Analysts hike earnings estimates for these 9 stocks: Share price could give double digit returns These nine stocks are likely to offer a potential double-digit appreciation in the share price
The sharp volatility since October 2024 has made the key Indian equity benchmark Nifty 50 the world’s worst-performing equity index based on returns generated between 30 September 2024 and 12 December 2024. The analysis is based on 22 world equity benchmark indices that cover the US, Europe, Asia, Russia and Latin America and are sourced from Reuters-Refinitiv. The Nifty 50 lost over 4.89% during the period.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} One of the key reasons for the turbulence is the deterioration of corporate India’s performance in the September quarter. An Emkay report shows that after several quarters of positive growth, the aggregate adjusted PAT growth of BSE 500 companies declined by 0.5% year-on-year.
The performance deteriorates further if the financial sector companies are excluded as the adjusted net profit growth declines to 9.8% year-on-year (ex-financials). Muted government spending, excess rainfall and asset quality stress in some segments of BFSI are some of the reasons for the drop in the performance of India Inc.
In addition, mixed demand trends also contributed to the poor quarterly earnings. While there is an uptick in rural demand due to the low base and normal monsoons, rising inflation is affecting demand in urban India. An India Strategy report by Prabhudas Lilladher observed moderation across high-frequency indicators, including retail sales, FMCG consumption, and real estate activity. The weak quarterly performance has also affected the ICR or interest coverage ratio (that indicates a firm’s ability to honour its debt payments) of corporate India. An analysis by ICRA indicates a decline in the ICR (based on 590 sample companies) to 4.1 times in the September 2024 quarter compared to 4.5 times in the corresponding period of the previous year amid a decline in operating profits and higher interest outgo.
What’s driving the volatility?
In addition to poor earnings performance, factors like FPI sell-off, high valuations, rising inflation and geopolitical uncertainties in the Middle East and Ukraine have contributed to the recent volatility. After a massive selling of Rs.94,017 crore of net equities in October 2024, FPI’s shareholding in Indian equities hit a 12-year low of 16%. Though it improved marginally to 16.1% in November 2024, the shareholding remains lower on a year-on-year basis. The data is compiled from a JM Financial report.
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Looking at valuations, the Nifty 50’s premium relative to its historical average has improved after the recent correction, but it remains significantly higher compared to the emerging markets. The valuation premium in terms of 12-month forward PE compared to its 5-year average has come down to 5.2% at the end of the first week of December 2024 compared to 12.7% at the end of September. However, compared to MSCI EM and MSCI World Indices, the premium stood at 76% and 14% respectively.
The recent macro data also presents a complex picture. While consumer inflation eased to 5.48% in November 2024 from a 14-month high of 6.2% in October 2024, food inflation continued to remain notably high at 9.04%. On the other hand, GDP growth slowed to a seven-quarter low of 5.4% in the second quarter of 2024-25. A recent newsletter by Wodehouse Capital Advisors says that there are evident signs of stagflation that necessitate recalibrated strategies to navigate this turbulence.
The RBI, in its latest monetary policy review, has significantly lowered the GDP growth estimate for 2024-25 to 6.6% from 7.2%, while raising the inflation forecast for the same period to 4.8% from 4.5%.
Weak consumption hurt performance of Indian companies* in the second quarter of 2024-25
Analysts now anticipate a rate cut next year after the Budget.
Headwinds drag estimates
Performance concerns are evident in analysts’ earnings revisions for 2024-25 and 2025-26 during the September quarter earnings season, with most companies seeing PAT downgrades between 30 September and 30 November.
Poor manufacturing growth dragged India’s second quarter GDP to a multi-quarter low
There are 450 companies for which net earnings estimates for 2024-25 are compiled by Reuters Refinitiv for a minimum of four analysts. Out of these 304 (or 67.5%) saw a downgrade in estimates during the selected period. On the other hand, there are 448 companies with PAT estimates for 2025-26 and out of these, 312 (or 69.6%) saw downgrades during the period. Construction materials, energy and consumer staples faced widespread earnings downgrades for 2024-25 and 2025-26, while financials and real estate saw upgrades.
Earnings expectations
Most experts anticipate a better second half of 2024-25, driven by increased government spending, improving rural demand, the wedding and festive seasons, and stable commodity prices. However, experts believe that external challenges could play spoilsport. Keval Bhanushali, Co-founder and CEO at 1 Finance says that while the festive season and increased government spending will support performance, uncertainties surrounding geopolitical risks, including ongoing wars, tariff impositions, and fluctuating crude prices, add layers of complexity to the outlook.
