Kotak expects strong growth in earnings for these sectors – banks, capital goods, IT services, metals & mining and upstream oil & gas
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After a good March quarter, all eyes are on earnings for the June quarter, which are likely to remain strong on a year-on-year basis. Kotak Institutional Equities expects net profit for the BSE 30 index to increase 72 percent YoY but decline 3 percent QoQ. The Nifty 50 index is expected to increase 127 percent YoY and 6 percent QoQ.
“We estimate EPS of the BSE 30 index at Rs 2,303 for FY22 and Rs 2,631 for FY23 and of the Nifty 50 index at Rs 715 for FY22 and Rs 813 for FY23,” it said.
The brokerage expects strong YoY growth in net income for almost all sectors – banks on account of lower provisions and better performance by large banks, and the capital goods space, which will be supported by strong order inflows and improved availability of manpower.
IT services will get a boost from a higher number of billing days, increased spending intensity across verticals, and a ramp-up of strong deal wins from earlier quarters.
A sharp increase in realisations and volumes will support metals & mining, upstream oil & gas, and consumable fuel companies.
On a QoQ basis, Kotak Institutional Equities expects net income to decline 11 percent due to the second COVID-19 wave for most sectors, led by RM headwinds, a sharp increase in commodity prices, and a sequential decline in volumes.
Here’s a list of 10 stocks collated by Kotak that could more than double their PAT in the June quarter on a year-on-year basis:
Amara Raja Batteries: PAT could rise 101 percent
Kotak Institutional Equities sees a more than 100 percent YoY growth in adjusted PAT for Amara Raja Batteries.
However, revenue for battery manufacturer could decline by 16 percent QoQ, led by a 12-15 percent QoQ drop in the automotive replacement segment, a 25 percent QoQ decline in the automotive OEM segment and a 25-30 percent QoQ fall in the industrial segment. On a YoY basis, revenue could rise by over 50 percent.
The EBITDA margin is expected to decline by 170 bps QoQ, led by a negative operating leverage (120 bps QoQ negative impact) and a marginal fall in gross margins due to higher lead prices (60 bps QoQ negative impact).
Bajaj Auto: PAT likely to rise by 104 percent
Bajaj Auto’s adjusted PAT could grow more than 100 percent.
Volumes for the two- and three-wheeler maker increased by 127 percent on a YoY basis in the first quarter, led by a low base effect. However, YoY and QoQ numbers are not comparable due to COVID-19 disruptions.
“We expect EBITDA margin to decline by 115 bps QoQ due to hike in raw material prices (-200 bps QoQ), partly offset by price increase and cost reductions,” the report said.
Balkrishna Industries: PAT likely to rise by 184 percent
Balkrishna Industries’ adjusted PAT may rise 184 percent in the quarter ended June.
“We expect volumes to grow by 5 percent QoQ at 71,400 MT in 1QFY22, particularly due to strong demand in the agricultural segment (60 percent of revenue) and recovery in the OTR segment,” said the report.
Revenue for the tyre manufacturing company will likely increase by 8 percent QoQ led by a 3 percent QoQ increase in ASPs and a 5 percent QoQ increase in volumes.
The EBITDA margin may increase by 25 bps QoQ due to operating leverage benefits, partly offset by raw material headwinds in the first quarter.
Escorts: PAT likely to grow by 103 percent
Kotak sees a 103 percent YoY growth in adjusted PAT for Escorts in the first quarter.
Revenue may increase by 61 percent on a YoY basis, led by a 43 percent YoY rise in tractor volumes, aided by a low base effect, and a 100-268 percent YoY increase in railway and construction segments.
“We expect EBITDA to double YoY, led by operating leverage benefits in 1QFY22. On a QoQ basis, we expect EBITDA margin to decline by 140 bps due to contraction in gross margin on account of rise in input costs,” said the report.
Exide Industries: PAT likely to grow by 224 percent
Exide Industries may post a 224 percent YoY growth in adjusted PAT in the first quarter.
The battery manufacturer’s revenue may grow by over 48 percent on a YoY basis, but decline by 22 percent on a QoQ basis, led by a 25-30% QoQ drop in the automotive OEM segment, a 15% QoQ fall in the automotive replacement segment and a 25-30% QoQ decline in the industrial segment.
“We expect EBITDA margin to decline by 220 bps QoQ due to a negative operating leverage (170 bps negative impact) and a marginal decline in gross margin owing to a rise in lead costs (40 bps negative impact),” said the report.
Hero MotoCorp: PAT likely to grow by 572 percent
Hero MotoCorp’s adjusted PAT may rise six-fold in the first quarter.
Revenue for the largest two-wheeler maker is expected to increase significantly on a YoY basis due to a low base effect, with an 82 percent rise in volumes.
“We expect EBITDA margin to decline by 290 bps QoQ led by negative operating leverage. Gross margin is likely to remain stable on a QoQ basis as raw material cost pressures will likely be managed by the company through price increases and LEAP savings,” said the report.
MRF: PAT likely to grow by 602 percent
Tyre manufacturer MRF is expected to post an over 600 percent YoY growth in adjusted PAT in the quarter ended June.
Revenue may increase by about 60 percent on a YoY basis, but decline by 18 percent QoQ led by a >25% QoQ volume drop in the passenger vehicle, two-wheeler and commercial vehicle markets (20 percent of revenue) and a 15-20 percent QoQ volume fall in the replacement and export segments (80% of revenue), partly offset by price hikes in April and May.
“We expect EBITDA margin to decline by 310 bps QoQ in 1QFY22 due to a sharp increase in the raw material basket and negative operating leverage, partly offset by cost-cutting initiatives,” Kotak said in the note.
Axis Bank: PAT likely to grow by 188 percent
Axis Bank’s PAT may almost triple in the quarter ended June.
“We expect loan growth at 12 percent YoY with a greater focus on retail. NIM (net interest margin) will be unchanged QoQ at 3.7 percent (aided by lower interest de-recognition). The operating profit growth would be at ~20% YoY, led by strong revenue growth,” it said in the note.
Shriram Transport: PAT likely to grow by 135 percent
PAT for Shriram Transport Finance is expected to more than double in the first quarter.
The brokerage firm expects the company to report an over 12 percent increase in revenue on a YoY basis, but a 2 percent QoQ decline.
The loan book is likely to narrow by over 2 percent on a QoQ basis on the back of lower disbursements in the first half of the quarter. NIM compression (down 20 bps QoQ) reflects an increase in balance sheet liquidity.
Astral: PAT likely to grow by 257 percent
Kotak sees an over 200 percent YoY growth in adjusted PAT for Astral, a maker of CPVC pipes and fittings, in the quarter ended June.
“We expect revenue to grow 7 percent on a two-year CAGR basis, reflecting higher pipe volumes and realisations due to the uptick in PVC and CPVC prices,” it said in the note.
The brokerage expects the EBITDA margin to decline to 19 percent from 22.6 percent in the previous quarter, impacted by negative operating leverage.
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