Buy, Sell, Hold: PNB, Coal India among 4 stocks, 2 sectors in focus on February 21, 2018

PSU banks and IT stocks are also on investors’ radar on Wednesday.

  

Coal India

Brokerage: Macquarie | Rating: Outperform | Target: Rs 210

The global research firm said that the price-based auction would increase cost curve and benefit Coal India. Further, it believes there could be a record Q4 for this fiscal. The company should witness an all-time high EBITDA & should drive earnings upgrades, it said in report. Additionally, valuations at 6.7xEV/EBITDA FY20E makes risk-reward attractive.

Brokerage: Morgan Stanley

The global research firm said that from the company’s perspective, the key will be aggression in auction bids. Further, cost structure of these operations may be efficient relative to Coal India, it said, adding that still there could be a few years for mining to start.

Ambuja Cements

Brokerage: Credit Suisse | Rating: Underperform | Target: Raised to Rs 220

Credit Suisse said that it is cautious on the stock as demand trend is still weak. The stock is factoring in 3-yr upcycle whereas upcycle is yet to start, it said, adding that it has cut CY18 EPS estimate by 13% due to weak ASP.

Brokerage: Motilal Oswal | Rating: Neutral | Target: Rs 290

Motilal Oswal said that limited capacity addition could constrain volume growth. Further, volume is seen at CAGR of 5 percent over CY17-19. While it believes valuations appear expensive, it sees only 10 percent upside from current levels.

Brokerage: CLSA | Rating: Buy | Target: Rs 325

CLSA said that sharp sequential drop in unit costs is inexplicable and observed that some of the cost gains may not continue.

Punjab National Bank

Brokerage: Nomura

Nomura said that the alleged fraud highlights apparent flaws in PNB’s systems, controls, and audits. Further, the impact will not come only from write-offs, but also dilutions at low prices.

Hexaware

Brokerage: Credit Suisse | Rating: Neutral | Target: Raised to Rs 330

The global broking firm increased EPS estimates by 3-6% to account for Q4 results. Further, any potential stake sale by Baring could be an overhang, it said, adding that overall the company has good strategy execution, but have rich valuations.

IT

Brokerage: Nomura

Nomura said that over the last six years, tier-1 has not outperformed top end of Nasscom guidance. But it has retained its cautious stance on the sector and does not see material acceleration in growth in FY19.

Brokerage: Macquarie

Macquarie said that Nasscom’s FY19 guidance hints at marginal improvement. Further, it expects most large firms in India to grow at industry level in FY19. It expects headcount to remain lower than revenue growth rate.

PSU Banks

Brokerage: Nomura

The broking firm is positive on the sector and believes that worst of credit cycle is behind. Core PPOP performance for some banks will continue to improve. Having said that, nature of the alleged scam reduces our confidence level in PSU banks and recent developments may restrict a re-rating in the near-term. It expects operating performance of corporate banks to improve from H2CY18.

MORE WILL UPDATE SOON!!

March series seeing short rollovers; 3 stocks which could give up to 17% return

Short rollover to March series could lead to further selling pressure and long unwinding in coming trading sessions.

Since the inception of February series continuously we have seen selling by foreign institutional investors (FIIs) at higher levels which clearly indicates short buildup and discomfort in the market.

The initial rollover data towards March series also indicates a short rollover. In the expiry week, we have seen aggressive call writing in 10400 and 10500 call strike which indicates that current expiry is likely to close below 10400 levels.

Moreover, short rollover to March series could lead to further selling pressure and long unwinding in coming trading sessions.

The overall data has turned negative and more weakness can be seen moving forward. On technical front, next support is placed around 10200- 10220 levels for the Nifty

Here is a list of top three stocks which could give up to 17% return:

IZMO: BUY| Target Rs 127| Stop Loss Rs 98| Return 17%

The stock is consistently moving up in a rising channel on daily and weekly interval along with supportive volumes on every dip. This week profit booking has been seen in the stock as prices have retraced back towards its short-term moving averages once again.

On a shorter time frame stock has formed double bottom around 99 levels and bounce thereon. Now any move above 108 levels will confirm the next upside in prices moving forward. So, traders can buy the stock above 108 levels for the target of 127 with a stop loss below 98.