Government capex rebounded in the September quarter and is expected to improve further
Profit margins in the second half of 2024-25 are expected to improve compared to the first half. Sreeram Ramdas, Vice President at Green Portfolio PMS, notes that input prices, particularly for steel, copper, and crude oil, continue to decline. Combined with favourable freight costs for Indian exporters, this is likely to boost corporate India’s margins in the latter half of the fiscal year. Sector-wise, companies that are highly dependent on exports are at risk of performance deterioration. Gaurav Garg, Research Analyst, Lemonn Markets Desk, highlights Electronics System Design & Manufacturing (led by government-backed policies ), BFSI (driven by possible rate cuts and attractive valuations), power ancilliaries (supported by power infrastructure and green energy initiatives), infrastructure (aided by a likely jump in government expenditure) and jewellery (boosted by wedding and festive season) as sectors expected to perform better in the second half of 2024-25.
Higher consumer inflation is negatively affecting urban demand
Global outlook
The global macroeconomic outlook for 2024-25 remains challenging for emerging markets, including India, due to a stronger USD, higher US long-term rates, slower Fed rate cuts, limited easing in emerging markets, and potential higher US tariffs on China. “Globally, growth is expected to remain uneven, with the US and Europe facing subdued activity while China’s recovery remains uncertain,” says Anirudh Garg, Partner and Fund Manager, Invasset PMS.
Poor show in Sep quarter led to increase in earnings downgrades
Some experts believe India will remain insulated from macro headwinds. According to Goldman Sachs’ India 2025 outlook report (released in November 2024), the Indian economy and equity markets have lower sensitivity to China/global growth and a lower beta to the US dollar and interest rates, reducing the impact of external macro risks.
How to approach the market?
Slower credit growth, muted demand, and weak household incomes are key headwinds affecting market sentiment. Experts suggest focusing on goal-based investing and avoiding market timing. “The current volatility is temporary and offers a good entry point for strong businesses. India’s medium-term growth story, driven by its demographic dividend and rising middle class, remains intact,” says Mohit Khanna, Fund Manager, Purnartha.Analysts recommend focusing on quality companies with reasonable valuations. “Retail investors should avoid stock ideas with low earnings quality; due diligence is crucial in such times,” says Sahil Shah, Managing Director & Chief Investment Officer, Equirus. Investing in mutual funds can also help manage market volatility. Feroze Azeez, Deputy CEO, Anand Rathi Wealth, advises diversifying equity investments across mutual fund categories to reduce concentration risk. He also emphasises building a balanced portfolio using equity and debt mutual funds, given their low correlation.
To identify good quality stocks after a weak quarter when most companies saw a downgrade in earnings estimates, ET Wealth identified nine stocks where analysts have upgraded the full-year earnings or PAT estimates for both 2024-25 and 2025-26. Such upgrades indicate fundamental soundness that can be due to increased demand for products, efficient cost management, or market share expansion. The change in earnings estimates is considered from 30 September (before the start of the September quarter earnings season) and 30 November. The data is sourced from the Reuters-Refinitiv database, and it is ensured that estimates are provided by at least five analysts.
The nine stocks identified currently offer a potential double-digit appreciation in the share price over the next one year - by Dec 2025.
Godrej Properties
The real estate company reported a healthy operational performance in the September quarter with 219% and 360% year-onyear jump in sales and PAT respectively. While strong project deliveries of 6.6 million square feet (msf) supported revenue growth, higher other income aided the bottom line. In the first half of 2024-25, it achieved 51% of its 2024-25 full year booking guidance. It has a strong launch pipeline (across Gurugram, Noida, Mumbai, Pune and Hyderabad) in the second half of 2024-25. This, combined with healthy underlying demand and a strong brand, will help the company exceed its annual guidance for 2024-25. Moreover, its focus on higher economic interest projects and strong momentum in sales booking has helped in strong operating cash flow generation. Such cash flows are expected to remain healthy for the remaining part of the current financial year.The management continues to invest in new geographies and despite rising land prices, it sees significant business development opportunities across key micro markets. An Elara Capital report released after the September quarter results highlights strong micro-market selection, marginand cashflow-accretive project additions, growing economic share, deeper penetration in existing markets, and expansion beyond the top six-seven markets as the key strengths.
HDFC Life Insurance Company
The life insurance company reported strong APE (annual premium equivalent) growth of 27% year-on-year in the September quarter, supported by ULIPs and non-Par segments. While the VNB (value of the new business) registered 17% growth, VNB margins contracted by 200 basis points year-on-year amid the repricing of non-Par products and a higher share of ULIPs in the product mix.The management has guided APE growth of 18-20% and VNB growth of 15-17% for 2024-25. It is also taking steps to reduce the impact of new surrender value regulations on VNB margins through a change in product mix, repricing of non-Par saving products, and renegotiating distributor commissions. Moreover, its strategy to focus on customer acquisition and improving penetration in tier 2/3 markets will bode well for the company.
