Q2 Results: 10 Mid Caps To Watch Out For This Earnings Season
Here are the mid-cap stocks that may report the highest expansion and contraction in operating margin in July-September.
Analysts expect India Inc.’s earnings to improve in the quarter ended September as economic activity picked up pace after the nation eased lockdown curbs.
India’s lockdown to contain the pandemic stalled trade in the initial phase as the sale of only essential goods was allowed. The nation’s GDP shrunk by a record 23.9% in the three months ended June and is headed toward a rare annual contraction in more than four decades.
Brokerages see a rebound in earnings. Motilal Oswal cited improving data points, tapering Covid-19 infections, pent-up demand, and inventory building ahead of the festive season for optimism.
Edelweiss Securities said strong global growth, low base and pent-up demand would aid earnings of companies in sectors like metals, information technology, pharmaceuticals, and domestic consumer companies like autos, FMCG and telecom. The brokerage expects industrials, cement and energy companies to remain laggards.
Update on provisions and management commentary, according to the brokerage, will be key for the banking sector.
Here are the mid-cap stocks, according to analyst forecasts tracked by Bloomberg, that may report the highest expansion and contraction in their operating margin in the July-September period.
Selection Criteria
- Mid-cap stocks categorised according to guidelines laid down by the Association of Mutual Funds in India (Top 101 to 250 companies)
- Rated by more than 10 analysts
- Operating margin expectations
The five stocks that are expected to witness the biggest jump in Ebitda margin:
Sun TV
An improvement in advertisement revenue, viewership and subscription revenue are expected to aid the broadcaster’s margin in the second quarter. While easing lockdown restrictions will aid ad revenue, subscription revenue will rise as home entertainment remains the preferred leisure activity for most people, analysts said. Besides, airing of new television shows will support this trend.
Jindal Steel & Power
The steelmaker’s operating margin may be boosted by higher volumes, aided by improving demand; and growth in realisation per tonne, led by price hikes. Domestic steel producers, according to Motilal Oswal, raised the benchmark hot-rolled coil prices by Rs 5,500 a tonne in the second quarter.
Laurus Labs
Growth in formulation and active pharmaceutical ingredient business, coupled with reduced costs, may improve the drugmaker’s operating margin in the reported quarter. Kotak Institutional Equities pegs the company’s year-on-year revenue growth at 34%. That, it said, will be led by a 2.2 times growth in formulation business, and 43% year-on-year growth in other API.
IPCA Labs
The drugmaker may see higher margin on account of backward integration, sustained growth in API business and as employee costs remain below the pre-Covid level.
IEX
Analysts expect a rebound in volumes, aided by a pickup in demand; and higher realisations to aid the operating margin of India’s largest electricity trading platform in the quarter ended September.
After a 16% slump in the first quarter, the worst-ever, there has been a broad-based uptick in power demand in the three months through September, mostly aided by energy demand in the agricultural sector during the sowing season.
The five stocks that are expected to witness the worst contraction in Ebitda margin:
PVR
It was a washout quarter for the multiplex chain operator as cinemas remained shut. In fact, employee expenses and other fixed costs may lead to an operating loss during the period.
Indian Hotels & Lemon Tree Hotels
Even as hotels resumed operations from June, weak business environment, low occupancy and average room rates, coupled with higher costs, may weigh on their margin.
Narayana Hrudayalaya
A muted domestic business and higher fixed costs are expected to drag down the margin of the operator of multi-specialty hospitals and heart centres in the reported quarter. According to analysts, the company’s India business revenue may decline 25-33% year-on-year in the second quarter. “Given 60-65% of cost is fixed, a drop in occupancy will impact profitability in the near term,” said Elara Capital.
Bata India
Analysts expect lower volumes and an adverse product mix to hurt the footwear maker’s operating margin. “With almost all stores being operational during the quarter, Bata saw footfalls coming back but well short of pre-Covid levels,” said Nirmal Bang. “We expect revenue to continue to be materially impacted (down 55%) due to the absence of sale of school shoes and nearly non-existent demand for formal and fashion footwear.”
(The reasons for expansion and contraction in margin have been compiled from the research reports of Motilal Oswal, Edelweiss, Kotak Institutional Equities, Emkay Global, Elara Capital, Nirmal Bang and Prabhudas Lilladher.)