• by Stocktry Expert
• 18th Feb 2021

Post Q3 Earnings Show, Analysts Upgrade These 25 Stocks to 'Buy'

December quarter results season has been better than expected and going ahead. Experts also feel that the earnings recovery is expected to continue for coming quarters. Given the measures announced by the government pre-and as part of the Budget, analysts are hopeful of further upgrade in earnings estimates for FY22 and FY23.

"This is the third quarter in a row, we have witnessed better than estimated earnings performance from majority of the companies and consequently we have seen more earnings and price target upgrades in this quarter till now," Sanjeev Hota, Head of Research at Sharekhan by BNP Paribas.

Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities also believes the March quarter could see good growth in sales and earnings because of the low base effect.

"As per Bloomberg consensus estimates, March 2021 could see 42 percent aggregate earnings growth in Nifty50. In March 2020 quarter of last year there was a big negative surprise in earnings because of the lockdown announced in late March," he said.

Here’s a collated list of stocks that have been upgraded to 'buy' rating post the December quarter earnings:

1. HIL

"HIL's goal is to become a $1 billion company by FY25. Demand is expected to be good, backed by a good monsoon/harvest and higher infra and farmer income from the Budget. Debt of Rs 241 crore was repaid in 9MFY21 leading to a D/E of 0.52x (1x on March 2020). The low cost benefit of Brazil fibre is expected from Q1FY22. We upgrade our rating on the stock to a buy, with a higher target of Rs 3,589 (Rs 1,675 earlier) at 13x FY23 estimated PE," Anand Rathi said.

2. Hero MotoCorp

"Hero MotoCorp (HMCL) reported a healthy Q3FY21 performance. For HMCL, we build 17 percent sales, 20 percent PAT CAGR in FY21-23. We upgrade HMCL from hold to buy, valuing it at Rs 4,000 (20x P/E on FY23E EPS; previous target price Rs 3,480) on healthy demand outlook and unchanged long term comfort drivers i.e. capital efficiency, high dividend payouts, debt free balance sheet along with consistent cash generation," ICICI Direct said.

3. Ipca Laboratories

"IPCA's Q3FY21 numbers were ahead of estimates led by one-time growth in tender business and healthy operating performance. Based on the growth outlook, we estimate significant strengthening of IPCA's balance sheet and expect the company to have around Rs 1,600 crore net cash by FY22. This will provide IPCA with significant financial capacity to step-up growth investments if the opportunities arise. Factoring in the strong Q3, we increase our earnings estimate by 6 percent for FY21. At CMP, the stock trades at 20.7x FY22 and 18x FY23 EPS. Post the recent correction, we upgrade rating to buy, with a target of Rs 2,258," Dolat Capital said.

4. Apollo Tyres

"We expect sales, EBITDA CAGR at 13.8 percent, 18.5 percent, respectively in FY21E-23E with PAT CAGR seeming optically higher due to exceptional charge incurred in FY21 on account of restructuring at its Dutch plant. We are enthused by ATL's revived focus on sweating of existing assets, deleveraging of balance sheet and attain healthy capital efficiency. We upgrade the stock from hold to buy, valuing ATL at Rs 300 i.e. 6x FY23E EV/EBITDA (previous TP Rs 200)," ICICI Direct said.

5. Visaka Industries

"Its BP division's continued strong performance and the improving yarn division's performance aided Visaka’s revenue, EBITDA and PAT grow 16 percent, 95 percent and 275 percent respectively YoY. The company announced V-panel capacity expansion along with the ongoing V-board expansion to cater to rising demand. Despite the capex, with the better performance and working-capital management, the balance sheet is likely to strengthen further. We upgrade our rating to Buy, with a target of Rs 572 (earlier Rs 356)," Anand Rathi said.