Analysts list balanced product mix, channel productivity, strong distribution network, product innovation, focus on agency channel through investment in franchise and improving persistency across cohorts as the key strongholds. An Ambit Capital report that was released after the September quarter results estimates 17% VNB CAGR over 2024-25 and 2026-27. The growth will be driven by investments in distribution channels, branch network expansion by HDFC, reduction in competition (amid higher special surrender charges that will result in rationalisation of IRRs and commissions across the industry) and initiatives to improve margins.
PNB Housing Finance
The housing finance company reported a healthy 23% year-onyear PAT growth in the September quarter aided by provision writebacks and higher other income. The disbursements and AUM grew by 28% and 10.8% year-on-year driven by strong growth in affordable and emerging markets verticals.While the affordable and emerging geographies loan book saw 68.5% and 31% year-on-year growth, the corporate book saw a 35.7% decline. The management expects growth in corporate loans to revive in the second half of the current financial year. The company expects its retail loans to reach Rs.1 lakh crore by 2026-27 with a presence across 500 branches (there are 300 branches currently). Moreover, the growth in high-yielding affordable and emerging segments will also improve NIMs in the future.
The asset quality continues to improve aided by a combination of cleaning balance sheets through writeoffs, stringent risk management, credit underwriting and robust collection efficiency. The management expects recovery from the writtenoff pool will be sustained in the near term, which is likely to keep credit costs low.
An ICICI Securities report that was released after the September quarter results says that the company’s revamped business strategy with a focus on high-yielding retail assets, tight control on asset quality, greater thrust on corporate NPA resolution, high RoA and effective liability management are its key strongholds.
Max Financial Services
The Max group company that manages Max Life Insurance reported a decent performance in the September quarter with 31.3% and 23.1% year-on-year growth in APE and VNB respectively. The growth in APE was driven by strong performance in ULIPs, retail protection and non-Par savings.While the VNB margins witnessed a sequential expansion (due to operating leverage, volume growth and higher rider attachment), there is a contraction on a year-on-year basis amid a change in the business mix. Moreover, the persistency across cohorts witnessed a year-on-year improvement during the quarter.
The management has guided for VNB margins of 23-24% for 2024-25 after factoring in 100-200 basis points impact due to change in surrender value regulations. The impact will be neutralised over the next few quarters through a change in commission structures and the addition of new product features. It continues to invest in various channels of distribution to drive growth and the board’s approval to include Axis Bank as a part of its brand name and brand identity will boost its competitive positioning. An Elara Securities report that was released after the September quarter results believes that the company is well positioned to deliver faster-than-industry and private sector growth on account of improvement in distribution from the agency channel, strong growth in the Axis channel on account of rebranding and strong product offerings.
Inox Wind
The integrated player in the wind energy market reported a robust September quarter with 2 times and 4 times jump in revenue and PAT on a year-on-year basis. Moreover, it reported a net profit of Rs.90.2 crore compared to a net loss of Rs.29.2 crore in the corresponding quarter of the previous year. The performance was supported by improved execution. The company executed 140MW orders during the quarter compared to 77MW in the September 2023 quarter.It remains a key player in the commercial and industrial (C&I) segment and benefits from a duopolistic market in wind EPC. The company has received an order inflow of 1.2GW in the first half of 2024-25 and has an orderbook of 3.3GW, which provides healthy execution visibility over the next two years.
The management expects EBITDA margins to improve in the future due to its strong operational capabilities, ceasing of royalty payments for WTG (wind turbine generators) technology licensed from American Superconductor after 2024-25 and backward integration initiatives.
Furthermore, new synergies are being added through unlisted arms in C&I (IGREL) and solar modules/cells (Inox Solar). A recent Nuvama report believes that the company’s growth visibility is backed by industry tailwinds of 12-14GW TAM annually, technological edge, high-margin maintenance services and a robust balance sheet.
