5 stocks to watch

Stock recommendations for Q4 earnings season: Looking at stock market moves in FY22, there is a lot of hope for Indian corporate profits in the fourth quarter, even though inflation, a war and hostile central banks have shaken the feeling. The next leg of the market trend will likely be led by fourth quarter earnings – starting with IT majors like TCS and Infosys. HDFC Bank is expected to announce its figures on April 16.

Kotak Institutional Equities analysts expect aggregate net profit for companies in the BSE-30 index to rise 26% year-over-year for Q4FY22. Nifty 50 companies can record net profit growth of 27 percent.

This would mean earnings per share for BSE-30 companies would increase to Rs 2,680 in FY23 and Rs 3,000 in FY24. This robust growth would be led by banks, oil and gas companies, utilities utilities, metals and mining, and consumer durables.

Financial companies such as banks are expected to post robust balance sheet growth after a weak streak in recent quarters. In addition, the recovery of economic activity would lead to a reduction in stressed assets, which would further strengthen profitability.

Here are five stock recommendations from Angle One Ltd. for the next earnings season:

Sobha Limited – Target Rs 1,050

Reasoning

The Company operates in residential and commercial real estate as well as contract business. Businesses 70% of residential pre-sales come from Bangalore market which is one of the IT hubs in India, we expect new hires by IT industry will increase residential demand in South Indian market. We have seen a strong consolidation among listed players in India, after the crisis of Demon, RERA, IL&FS. Listed players have been gaining market share in new launches over the past 2-3 years, we expect this to continue in the coming quarters. Levels of inventory ready to move and inventory under construction fell to their lowest levels. Clients now have a preference for brand players like Sobha Developers Company which is expected to launch 17 new projects/phases spread over 12.56 million square feet in various geographies. The majority of launches will come from existing land reserves. The company has a land park of approx. 200m² of salable area.

Oberoi Realty – Target Rs 1,250

Reasoning

Oberoi Realty is a real estate company, focusing on the MMR region, having commercial highs in residential and commercial real estate. The company released strong numbers in Q2FY22 and we expect the residential real estate growth momentum to continue over the next two quarters, similar to Q3FY22. It owns Oberoi Mall (0.5 msf), Commerz (1.1 msf) and West Hotel (269 room keys). We expect occupancy levels to improve in CY2022. Good consolidation is seen across India among the top 10 players, who now hold 11.2% market share, up from 5.4% in 2017. We believe the top 10 players will continue to gain market share .

HDFC Bank – Target Rs 1,859

Reasoning

HDFC Bank is India’s largest private sector bank with an asset portfolio of Rs. 11.3 lakh crore in FY21 and a deposit base of Rs. 13.4 billion. The Bank has a very well-distributed portfolio, with wholesale making up about 54% of the asset portfolio, while retail makes up the remaining 46% of the loan portfolio. Q1FY22 figures were impacted due to the second wave of Covid which led to an increase in GNPA/NNPA from 15/8 QoQ basis points to 1.5% and 0.5% advances. Restructured advances at the end of the quarter were 0.8% of advances, compared to 0.6% in Q4FY21. The bank recorded NII/PPOP/PAT growth of 8.6%/18.0%/16.1% for the quarter despite higher provisioning thanks to strong loan growth of 14.4% year-on-year. NIMs for the quarter were down about 10 basis points sequentially to 4.1% due to interest write-offs and product mix changes. Management said 35-40 days of recovery was lost, but expects a healthy recovery from slippages in 2QFY22, which should lead to lower credit costs going forward. Given best-in-class asset quality and the expected rebound in growth from Q2FY22, we are positive on the bank given reasonable valuations at 3.0xFY23 adjusted accounting, which is below historical averages. We value the stock on the adjusted book of 3.7xFY23 and arrive at a target price of Rs. 1859.

Ashok Leyland – Target 164

Reasoning

Ashok Leyland Ltd (ALL) is a leading player in the Indian CV industry with a 32% market share in the M&HCV segment. The company is also very present in the fast-growing LCV segment. Demand for MHCV was affected after the peak due to multiple factors including changes in Axel standards, an increase in prices due to the implementation of BS 6 standards followed by a sharp decline in demand due to the current Covid-19 crisis. While the demand for the LCV segment increased sharply after the pandemic, the demand for the MHCV segment also started to recover in the last months before the 2nd lockdown. We believe the company is uniquely positioned to capture renewed growth in the CV segment and will be the biggest beneficiary of the government’s voluntary scrapping policy and therefore will price the stock as a BUY.

Federal Bank – Target Rs 135

Reasoning

The federal bank is one of India’s largest older generation private sector banks with total assets of Rs. 1.9 lakh cr. with deposits of Rs. 1.56 lakh cr. and a loan book of Rs. 1.2 lakh cr in F21. NPAs have remained stable for the bank over the past few years with a NPA for Q3FY21 at 3.38% while the NPA ratio stood at 1.14%. The PCR at the end of T3FY21 was around 67%, which we believe to be adequate. The restructuring book is expected to be at Rs. 1,500 to 1,600 crore of which Rs. 1,067 crore has already been restructured. This goes against earlier expectations of a total restructuring of Rs. 3,000-3,500 crores.

Warning:Disclaimer: The views and investment advice of the experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before making any investment decision.

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About Jean R. Manzer

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