The domestic stock market scaled new highs in July, thanks to a strong start to the June quarter earnings season. Companies, excluding those providing financial services, have reported a good set of numbers for the quarter.
For the companies that have already declared their earnings for the quarter under review, average sales growth was around 21 percent, while average EBITDA growth and average growth in net profit was around 20 percent and 14 percent, respectively.
Out of 17 non-financial companies that have declared results, 6 saw earnings beat in excess of 5 percent while 6 companies saw earnings misses in excess of 5 percent.
Having said that, if we were to include the performance of financial services companies in the overall mix, then the earnings season so far hasn't been as great as it seems.
The 1QFY19 earnings season has so far been mixed with aggregates impacted, as has been the case for last few quarters now, by Corporate Banks and Tata Motors.
Of the 32 Nifty companies that have declared their earnings so far, 20 have either met or exceeded net profit expectations, the brokerage said, while 25 have done so on expectations of EBITDA.
Here is a list of top 5 stocks that brokerages upgraded after Q1 results:
Oberoi Realty: Buy| Target Rs 600
Oberoi Realty reported more than three-fold jump in its consolidated net profit at Rs 309.42 crore for the first quarter of this fiscal. Its net profit stood at Rs 91.37 crore in the year-ago period, the Mumbai-based developer said in a statement.
Reacting to the results, HSBC upgraded the stock to buy with a target price of Rs 600. The global investment bank is of the view that the business model will become more robust for the company.
HDFC Securities upgraded the stock to buy from neutral with a target of Rs 598. After a muted 4QFY18, Oberoi Realty (ORL) had an impressive start to FY19 clocking 300,000 sq ft in pre-sales and Rs 620 crore in sales value.
ORL will continue to assess internal thresholds for booking margins. "While the Borivali project has met margin recognition in 1QFY19, for Mulund the entire pending margins will be recognized only later in FY19E," said HDFC Securities in a report.
ORL's recent QIP proceeds of Rs 1,200 crore will be used as growth capital towards fresh land purchases. HDFC Securities continues to assign a NAV premium of 30 percent to capture terminal value.
Tech Mahindra: Accumulate| Target: Rs 729
Tech Mahindra posted results below analyst expectations on July 30, but Chief Financial Officer Manoj Bhat said that he was confident of growth in the company's telecommunications business.
Reacting to the results, CLSA upgrades the stock to underperform from sell earlier and has also raised its target price to Rs 650 from Rs 635 earlier.
The revenue beat was led by the enterprise as telecom business remained soft. Investors should watch for growth recovery. CLSA lifts FY19-20CL margins by 20-40 bps, and earnings by 1-3 percent.
IDBI Capital also upgraded the stock to accumulate with a target price of Rs 729. Tech Mahindra Q1 results have allayed concerns on the Communications segment and confirmed that it has already secured a couple of large deals in Q2 and has a strong deal pipeline.
"IDBI Capital has factored in EBIT margin beat and FX rate of Rs 68, compared to Rs 65.5 earlier, and increase FY19/20 EPS forecast by 2.6 percent/6 percent. We now forecast revenue (US$)/EPS CAGR of 7.7 percent/6.3 percent over FY18-20E.
Petronet LNG: Buy| Target Rs 245
Petronet LNG (PLNG) reported a healthy set of Q1 numbers, with a 42 percent year-on-year (YoY) increase in revenue, led by higher volumes at the Dahej terminal due to increased downstream demand and closure of Dabhol terminal on account of the monsoon.
Reacting to the results, UBS upgraded the stock to buy from sell post Q1 results and has also raised its target price to Rs 245 from Rs 235 earlier.
Strong LNG imports are driving the short-term outlook. Lower utilisation due to higher Regas capacity additions is priced in. Going forward, strong utilisation rates and a 5 percent increase in Regas tariffs to drive FY19 earnings, said the note.
Tata Motors: Buy| Target: Rs 346
Global automaker Tata Motors reported a consolidated net loss for the quarter ended June at Rs 1,862.57 crore, missing estimates by a huge margin. Diesel concerns in the UK and Europe, as well as the duty change impact in China, hit the company during the quarter.
Earnings before interest and tax margin in China was negative 3.7 percent for JLR due to de-stocking, duty change in China, forex revaluation and higher depreciation and amortisation.
Reacting to the results, Elara Capital upgraded the stock to buy from accumulate but slashed its target price to Rs 346 from Rs 362 earlier.
While JLR’s Q1FY19 performance was below par, we note that it was due to 8 percent YoY decline in wholesales led by inventory reduction at dealers end and transitional weakness in China,
The retail growth in Q1FY19 though has been impressive at 6 percent YoY, higher than the FY18 retail growth of 2 percent. Elara Capital expects the wholesales business to bounce back especially in 2HFY19 and expect FY19E volume growth at over 5.5 percent led by new launch ramp-up (RR and RR Sport order backlog of 2 months) and China recovery. Elara reduced JLR/ CJLR EBITDA by 2-5 percent/8 percent, while increase its standalone EBITDA by 3 percent over FY19-20E.
Axis Bank: Hold| Target: Rs 625
Axis Bank reported a satisfactory Q1 FY19, in line with what the management had guided earlier. Reported profit after tax of Rs 701 crore was lower by 46 percent from the year-ago quarter.
Asset quality that had been a pain point for a while showed marked improvement with the gross slippage declining to Rs 4,337 crore.
Reating to the results, domestic brokerage firm, Sharekhan upgraded the stock post Q1 results with a target price of Rs 625. Axis Bank has shown improvement in the overall asset quality and expects the pace of slippages H2FY19 onwards should normalize.
Margins are expected to remain stable as MCLR rate hike effect comes into play. Going forward, ageing related requirements, resolution of stressed assets, and importantly loan book pick up will be key challenges before the bank.
Axis Bank currently trades at 2.1xtimes FY20E book value which we believe is reasonable, however, Sharekhan opine cautious approach to witness how asset quality, management issues play out.
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