Prestige Estates Projects
The real estate company reported a moderate performance in the September quarter with 3% and 7% growth in sales and EBITDA on a yearon-year basis. The sales bookings of Rs.4,020 crore during the quarter were 43% lower on a yearon-year basis amid muted launches due to delays in approvals. However, it has a strong launch pipeline of Rs.52,000 crore in the second half of 2024-25, which keeps its growth outlook intact. Though uncertainty regarding project approvals continues to remain a risk, the management expects to surpass its growth guidance of 25-30% if the launch pipeline materialises. The company has also raised Rs.5,000 crore during the quarter through the QIP route, which will be used for debt repayment, project capex and business development.Furthermore, the expansion of the annuity portfolio (office + retail) will boost rental to Rs.3,360 crore by 2027-28 (operating and ongoing projects), compared to Rs.740 crore in 2023-24.
An Antique Stock Broking report that was released after the September quarter results say that the company’s diversification strategy will help it to capitalise on the ongoing housing upcycle. The report mentions the company’s strong presence in three key markets—Bengaluru, Hyderabad, and MMR—and focus on growing foothold in new markets like Noida, Chennai, and Pune as the key positives.
Power Finance Corporation
The infrastructure finance company (and state-owned NBFC) reported a healthy performance in the September quarter with 14% year-on-year growth in PAT supported by strong NII and other income that registered 18% and 23% growth. Moreover, improvement in NPAs with the resolution of Lanco Amarkantak, provision reversal and dividend income further boosted profitability.The disbursements were strong across segments which led to the AUM growth of 10% year-onyear. The transformation strategy (recommended by BCG) is progressing well, and the management expects disbursements growth momentum to continue. It is set to benefit from the growing power demand and the government’s focus on renewable energy. Moreover, the company is diversifying its portfolio and exploring financing opportunities in segments other than power projects like electric vehicles and charging infrastructure, biorefinery projects, solar panels, etc. Such diversification will act as a driver for sustained loan growth. Moreover, the company has made significant progress on stressed asset resolutions. The improvement in asset quality is expected to keep credit costs lower. A Motilal Oswal report that was released after the September quarter results lists good visibility on loan growth, earnings growth, stressed asset resolutions, and healthy return ratios as the key strongholds.
Hindustan Aeronautics
The aerospace and defence company reported a 6% year-on-year growth in revenue led by the repair and overhaul (RoH) segment whereas PAT grew by 21.8% aided by better operational performance and higher other income. The order book remains robust, which provides strong revenue visibility. Moreover, the order pipeline is promising with `1.5 lakh crore of orders expected over the next 1.5 to 2 years for light combat helicopters, naval utility helicopters and different versions of fighter jets. In addition, steady order inflow is also expected in the RoH segment.However, the company’s 2024-25 revenue will be impacted due to execution challenges amid supply chain issues in procuring F-404 engines from GE. This has delayed a large order for Tejas MK 1A aircraft. To address the issue, the company is exploring alternate suppliers and local production options.
Analysts list the company’s strong execution capabilities, robust return ratios, export opportunities, attractive valuations and strengthening of India’s air defence as the key strongholds. The government has recently upgraded the company’s status to Maharatna PSU, which enhances its financial and operational autonomy.
A Prabhudas Lilladher report that was released after the September quarter results lists the government’s push on indigenous procurement of defence aircraft, a robust order book, strong technological capabilities with the development of advanced platforms (Tejas, AMCA, GE-414 & IMRH engines, etc.) and operating leverage benefits as the growth catalysts.
Amber Enterprises India
The solution provider for the HVAC (heating, ventilation and airconditioning) industry reported a strong performance in the September quarter aided by robust growth in consumer durables and electronics segments. While the revenue and EBITDA registered 82% and 91% growth on a yearon-year basis, it reported a net profit of Rs.19.2 crore compared to a net loss of Rs.6.9 crore in the corresponding period of the previous year.The company is ramping up its electronics segment to cater to the growing opportunities in the EWS industry. Acquisition of Ascent Circuits, JV with Korea Circuits and capacity expansion plans in PCB will drive incremental revenue growth in the electronics segment. On the other hand, the consumer durables segment is benefiting from the strong AC demand. The segment is expected to do well in the future led by product additions (tower air conditioners and cassette air conditioners), export opportunities and new customer additions.
However, the railways segment outlook continues to remain weak due to project execution delays and a shift in the government’s focus towards non-AC coaches. The management expects the segment to improve from 2025-26 onwards aided by product trials of the Yujin JV greenfield facility.
An AnandRathi report that was released after the September quarter results estimates the company’s revenue and RoCE to jump to 37% and 20.6% respectively in 2026-27 from 25.6% and 8.3% respectively in 2023-24 led by strong electronics and mobility tailwinds.
Note:Current price as on 10 December 2024. Nifty 50 12M forward PE: 21 times. Source: Reuters Refinitiv
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This story originally appeared on: India Times - Author:Faqs of Insurances