HCL Infosystem Limited: BUY| Target Rs 71.50| Stop Loss Rs 55| Return 17%

The stock has formed a cup and handle formation on daily charts and given breakout above the pattern formation last week to test 69 levels. This week once again prices have retraced back towards its breakout levels near 61 and took support at its short-term moving average.

At the current juncture, the positive divergence on secondary indicators like stochastic and Rsi suggest for next up move in prices. So, traders can accumulate the stock in a range of 60-62 for the upside target of 71.50 with a stop loss below 55.

TVS Srichakra Limited: BUY| Target Rs 4200| Stop Loss Rs 3350| Return 15%

If we look at broader picture stock has been continuously trading down from 4300 levels and tested its 100 days exponential moving average on a weekly interval.

Thereon stock has formed a cup and handle formation on weekly charts and given fresh breakout above the pattern formation to once again hold above its short-term moving averages.

Traders can accumulate the stock in a range of 3750-3650 for the upside target of 4200 with a stop loss below 3350.

MORE WILL UPDATE SOON!!

Top 4 stocks to buy in a volatile week which could give up to 11% return in short term

If Nifty see a close below 10350 in next few days then we may be going in for a deeper correction where price may see a downside move to 10100 - 9900.

  

The Nifty 50 ends down for the third consecutive day to close below 100-days SMA at 10,360. The Nifty has ended down for the third consecutive day which it hasn't done since the first week of January.

BankNifty also ended down to 24870 on the back of rising news of frauds in the domestic banking system that is surfacing since PNB scam was unearthed. The recent scam of Rotomac also added jitters to current developments.

Overall cues for the Indian equity markets remained negative on the back of sentiments that have developed in the last two weeks or so.

A complete underperformance by banking stocks and correction in some of the blue-chips also aided in the current correction. A rise in volatility from 13.5 to 17 levels validates the increasing range of market we may see going forward and directional traders.

The Nifty has closed below its 100-days moving average which is a bearish sign. In the next few days, we may see a trend that may be established since Nifty has respected the 100-days MA last two times it tested it and gave a follow up buying on the underlying trend, i.e. Bullish.

It will be critical to see if buying is returning to the market at lower levels to validate the internal strength. If we see a close below 10350 in next few days then we may be going in for a deeper correction where price may see a downside move to 10100 - 9900.

Though, momentum oscillators suggest an oversold market while it will be all line in the sand for Nifty at 10350 and a weekly close below or above it.

Top four stocks which could give up to 11% return in the short term:

Idea Cellular: BUY| Target Rs 93| Stop Loss Rs 80| Return 11%

The stock is trading in the oversold zone and is seeing a reversal in terms of the price structure. A double bottom formation at Rs81 odd levels coupled with a pullback in price seen in the last session suggests a short-term bullish structure that can take prices to Rs93. Investors can keep a trailing stop loss at Rs80

Coal India Ltd: BUY| Target Rs 330| Stop Loss Rs 295| Return 6%

It is one of the outperforming stocks in the oil and gas space which has been in a secular uptrend for the past few months. The recent consolidation seen at Rs290 - 310 levels makes it healthier for next move towards the projected target of 330.

The W pattern along with a flag breakout suggest its overall bullish nature. We suggest buying on dips for the upside target of Rs330 and a stop loss placed at Rs295.

NTPC: BUY| Target Rs 175| Stop Loss Rs 160| Return 7%

The stock is making a reversal pattern on the higher timeframe charts while a recent base building is seen in the stock on the daily chart with the consolidation of more than a week.

A reversal from the oversold zone can also be seen which can take prices higher in the short term with prices retracing to 175 - 177. We suggest placing a stop-loss placed at Rs160.

Infosys: BUY| Target Rs 1190| Stop Loss Rs 1110| Return 5%

The stock has breached its upward sloping trendline and ended its recent price correction from 1200 odd levels to 1100.

A retest of the point of polarity at previous breakout levels and a breakout from bullish continuation pattern suggest that it may see next round of bullish levels. We expect the technical target of the pattern at 1190 while stop loss can be placed at the recent bottom of 1110.

MORE WILL UPDATE SOON!!

Mutual fund Vs Ulip: Does LTCG on equities and MF make Ulips a better investment bet?

Long-term capital gains were tax free in the hands of the investor before Budget 2018.

