These Stocks Have Consistently Beaten Analyst Estimates
The pandemic has hurt earnings of most Indian companies as the lockdown to curb the spread of the virus disrupted economic activity.
Even prior to the virus outbreak, India Inc.’s earnings had remained subdued as the economy slowed. The only support came from last year’s cut in the corporate tax rate.
Still, nine companies from the BSE 500 Index consistently beat analyst expectations in the last four quarters. These stocks returned 103.45% equal-weighted returns on an average to investors in the year through Aug. 21 compared with a 6.5% rise in the BSE 500 Index.
- BSE 500 stocks
- Earnings per share higher than the average of estimates tracked by Bloomberg in each of the last four quarters.
- EPS adjusted for one-time extraordinary gains and losses and discontinued operations.
Here’s why these nine firms did consistently well on the earnings front:
The drugmaker’s net sales and Ebitda rose 77% and 234% year-on-year, respectively, in the April-June quarter. The reported adjusted EPS was 168% higher than the consensus estimate of the analysts tracked by Bloomberg.
BoB Capital Market said high order book, product mix, volume uptrend in the antiretroviral segment and a sharp turnaround in return ratios are the key positives. According to Motilal Oswal, superior execution across revenue segments, an increase in return-on-equity to 27% from 15% in 2019-20, and adequate levers to sustain earnings momentum over the medium term are the growth factors.
Risks: Higher concentration and pricing pressure in the antiretroviral segment, regulatory risks, and delay in product approvals.
The tube packaging company saw its consolidated top line rise 18% year-on-year in the quarter ended June, helped by market share gains and better Ebitda margin. The company’s margin rose 254 basis points on cost cuts. The reported adjusted EPS was 25.8% higher than the forecast.
According to ICICI Direct, improved profitability and net debt reduction in the challenging scenario are key positives. Also, market share gains imply strong competitiveness, which will help return ratios. JM Financial listed accelerated personal care growth, leadership in oral care, innovation, and prudent cost management as growth catalysts.
Risks: A slow recovery in Africa, Middle East, and South Asia region can impact revenue growth.
APL Apollo Tubes
Sales, Ebitda and net profit of the maker and exporter of galvanised steel tubes fell 39%, 43%, and 68% year-on-year, respectively, in the three months ended June. Still, they were better than the estimates. Also, the reported adjusted EPS was 23% higher than the forecast.
Elara Capita said the company has performed efficiently in the first quarter and gained market share despite challenges. Further improvements are expected due to its huge distribution network and strong brand positioning. According to IDBI Capital, steel prices are unlikely to fall meaningfully, which bodes well for the company’s margin. A strong recovery in volume and profitability is expected from 2021-22 onwards.
Risks: A delayed recovery in demand and a slow revival in construction activities.
The integrated chemical company saw its revenue, Ebitda and profit after tax decline 37%, 34% and 20% year-on-year, respectively, in the April-June period. Still, the reported adjusted EPS was 17% higher than the estimates.
Systematix Research maintains its bullish stance on the stock on account of its business strengths, driven by a diversified product mix, end-user base, and backward integration capabilities. According to Anand Rathi, the company’s growth will be driven by shift of focus to the retail business, capital expenditure and a strong performance of the subsidiaries.
Risks: A drop in spreads of major products, delay in capital expenditure, and erratic increase in crude prices.
The drugmaker’s revenue, Ebitda and profit after tax rose 4.1%, 29%, and 49.4% year-on-year, respectively, in the quarter ended June. Also, the reported adjusted EPS was 16% higher than the forecast.
ICICI Direct said the company plans to venture into complex injectables. Biosimilars for emerging markets, too, are expected to provide growth impetus. According to JPMorgan, the Covid-19 vaccine provides a good opportunity for the company but it is early to assign value to the success and opportunity size. JPMorgan maintains an underweight stance on Cadila due to concerns over delay in India’s growth momentum, implying a tough 2020-21 for the company.
Risks: The U.S. business performance in a tough year and vaccine prospects.
The reported adjusted EPS for the large-cap software services exporter was 9% higher than the forecast.
JPMorgan said the resumption in guidance for revenue and margin indicates that Infosys is catching on to mega trends of digital transformation at scale, artificial intelligence/data, and cloud migration faster. According to Maybank Kim Eng, the company deserves premium valuations as it will benefit from the pickup in IT spending and market share gains.
Risks: A slowdown in consulting demand or large deal wins may reduce client spending.
The phosphatic fertiliser maker’s revenue, Ebitda, and net profit rose 51%, 111%, and 297% year-on-year, respectively, in the quarter ended June. The reported adjusted EPS was 8.7% higher than estimates.
According to a report by Elara Capital, steps taken by the company to optimise supply chain and its direct delivery model at several places helped it save on freight and distribution costs. Such measures will continue to benefit the company in the upcoming quarters. Nirmal Bang cited lower costs than peers, brand equity with farmers, and the government’s push to increase farm incomes and recent agricultural sector reforms as future growth catalysts.
Risks: Shortage of inputs in the crop protection segments could put margins under pressure. Labour crunch in the farm sector.
The technology consulting company’s revenue declined 4.8% sequentially in the quarter ended 2020. But it was better than that of its larger peers who reported an average decline of 7% in the top line.
The reported adjusted EPS was 8.6% higher than the Bloomberg consensus estimates.
ICICI Direct said the company may face headwinds in the near term because of pricing pressure, lower discretionary spend, and delay in deal ramp-ups. It, however, expects higher deal wins and a recovery in troubled verticals in the second half of the ongoing fiscal.
But Anand Rathi said the current valuations are expensive and there are concerns about the pace of the recovery as the environment is still volatile.
Risks: Exposure to the manufacturing and energy vertical is expected to keep the company’s performance under pressure due to lower oil prices and client specific challenges.
The plastics company’s revenue, Ebitda and net profit declined 27%, 30% and 53%, respectively, year-on-year as realisations and volumes fell 8% and 19%, respectively. These were, however, above estimates because of recovery in its pipes and packaging divisions.
Reported adjusted EPS was 32% higher than the Bloomberg analysts’ estimates. Anand Rathi is positive on the company’s prospects due to its diversified product range, leading position in business segments, healthy return on equity of 20.7% in 2019-20, and debt reduction.
Systematix Research said in a report that the company’s pipe business is likely to benefit from the initiatives taken by the central and state governments on water management. Evolving consumer lifestyle is expected to fuel the overall consumption of plastic products, it said.
Risks: Increased competition, volatile raw material prices and less-than-expected growth in business divisions.