Analysts Raise Target For Four In Every Five Stocks After Q1 Earnings
Indian stocks that witnessed the biggest hike and cut in target prices after Q1 results.
Analysts raised target price estimates for nearly 80% of Indian stocks after the first-quarter earnings weren’t as bad as feared, with companies cutting costs to save cash during the pandemic and rising volatility in the market.
Of the 254 stocks analysed, the 12-month consensus target price of 202 companies was upgraded since the start of the June-quarter earnings season, according to Bloomberg data. The estimates for 49 companies were cut, while three remained unchanged.
While the biggest upgrades were seen in pharmaceuticals and technology stocks, financials, among others, saw the deepest cut in target price.
Selection Criteria
- Market cap greater than Rs 5,000 crore.
- Tracked by at least five analysts.
- Time period considered: July 9 to Aug. 18, 2020
Analysts may have drawn comfort as nearly two-thirds of the nation’s top companies either met or beat estimates in the three months ended June even as the aggregate net income of the Nifty 50 companies slumped the most in at least 10 years. Also, managements sounded more certain than in the previous quarter as the economy gradually reopens after two months of near-complete lockdown.
India’s equities rallied close to 6% during the quarter as the benchmarks continue to recover from their March selloff, the worst since 2008, triggered by the pandemic.
“As we are nearing the end of reporting season, it has turned out to be a satisfactory one versus the heightened fears and muted expectations,” said Varun Lohchab, head (institutional research) at HDFC Securities. The key highlights during the quarter, according to him, were margins exceeding estimates across multiple sectors due to cost cuts and improved pricing, positive management commentaries, market share gains for larger companies, improving moratorium trend for lenders, and strong performance for brokers and exchanges aided by increased capital market activity.
Here are the five stocks that saw the biggest upgrades in target price:
Laurus Labs
Analysts are bullish on the drugmaker after its formulations and active pharmaceutical ingredients business boosted earnings in the April-June quarter. The company reported its highest-ever quarterly net profit in the three-month period, and guided for a sustained earnings growth on a strong demand in formulations business, customer additions, more products in synthesis segment, and brownfield expansion plans.
Granules India
The pharmaceutical company reported its highest-ever quarterly revenue in the three months through June, aided by its formulations business. Analysts expect the strong demand for its key products like Metformin (to control high blood sugar), paracetamol (pain reliever and a fever reducer) and Ibuprofen (painkiller), among others, coupled with new launches and capacity expansion in pharmaceutical formulations intermediates to drive growth in the future.
Jindal Steel & Power
Better volume growth compared to peers, a fall in cost of production after being allowed to transport high-quality iron ore from Odisha’s Sarda mines, sustained efforts for deleveraging and attractive valuations prompted analysts to raise target price for the steelmaker.
Tata Communications
Analysts remained bullish on the telecom service provider because of its strategic growth plan, consistent improvement in data segment and focus on deleveraging.
Persistent Systems
The technology services provider posted the highest revenue growth in dollar terms among peers in the quarter ended June. Besides, an improvement in business mix with increased focus on annuity, and bullish outlook on deal closures with steady wins in banking, financial services and insurance, healthcare and industrial verticals prompted analysts to hike target price for the company.
Here are the five stocks that saw the deepest cuts in target price:
Union Bank Of India & Punjab National Bank
Weak profitability metrics, asset quality concerns due to higher proportion of MSME loans and poor return ratios led to target price downgrades for these public sector banks.
Zee Entertainment
The analysts attributed pressure on advertisement revenue due to weak macroeconomic conditions, market share loss in certain regions and balance sheet concerns for downgrading estimates for the broadcaster.
Solar Industries
A fall in demand from domestic business due to economic slowdown, pressure on exports and postponement of defence orders have turned analysts cautious on the industrial explosives maker.
Bank Of Baroda
The public sector lender reported a loss in the quarter ended June against an expectation of a profit. An increase in credit costs, subdued return ratios and elevated bad loans were some of the reasons why analysts lowered their forecasts for the lender.
(The reasons for target price revisions were compiled from the research reports of ICICI Direct, HDFC Securities, Centrum Broking, Emkay Global, Elara Capital, Motilal Oswal and Nirmal Bang.)