   

Long-term capital gains are the gains arising from the transfer of the long term capital asset and long term is considered as a holding period of more than one year from the date of purchase.

There is a lot of buzz regarding long-term capital gains post Union Budget 2018. The apparent reason is that the union budget 2018-19 introduced “Long Term Capital Gains (LTCG) tax” for selling equity or equity mutual fund (MF) units or units of a business trust.

Contrasting Facts on Long Term Capital Gains:

Long term capital gains were tax free in the hands of the investor before this Budget. LTCG tax was abolished in the year 2004 to promote long-term investments and accelerate the participation of investors in the equity markets. It was then replaced by security transaction tax (STT). Only short-term capital gains were taxed at 15%, and long-term capital gains were tax exempt in the hands of the investor.

Now, after Budget 2018, investors have to pay 10% tax on the long-term capital gains on the profit reaped exceeding Rs 1 lakh from the sale of shares or equity mutual fund schemes retained for more than a year from the date of acquisition. Long-term capital gains up to Rs 1 lakh is exempted from taxation still. Additionally, the indexation benefit will not be applicable while calculating taxes as it was before. In the current regime, long term capital gain (LTCG) tax and security transaction tax (STT) both coexist which makes India probably the only country to levy these twin taxes.

The long-term capital gains earned till 31 January 2018 will not attract the proposed LTCG tax. It is also known as "grandfathered clause". The new taxation rules will be applicable from 1st April 2018.

Example: If an investor bought equity shares worth Rs 2 Lakh on 1st Jan 2016 and sold the shares for Rs Rs 3.6 Lakhs on 15th Jan 2018 (before 31st Jan 2018). The long term capital gain in this scenario is Rs 1.6 Lakhs. The applicable LTCG tax of 10% as per the current proposal will be for the capital gain exceeding Rs 1 lakh which is Rs 60,000 (Rs 1,60,000-1,00,000). But this will be tax free. However, with effect from 1st April 2018, the long- term capital gains will be duly taxed as the new laws.

Investor’s Dilemma

This tectonic change in the LTCG tax structure has brought disappointment to the investors who possess an adequate risk appetite to invest in equity markets. Investment in equity has been looked upon as the best avenue for the wealth creation beating the inflationary impacts. The retail investors who were dependent on dividends as a source of income are unhappy with this stinging move by the government. Investors take a higher risk by investing in equities to gain potential rise in the investment value. Such gains (either from direct trading or through mutual fund schemes) would shrink with the implementation of LTCG tax. Coexistence of STT and LTCG tax is more aching for the investor.

It could lead investors to move away from investing directly in equities or through equity mutual fund schemes to earn potential returns. Investors must introspect their investment portfolio and relook at their investment strategy towards a wealth building investment option with no tax incidence on the earnings from equity.

ULIP emerges as a tax exempted Investment Instrument

Another opportunity for the investors who are looking for an avenue to get returns through equity linked mechanism is “Unit Linked insurance plans” (ULIPs). The unit linked insurance plan is a combination of life insurance plus investment. ULIPs offer multiple fund options which allow the investor to choose between debt, equity or a mix of both for the investment as per his/her risk appetite for wealth creation. Investment options under ULIPs are similar to mutual funds, and an investor doesn’t have to pay LTCG tax, unlike Mutual Fund.

The catch here is that the gains from investing in equity through a unit linked insurance plan is exempt from LTCG tax as per the current regime which is a substantial pull factor in favor of ULIPs. ULIP enrich the investors with a bundle of additional tax benefits. Maturity proceeds under ULIP are tax exempted under section 10 (10 D) of the Income Tax Act (if the premium during the term of the policy is less than 10% of the sum assured). Also, the premium paid for ULIP is tax exempted up to the limit of Rs 1.5 Lakh under section 80 C of the Income Tax Act.

With the regulator’s intervention in the year 2010, ULIPs have been made more customer friendly with some overhauling changes such as capping the overall charges, extending the lock-in period from 3 to 5 years, hike in minimum life cover, etc.

ULIP being an investment cum insurance plan offers financial security in case of eventualities to provide financial support to the family members of the deceased.With its switching and redirection features, it allows the investor to transfer their funds from one fund to another based on market volatility to ensure optimum performance of the invested amount. Partial withdrawals can also be done under ULIP in the times of need which are again free from tax. ULIPs allows investors to boost their investments through loyalty additions which are additional units allocated at specified years before maturity.

