Top five stocks where brokerages raised target prices post Q1 results last week
Cheaper raw material prices have helped India Inc report a better-than-expected margin improvement in the quarter ended June.
A sample of 2,171 companies, excluding banks and finance firms and oil & gas companies, reported a 1.3% year-on-year growth in net sales and 2.2% drop in net profit for the first quarter of 2015-16, ET said in a report.
Operating margin of the sample rose 150 basis points (bps) to 17.4% from the previous quarter, and close to the 17.5% margin in the June quarter of the previous fiscal year.
Margins improved for the first time in the April-June quarter after skidding in each of the previous three quarters.
As per the ET report, the performance across sectors during the June quarter was mixed as companies with pricing power in some sectors such as FMCG (fast-moving consumer goods) and automobiles were able to take advantage of lower commodity prices.
On the other hand, companies in the capital goods, power, pharmaceuticals and metals continued to perform poorly due to slack demand.
We have collated a list of five companies where brokerages raised their target prices after Q1 earnings while maintaining their rating:
Coal India Ltd: Target price raised to Rs 493 from 345
Coal India net profit slipped 6.6 per cent to Rs 3,764.34 crore in the first quarter that ended on June 30, 2015, due to higher expenses.
SBICAP Securities, in a report, upgraded their rating on the stock to BUY from HOLD and also raised their target price to Rs 493 (earlier Rs 345), as they foresee better production growth trend due to the ongoing government initiatives and likely increase in linkage realisations from the non-regulated sector as the e-auction of linkages is expected to commence from June 2016.
They have cut their revenue forecast for FY16e by 8.4%, as we cut our blended realisations forecast by 8% on account of higher sales under fuel supply agreement to the regulated power sector compared to non-regulated sector.
IOC: Target price raised to Rs 477 from Rs 376
The net profit surged two-and-a-half times in the first quarter of the current financial year. IOC's net profit rose to Rs 6,436 crore against Rs 2,522.94 crore in the previous corresponding period. Refining margin stood at $10.77 a barrel, up from $2.25 in the year-ago period.
Strong profits in 1QF16 reflected strong and sustained GRM and sharp reduction in subsidy burden due to lower crude oil prices and diesel deregulation, SBICAP Securities said in a report.
"While strong GRMs were a reflection of strong Singapore GRM due to refining outages in the region, the steady decline in the interest expense was due to a) diesel deregulation and b) prompt subsidy payments by Government," added the report.
The research firm upgraded IOC to BUY with a target price of Rs 477. They have also assigned premium of 30% to the book value of refining and marketing assets due to a) improvement in GRMs, b) improvement in marketing margin and c) decline in interest cost due to lower debt.
Bank of Baroda: Target price raised to Rs 240 from Rs 130 earlier
Bank of Baroda reported a 23 per cent annual decline in its net profit for the April-June quarter on higher provisions for bad loans. The net profit came in at Rs 1,052 crore in Q1, against Rs 1,362 crore in the corresponding quarter of last fiscal year.
The government has announced a seven-step strategy last week as part of its plan to revamp the public sector banks (PSBs). For BoB, it's a game-changer, given its better balance sheet and the fact that it's the only bank to get private sector CEO & Chairman, Morgan Stanley said in a report.
The steps include capitalisation; new management appointment; NPA management; and autonomy to setting new KPI's for these banks.
The global research firm is of the view that the appointment of private-sector CEO & Chairman at BoB will help the stock re-rate meaningfully. They can focus on improving the balance sheet structure through aggressive provisioning.
"Our view is that investors will likely give the bank relatively long leeway as management incorporates changes. This could allow the bank to raise capital from the market, make its balance sheet stronger, and become a quasi-private bank," added the report.
JubilanT FoodWorks Ltd: Revised target price of Rs 2,100
Jubilant FoodWorks results for the quarter ended June 30 were below estimates. It reported a 6% year-on-year increase in its net profit for the quarter at Rs 29.5 crore while its sales rose 20% at Rs 570.7 crore.
However, the company continues to outperform QSR peers Westlife and Yum! As per the management, JUBI's market share during the year increased from 12.5% to 14% in the organised chained service restaurant and from 67% to 72% in the pizza segment.
Motilal Oswal slashed their estimates to 10-18% for FY16/17. Near-term quarterly trends are unlikely to be linear and, thus, may induce volatility in performance. Notwithstanding that, the brokerage said it liked the long-term potential in the food service industry and JUBI's execution prowess to outperform the industry and capitalise on it.
They maintain a Buy with a revised target price of Rs 2,100.
Ashok Leyland Ltd: Target price raised to Rs 101 from Rs 78
Ashok Leyland Q1 FY16 results were strong as volumes during the quarter grew by 35% YoY on rapid recovery in the MHCV cycle and the economy, pent-up demand for replacement trucks, growth in freight rates and drop in diesel costs, making it a viable solution for the operators and some activity in the infrastructure development in the country.
"The company will continue to grow better than the industry on both trucks and buses front. Continued replacement demand on the higher tonnage side of the truck segment, infrastructure activities along with higher sales at MAV and tractor trailers will take care of our expected growth rate of 30%/25% in FY16E/17E," LKP said in a report.
"Existing models and new products will help the cause in coming quarters. Strengthening presence in west and east India and reducing dependence on south India is heartening fact in line with which the volumes are expected to move ahead at a good pace. Higher exports in emerging markets will help higher sales and help margins," added the report.
LKP raised the estimates on overall better expectations and valuation comfort. They maintain a BUY rating and increase the target price to Rs 101.