6. Nocil

"We upgrade rating on Nocil to a buy with a higher target of Rs 200 (earlier Rs 160). We raise our estimates and expect 40 percent, 57 percent and 60 percent CAGRs in revenue, EBITDA and PAT respectively over FY21-23. The growth drivers are positive guidance by global and domestic tyre manufacturers, rising rubber consumption, shifting of supply from China to India, higher exports and better demand globally. Further, the ongoing expansion will help the company address growing demand and improve its market share. It is aiming at an 8-10 percent market share globally," Anand Rathi said.

7. P&G Hygiene and Healthcare

"Two factors make PGHH an attractive long-term core holding: a) huge category growth potential in the Feminine Hygiene segment (around 67 percent of sales), coupled with potential for market share gains due to considerable moats, and b) potential for higher margin gains from premiumization in the Feminine Hygiene segment over the long term. With the return of strong topline and earnings momentum and among the best of breed RoEs of over 50 percent, valuations look attractive at 48.7x/40.5x FY22E/FY23E EPS. Upgrade to buy with a target of Rs 14,000 per share," Motilal Oswal said.

8. Ajanta Pharma

"Ajanta Pharma reported stellar Q3 beating our estimates on the operating performance. Factoring the strong 9M performance, we increase FY21 and FY22 estimates by 16 percent and 9 percent respectively. At the CMP, Ajanta is trading at 22x and 19x its FY22E and FY23E EPS, respectively. Post the recent correction, we upgrade rating to buy, with a target of Rs 2208. Volatility in the emerging markets remains a key risk," Dolat Capital said.

9. HDFC

"Robust individual disbursement at 26 percent YoY, margin expansion of 20-30 bps and collection efficiency at 97.6 percent (near pre COVID level) remain key characteristics of revival in individual business that comprises around 72 percent of book. Subdued collection and stress accretion in non-individual book is offset by provision buffer at around 2.6 percent of advances. Business growth led by adequate capital and healthy earnings visibility on the back of funding advantage and provision buffer keeps us positive on the fundamental strength," ICICI Direct said.

"We expect earnings to grow at 14 percent CAGR in FY21-23E with healthy RoA at 2.2 percent in FY23E. Rolling over to FY23 estimates, we arrive at a target of Rs 3,100 (earlier Rs 2,200), value core business at 2.6x FY23E ABV and subsidiaries at 15 percent holding company discount. We upgrade our rating from hold to buy," the brokerage added.

10. Tech Mahindra

"While Tech Mahindra's Q3FY21 revenue was in line to our forecast, EBIT margin was a big beat. Tech Mahindra confirmed that the deal-pipeline remains robust and it is confident of TCV improving in Q4 and beyond. We factor Q3FY21 beat, largely maintain our revenue forecast and increase FY21, FY22 and FY23 estimated EBIT margin forecast by 122bps, 176bps and 134bps to 13.9 percent, 14.2 percent and 14.1 percent and EPS by 7.9 percent, 10.8 percent and 7.8 percent respectively," IDBI Capital said.

"We now forecast revenue/EPS CAGR of 8.9 percent/11.3 percent over FY21-23. We now value the stock at 17x FY23E (16x earlier), vs. 1-year forward PER range of 8x-18x in the last 5-year, and increase target to Rs 1,108. We upgrade the stock to buy from accumulate earlier," the brokerage added.

11. Dhanuka Agritech

"We upgrade DAGRI to BUY (from accumulate) with revised target price of Rs 953 (previous 868) based on 18x FY23 EPS of Rs 53 as we roll forward to FY23 estimates. We have also increased PAT estimates for FY21-23 by 4-5 percent. DAGRI reported better-than-expected EBITDA growth of 46 percent to Rs 50.2 crore (PL estimates Rs 40.5 crore) driven by better sales mix and sharp growth in fungicides segment. Q4 is expected to be another good quarter driven by demand, due to deferment of season from Q3 and low base effect due to lockdown in Q4. Its robust pipeline of 10 new products will drive growth for the next 2 years," Prabhudas Lilladher said.

"Moderation in dividend payout is likely for next 2 years, as DAGRI would fund capex with internal accruals. Return ratios may also be impacted post commencement of investment in the technical plant. We believe that this is the right time for investment, as it will secure raw material supply and open up export markets at a time when MNCs are diversifying away from China," the brokerage added.