Since ULIPs have a lock-in period of five years, it encourages investors for a long term investment tenure, which will be fruitful to attain higher returns fulfilling their medium to long term financial objectives.

In a nutshell, with the introduction of LTCG tax on equities, ULIPs have emerged as more tax-efficient and wealth creating investment tool for the investors looking for potential gains from equity holdings.

MORE WILL UPDATE SOON!!

Buy, Sell, Hold: 4 stocks are on analysts’ radar on February 19, 2018

Adani Ports, Titan, among others are being tracked by investors on Monday.

Adani Ports

Brokerage: CLSA | Rating: Buy | Target: Rs 505

CLSA said that fresh capex will not hurt our argument of the company tripling its dividend. Further, investments shall be self-financing if the company can seal JV deals in time.

Varun Beverages

Brokerage: CLSA | Rating: Buy | Target: Rs 885

CLSA said that off-season makes Q4 less relevant for the firm. It also said that Q4 contributes <5% of its full-year EBITDA. It also highlighted that the firm has been able to secure the rights for more territories. New Territories & products give the firm an opportunity to expand volume & market share.

HUL

Brokerage: Deutsche Bank | Rating: Buy | Target: Rs 1,700

The global investment bank said that the firm expects Q3 volume growth of 11% to sustain. Further, it said that the company plans judicious price increase to counter inflationary pressure.

Titan

Brokerage: Deutsche Bank | Rating: Buy | Target: Rs 970

The bank said that the firm is a big beneficiary of formalisation in jewellery sector. Further, it said that it has a strategy to launch new collections every quarter.

MORE WILL UPDATE SOON!!

Consolidation to continue but steep correction unlikely; top 10 stocks that can return up to 49%

Overall benchmark indices have been in a tight range and that range bound or consolidation is expected to continue in short term, experts suggest.

  

The market corrected sharply from the start of February, with the benchmark indices losing around 6 percent from their record highs hit on January 29. The Mid-Smallcap indices also fell around 8 percent each.

The market has not seen any major recovery since then as every rally has been sold into due to weak sentiment on the domestic front especially after PNB fraud case. On the other side, it has been getting support from positive global cues, wherein global peers recovered sharply after recent steep fall.

Overall benchmark indices have been in a tight range and that rangebound or consolidation is expected to continue in short term, experts suggest.

They don't see major fall from here on, citing likely robust recovery in earnings globally as well as domestically. If the market corrects sharply by any reason (mostly global cues), then that fall has to be bought into, experts advised as they are not worried.

Pratik Gupta, Head of Equities, Deutsche Bank India is not worried for market due to recent correction of 5-6 percent driven largely by rising US bond yield, which he thinks was actually was good. The market will see such correction intermittently going ahead.

Ratnesh Kumar, MD & CEO of BOBCAPS also said, “I don’t think we are at the cusp of a big correction. We have seen double digit earnings growth after many years and the momentum will only get better."

Gupta also said underlying corporate earnings recovery not only looks robust in India but also globally, and he is still constructive on equities saying it will continue to be the preferred asset class in current year.

Kumar believes the current momentum is a case of risk aversion coming off globally due to rate hike and oil price fears. “Naturally, there will be a laggard performance in such cases among emerging markets,” he told the channel, adding, the blip could be a temporary thing.

He feels the market is good for investment at this stage. Aggressive returns of 2017 may not be repeated, but on a 2-year basis, investors can expect positive returns, he said.

Here are 10 top stocks that can give up to 49% return over next 12 months:

Brokerage: Emkay

Varun Beverages | Rating - Buy | Target - Rs 902 | Return - 37%

We maintain Buy on Varun Beverages with new street-high target price of Rs 902. The 2017 profit increased 31 percent backed by strong international business performance and margin expansion.

We expect this momentum to continue with earnings growth of 32 percent in 2018 and 30 percent in 2019. This will be on the back of recovery in India business.

The India business revenue would rise 18 percent in 2018 supported by recovery in sales volume (post GST shock) and benefits from recently acquired new territories (inorganic growth).

