Analysts Cut Target Price For Three In Every Four Indian Stocks After Q4 Results

Analysts cut target prices for 76% of Indian stocks after corporate earnings in the fourth quarter were battered by the coronavirus pandemic, and rising volatility in the market.

Of the 243 stocks analysed, target prices of 185 were downgraded since the start of the March-quarter earnings season, according to Bloomberg data. The estimates for 57 companies were hiked, while one remained unchanged.

While the deepest cuts were seen in banking and financial stocks, communication and pharmaceutical stocks saw the biggest upgrades in target prices.

Selection Criteria:

Market capitalisation more than Rs 5,000 crore.
Tracked by at least five analysts.
Time period considered: April 14, 2020 to July 10, 2020.

The Covid-19 outbreak had a significant bearing on India Inc.’s earnings in the quarter ended March. A separate analysis by ICRA Research showed that aggregate revenue of 184 Indian companies, excluding the financials, fell 2.9% year-on-year in the fourth quarter. Absolute earnings of corporate India contracted 22% during the period. Also, tensions over India-China border standoff and mounting cases of coronavirus infections kept investors on the edge.

And while the markets rebounded on hopes of a turnaround in the economy as India eased the lockdown curbs, analysts are cautious.

“After the 39% rally from March lows, the Nifty at 20.6x P/E (price-to-earnings) is now trading at a slight premium to its long period average and is not looking as attractive as it was in March,” Motilal Oswal said. “A further upside, in our view, now rests on the inter-play of health crisis and restoration of normalcy in the economy,” the brokerage said in a recent report.

Here are the five stocks that saw the biggest cuts in target prices

Quess Corp

The concerns over low cash conversion, declining return-on-equity and acquisitions in unrelated businesses, besides the Covid-19 crisis posing a challenge for the technology and business service provider’s revenue and margin prompted the analysts to downgrade their estimates for the stock.

RBL Bank

A high unsecured loan exposure, poor deposit franchise, greater credit cost and lower return-on-equity are some of the reasons that led to the downgrade in target price for the private lender.

Aditya Birla Fashion

The analysts attributed uncertainties around demand revival, slower-than-anticipated reopening of stores due to the extended lockdown, and high debt for the cut in target price for the retail clothing chain operator, even as some maintained a bullish stance.

Indian Bank

The public sector lender’s net loss widened to Rs 218 crore in the quarter ended March from Rs 190 crore a year ago on account of a rise in provisioning. Concerns around asset quality and slowdown in business owing to the Covid-19 crisis were some of the other reasons for the target price cut.

IDFC First Bank

A drop in core profit and asset quality concerns due to high exposure to the SME segment, besides EPS dilution on account of fundraising prompted analysts to lower forecast.

Here are the five stocks that saw the biggest hikes in target prices

Aurobindo Pharma

Analysts hiked estimates for the drugmaker on better-than-expected performance in the fourth quarter, increase in market share in key markets such as the U.S. and Europe, and a robust product pipeline.

Tata Communications

The telecom operator witnessed a hike in target price after its data business and rising internet traffic as more people are working from home aided the fourth-quarter performance.

Vodafone Idea

Tariff hikes, decelerating subscriber loss and a favorable risk-to-reward ratio prompted analysts to upgrade estimates for the telecom service provider.

Muthoot Finance

Analysts are bullish on the non-bank lender on account of a rise in its assets under management, improvement in asset quality, increase in gold prices and a potential surge in demand as businesses resume operations.

Glenmark Pharma

A better-than-expected performance in the fourth quarter, expansion in margin and balance sheet deleveraging are some of the reasons that turned analysts bullish on the drugmaker.

(The reasons for target price revisions were compiled from the research reports of CLSA, Investec, Motilal Oswal, ICICI Direct and Emkay Global, among others.)