is ideally placed to capture the growth revival in the CV segment and will be the biggest beneficiary of the Government’s voluntary scrappage policy and hence rate the stock a BUY.
Federal Bank – Target Rs 135
Rationale
Federal bank is one of India’s largest old generation private sector banks with total assets of Rs. 1.9 lakh cr. with deposits of Rs. 1.56 lakh cr. and a loan book of Rs. 1.2 lakh cr in F21. NPA’s have remained steady for the bank over the past few years with GNPA for Q3FY21 at 3.38 per cent while the NNPA ratio stood at 1.14 per cent. PCR at the end of Q3FY21 stood at ~67 per cent which we believe is adequate. The restructuring book is expected to be at Rs. 1,500-1,600 crore out of which Rs. 1,067 crores has already been restructured. This is against earlier expectations of a total restructuring of Rs. 3,000-3,500 crore.
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