Current valuations (PER of 33.2x and EV/EBITDA of 12.9x CY19E) are attractive given strong EPS growth and ROE expansion. Target price of Rs 902 is based on EV/EBITDA of 17x CY19E (much lower than peer average).

Brokerage: Prabhudas Lilladher

RPP Infra Projects | Rating - Buy | Target - Rs 385 | Return - 34%

RPP Infra (RPP) reported strong execution with stable margins in Q3FY18. It has guided for revenues of around Rs 650 crore with around 14-15 percent EBITDA margins in FY19.

Order book at the end of Q3FY18 stood at Rs 895 crore, with 27 percent from buildings, 32 percent from Water Management and Irrigation and 41 percent from infrastructure and is expected to end the year with a book of Rs 1,200 crore.

Concall Highlights: 1) Seeing great traction in Orders due to the Central Government’s focus on Infrastructure Building especially in Rural Infrastructure Development. 2) Main focus for the company is Water Management Segment due to better margins and expertise 3) Bid Pipeline of Rs 1,500 crore - Rs 5 crore from Concrete Roads, Rs2.75bn from Affordable housing. 4) Aim to reduce Working Capital by 10-15 days from 160 days at the end of Q3FY18. 5) No more tax liability pending. Expecting Rs 2-3 crore write back 6) Not looking at bidding for HAM project now.

We expect RPP to deliver Sales and PAT CAGR of 28 percent/34 percent, respectively, over FY17-20E. We believe the company is a good play on government’s increasing focus on improving rural infrastructure. We maintain a BUY with a target price of Rs 385.

Brokerage: ICICIdirect

PNC Infratech | Rating - Buy | Target - Rs 215 | Return - 26%

We like PNC given its robust order book, strong execution capabilities and lean balance sheet with better working capitalWC management. Furthermore, we believe the company is well poised to capture huge opportunities ahead.

We expect revenues and earnings to grow at CAGR of 40.1 percent, 22.6 percent, respectively, in FY18-20E given the significant ramp up in execution from Q4FY18 onwards with receipt of appointed dates.

Hence, we maintain our Buy recommendation on the stock with a target price of Rs 215. We value its construction business at Rs 182 per share and BOT & HAM projects at Rs 53 per share.

Brokerage: Edelweiss Financial

Welspun India | Rating - Buy | Target - Rs 84 | Return - 27%

Welspun India’s Q3FY18 revenue, at Rs 1,400 crore (4 percent above estimate), fell 7 percent YoY impacted by customer destocking and reduced incentives post GST implementation. While lower cotton prices supported gross margins, EBITDA margin improved a mere 40bps QoQ to 18.1 percent (estimated 20.5 percent) impacted by operating deleverage.

Management mentioned over long term EBITDA margin of 20 percent is sustainable. As we introduce FY20E, we build in 6 percent/10 percent improvement in revenue/PAT and believe all concerns about growth and margins are factored in our expectations.

Rolling forward, we maintain our target EV/EBITDA multiple of 7.0x, giving a target price of Rs 84 (Rs 83 earlier). Maintain ‘Buy’.

Simplex Infrastructure | Rating - Buy | Target - Rs 826 | Return - 43%

Simplex Infrastructure’s Q3FY18 revenue fell 2 percent YoY due to GST impact and client-related issues. However, better cost control led to PAT surging 69 percent YoY.

Improving business prospects (reflected in healthy order inflow) has led to management now shifting focus from consolidation to growth—targeting 20 percent top-line growth going ahead.

Moreover, green shoots are emerging on the working capital cycle front—an elongated cycle had led to higher leverage and constrained growth over the past couple of years.

We believe, a diversified segmental presence and robust execution capabilities will drive around 40 percent PAT CAGR over FY18-20. Maintain Buy with SOTP-based target price of Rs 826 as we roll over to FY20.

Carborundum Universal | Rating - Buy | Target - Rs 426 | Return - 21%

Carborundum Universal’s Q3FY18 consolidated revenue grew 16 percent YoY led by volume growth across segments. While abrasives’ sales grew at 15 percent YoY, electrominerals’ sales growth sustained at 17 percent YoY (around 20 percent YoY in Q2FY18).

Ceramics recovered strongly with sales growing 18 percent YoY, driven by industrial segment. CUMI expects to add around Rs 1,000 crore over next two-three years by ramping up capacities relocated from its South African entities (Bubble Zirconia and Thukela Refractories are operating at less than 25 percent utilisation) and NTK Cylinders (Metz Cylinders) from Japan and growing existing business.

We believe Carborundum is well positioned to ride the demand recovery across segments by scaling up the value chain with advanced products and working towards specialised ceramics and composite-based electrominerals for EVs. Hence, we estimate PAT CAGR of 24 percent over FY17-20.

While stock has underperformed since our downgrade (Hold) in Q1FY18, we upgrade to Buy, led by improving visibility domestically and globally, with target price of Rs 426.

Texmaco Rail | Rating - Buy | Target - Rs 140 | Return - 49%

Texmaco Rail & Engineering’s Q3FY18 topline declined 14 percent YoY as insufficient wagon orders led to wagon revenue plummeting 73 percent YoY. EBITDA margin fell 20bps YoY to 4.1 percent due to operating de-leverage.

Texmaco group is witnessing significant growth across verticals – wagons, coaches, locomotives and rail EPC, leading to overall order book rising to Rs 4,450 crore (around Rs 3,620 crore in Q2FY18). The company’s rich experience places it in ideal position to seize the burgeoning opportunities arising from overhaul of the Indian Railway (IR) network.

Maintain Buy with SoTP-based target price of Rs 140 as we roll over to FY20E.

J Kumar Infraprojects | Rating - Buy | Target - Rs 474 | Return - 39%

J Kumar Infraprojects posted healthy revenue growth (up 24 percent YoY and 44 percent QoQ) in Q3FY18. With operating costs under control, PAT also jumped 24 percent YoY, in line with revenue.

Healthy execution was a result of traction achieved on Mumbai Metro and JNPT projects. With tunneling expected to gather pace in Mumbai Metro Line 3 project, we expect revenue to remain strong.

Robust order book (book-to-bill at 5.5x), lean balance sheet (net debt<0.1x) and ample opportunities in the Metro space render us bullish on the company. Maintain Buy with target price of Rs 474 as we roll over to FY20E.

Brokerage: Motilal Oswal

MCX | Rating - Buy | Target - Rs 1,100 | Return - 48%

Overall volumes for MCX have been soft because of multiple issues (demonetisation, GST, PMLA) reducing Bullion volume to nearly a half in a span of a year. Over first nine-month of FY18, while volume in Bullion declined by 30 percent YoY, that in base metals increased by 17 percent, thereby stemming the overall volume decline to 8 percent. The contribution of Bullion to overall volume has now come down to 23 percent (from 30 percent last year), whereas that of base metals has moved to 43 percent (from 34 percent).

Now that specific issues are behind and regulatory drive has only picked up over the last year, volumes should start seeing growth on a normalised base. To a large extent, this has panned out in the first 1.5-month of 2018 – where ADT has been Rs 23,500 crore versus Rs 20,300 crore in 9MFY18 (and Rs 21,000 crore in 9MFY17).

Over the past year, several regulatory steps have supported a case for volumes uptick. The SEBI allowed trading of Options, with Gold being launched and the full suite expected to be running by 2HFY19. MCX expects Options to add 15 percent to its revenue pool once it starts monetising the product.

While the SEBI allowed Alternative Investment Funds (AIFs) to take commodity exposure, a change in the regulation of custodians was necessary for them to begin. Along with this change, allowing MFs and PMS would further boost institutional participation.

Bank subsidiaries being allowed to distribute commodities opens up large untapped retail participation. While the process is of long gestation, it should result in a meaningful increase over the long term.

With growth returning on the exchange, new products getting launched and steps being taken toward an increase in participation (both retail and institutional), mid-teen growth in ADT over the next few years can be expected. The cost structure for MCX would largely remain stable (with an increase of 3-5 percent expected in non-variable expenses).

Prime Focus | Rating - Buy | Target - Rs 130 | Return - 27%

Revenue grew 20 percent YoY (+11.4 percent QoQ) to Rs 610 crore (in-line), led by robust growth in the Creative business. Yet, EBITDA (pre-ESOP) grew by a meager 4 percent YoY (+6 percent QoQ) to Rs 130 crore (8 percent miss) due to a 25 percent YoY rise in operating expenses. EBITDA margin contracted 320bp YoY (-120bp QoQ) to 20.9 percent (180bp). However, adjusted for one-offs (Rs 10 crore of forex translation accounting, and Rs 10 crore of Montreal set-up cost), EBITDA margin stood at 24.2 percent. Higher finance cost and depreciation led to a loss of Rs 8.7 crore (estimated of profit of Rs 25.8 crore; Rs 22.7 crore profit in the year-ago period).

Creative segment (around 78 percent of revenue) rose 25 percent YoY to Rs 480 crore, led by growing offerings to movie content. Adjusted EBITDA margin grew 230bp YoY to 26 percent. Also, Tech business reversed the previous quarter’s negative trend, growing by 3 percent YoY to Rs 80 crore. However, higher SGA expenses led to a 360bp Tech margin contraction to 23.6 percent.

Prime Focus has a strong order book of more than USD 250 million for the creative segment. This, coupled with the gradual shifting of operations to low-cost centres, is likely to drive strong growth in the creative segment. Furthermore, a steady around USD 200 million pipeline in the Tech business augurs well. We cut FY19/20E revenue/EBITDA by 2-3 percent, and expect consolidated revenue/EBITDA CAGR of 15 percent/19 percent over FY18-20, led by a 21 percent EBITDA CAGR in Creative.

MORE WILL UPDATE SOON!!

These 7 stocks' fundamentals remained robust despite capex doubling over last 5 fiscals

hese companies, doubled their assets without much leverage and were able to maintain a double-digit sales and profit CAGR.

To access earnings visibility of any company, business expansion would be one of the most important factors anyone would look at. And although companies have different ways of going about this, at the very core, they are all headed towards the same goal -- any measures taken should at some point result in more money in the company's coffers.

Bearing this in mind, we at Moneycontrol have shortlisted a few names that  fulfill all the criteria mentioned below:-

• Gross block of the company at least doubled in the past five fiscals. (Average increase over the 5-year term is minimum 50 percent as well).


• The company’s debt to equity ratio did not exceed 0.5 times in any of the past five financial years.


• A return on equity (ROE) of minimum 10 percent was earned in each of the past five fiscal years.


• The 5-year compounded annual growth rate (CAGR) for sales and profit after tax exceeded 10 percent.

Interestingly, only seven companies listed on the BSE met these criteria -- 8K Miles Software Services,  Astral Poly Technik , Infobeans Technologies, Just Dial, Mahindra Logistics, Reliance Nippon Life and Sun Pharma.

Unsurprisingly, these companies, more often than not, are good performers in terms of returns on stock price, as seen in the exhibit below:-

8K Miles and Astral Poly Technik delivered positive returns in 4 out of 5 fiscal years, in the range of 25-583 percent. Just Dial, on the other hand, has been a major underperformer over the years, barring the year it got listed -- 2013 -- when it returned 154 percent.

MORE WILL UPDATE SOON!!

Encouraging report card from earnings season – how to make the most of it?

A detailed analysis of the third quarter numbers of over 7600 companies showed all-around improvement in financial parameters. Aggregate sales growth of 8% was better than the 6.7% in the previous quarter. EBIDTA (earnings before interest depreciation & tax) margins improved a tad as well.

At the start of 2018, market mood was euphoric despite anaemic corporate earnings growth. With the latest earnings season over, the situation is just the opposite. Corporate earnings are looking up—partly the base effect of the demonetisation quarter, and partly the easing of GST woes—but outlook on the market has turned cautious.

All companies – indications of broader recovery, low base may have aided

A detailed analysis of the third quarter numbers of over 7600 companies showed all-around improvement in financial parameters. Aggregate sales growth of 8% was better than the 6.7% in the previous quarter. EBIDTA (earnings before interest depreciation & tax) margins improved a tad as well.

Post-tax profit grew 4.9%, a turnaround considering the decline of 8% during the third quarter of the previous year. A notable trend was the reduction in overall interest outgo, as interest cost as a proportion of sales at 12.4% was 70 basis points less compared to the preceding quarter.

The number of companies reporting a decline in profitability also fell from the previous quarter.

Nifty – back in the double-digit growth trajectory

For the companies in the headline Nifty index, the double-digit growth in profitability was impressive.

For the group, the year-on-year growth in sales, operating profit and net profit at 9%, 18% and 13.6% respectively was much better compared to 7.4%, 14.7% and 9.7% growth reported in the previous quarter.

What’s even more interesting is the fact that the performance was largely driven by non-financial companies, with their overall profitability rising by a healthy 15.3%.

The numbers from the financial pack was somewhat marred by the loss reported by State Bank of India on account of higher provisioning post the asset quality divergence from RBI’s audit. Consequently, for the aggregate of all the financial companies in the Nifty, the profitability growth was a modest 6.8% although the private sector pack reported a steady show.

Besides SBI, the other notable misses from Nifty were the two large pharmaceutical companies –Dr Reddy’s and Lupin as well as Tata Motors.

Pharmaceutical sector continues to reel under pricing pressure for the US generic business besides company-specific issues with the US regulator. We do not see this reversing in a hurry and investors got to place their bets selectively. For Tata Motors, their luxury car business under Jaguar Land Rover was disappointing although domestic business staged a turnaround.

PSU banks – poor show that might continue this way for a while

Amid the otherwise comforting earnings picture, public sector banks disappointed, with most of them reporting losses. Results were weighed down by higher provisioning for non-performing assets as well as investment depreciation and lower treasury gains on account of hardening of yields on Government securities.

The poor show by PSU banks impacted the aggregate picture for the BSE Small cap index (significant decline in profitability) that has a meaningful representation of state-owned banks.

Sectoral trends – consumers, CVs and metals strong

For the market’s favourite mid-cap space, the performance of the BSE Mid Cap index was reassuring with significant improvement in operating performance (operating profit growth of 23%) leading to 7% growth in profit, against a profit decline of 13.4% reported in the immediately preceding quarter.

The notable trends within the broader universe was a decent performance of large number of consumer companies, both discretionary as well as staples (thanks to the low base of demonetisation) with encouraging volume performance and positive commentary about revival in rural demand.

In the automobile pack, commercial vehicles along with ancillary companies catering to this sub-segment were the stand out performers.

Cement companies had a modest quarter where despite some improvement in volumes, cost pressures took away the sheen.

In the infrastructure space, road and railway capex related companies continued to report robust performance. While private capex still remains elusive, many of the companies alluded to green shoots in order recovery.

Metals space had a strong show and the effect trickled down to smaller companies in the ecosystem.

The largely positive sectoral trends had their reflection in the aggregate performance of BSE 500 index that reported significant improvement in profitability.

A decline in interest cost pushed up the performance of the BSE 200 aggregate as well.

The truly winning sector - IT

However, the sector that truly deserves a mention in this quarter is Information Technology (IT). While the commentary from large and mid-sized companies seem to suggest a stronger pipeline of deals and a better year ahead, some of the midcap companies are beginning to see better days with ramp up in their digital revenues. The worst clearly seems to be behind for the sector, but investors need to differentiate men from the boys.

How should investors be positioned?

In sum, the result season broadly was an incremental positive for the markets. Now the tailwinds from earnings will confront several headwinds like the continued strength in commodity prices and hardening of G Sec (government securities) yields on inflation outlook etc.

The recent circular directing banks to recognise asset quality stress upfront will not only warrant higher near-term provision but can push the capex recovery beyond 2019 elections besides exerting pressure on yields (should the government commit more funds for salvaging banks).

The trend in GST collection also remains a critical monitorable in impacting the direction of government finances as well as interest rates.

Finally with the global economy is on a strong footing, the hardening of rates in developed world could lead to outflow of capital from emerging markets.

The street is pinning hopes on a very robust earnings recovery of the order of mid-twenties. The debacle in the baking space raises serious doubts about the magnitude of the earnings recovery.

While we expect earnings momentum to sustain in Q418 aided by the weak base partially, we are still not convinced about heady growth numbers in FY19 and believe that the aggregate growth in profitability could be in high-teens.

Nifty is fairly valued at 18.5x FY19 projected earnings. However, the current phase of consolidation (also led by introduction of LTCG tax) could throw up interesting investing opportunities.

Looking beyond the near-term noise of populism and politics, a stable political formation post FY19 could set the stage for reforms version 2 and support secular recovery in the markets. Selective buying of high conviction ideas in this consolidation phase would therefore prove rewarding.

MORE WILL UPDATE SOON!!