12. Indian Oil Corporation

"IOC's Q3FY21 result was a beat to our estimates owing to robust performance from marketing and petrochemicals business. Volume across segment rebounded to pre-COVID levels where ATF is yet to catch up while Petrochem volume grew 25 percent YoY. Factoring higher marketing margin and up cycle in petrochem, we raise FY22 and FY23 EBITDA estimates by 11 percent and 9 percent respectively. We raise target to Rs 113 from Rs 87 earlier and upgrade the stock to buy from accumulate," IDBI Capital said.

13. Manappuram Finance

"We continue to see good traction in its core gold loan portfolio with healthy AUM growth and controlled OPEX. Cost of funds has declined by 18bps QoQ in Q3FY21 which has resulted margins improvement. Also, Non-gold business of the company started showing improvement thus aiding into the profitability," Arihant Capital Markets said.

"We believe company has the potential to deliver RoA and RoE of 6 percent and 24 percent respectively by FY23 driven by high spread business and operating leverage. We rollover our estimates to FY23E and value the stock at 1.5x P/ABV to its FY23E ABV of Rs 133 to arrive at a fair value of Rs 199 per share. We upgrade our rating to buy from accumulate earlier," the brokerage added.

14. Accelya Solutions

"Accelya has been witnessing improved revenues (up 19.6 percent QoQ in Q2FY21) mainly led by easing of lockdowns across countries and improved volumes in the airline industry. Going forward, we expect improving trend in revenues to continue in coming quarters led by recovery of economy and improved volumes in airline segment. Hence, we upgrade the stock from hold to buy with a revised target price of Rs 1,100 (17x PE on FY23E EPS) (earlier target price Rs 1,070)," ICICI Direct said.

15. Exide Industries

"We believe EIL trades at fairly reasonable valuations (around 13.6x FY23E core EPS) and turn positive on the stock. We upgrade EIL from hold to buy with a revised SOTP target price of Rs 225 (earlier target Rs 200), valuing battery business at Rs 180 i.e., 16.5x P/E & insurance & smelting operations at Rs 45," ICICI Direct said.

16. SAIL

"SAIL remains exposed to sharp fall in profitability in case steel cycle weakens due to its high and sticky fixed costs. However, we believe the steel cycle is likely to remain positive over the coming two years and SAIL is likely to benefit from higher volumes, improvement in profitability and lower leverage. Lastly, valuation at 3.5x FY23E EV/EBITDA is inexpensive. Hence, we upgrade the stock to a buy, with a target of Rs 76," IDBI Capital said.

17. Aarti Industries

"AIL's growth trajectory is likely to improve with pickup in economic activities and recovery in discretionary spend (textiles, autos, aerospace etc; around 40 percent of AIL's revenues). AIL has been creating new capacities and with a diversified product portfolio of 200 products remains well placed to capitalize on rising investment in domestic downstream industries along with production shift from China. We remain structurally positive on AIL’s growth prospects and upgrade the stock to buy with a TP of Rs 1,314 (PER of 25x FY23 core earnings versus 24x FY22 earlier)," Prabhudas Lilladher said.

18. Coforge

"Consistent large deal wins, digital prowess, client mining in BFS & Insurance, healthy order book and revival in travel segment are expected to drive long term revenues. This, coupled with improving margins, prompt us to have a positive view on the stock from a long term perspective. Hence, we upgrade the stock from hold to buy with a revised target price of Rs 2,875 (26x PE on FY23E EPS) (earlier target price of Rs 2,690)," ICICI Direct said.

19. RBL Bank

"We expect RBL to resume healthy growth in FY22 and FY23, which coupled with moderation in LLP should drive better RoEs at 9 percent and 13 percent from a low of 5 percent in FY21. The bank is well-capitalised. The current MD has offered his name for term extension, easing immediate concerns around management continuity. With a decent upside (>15 percent) to our TP of Rs 290 post recent correction, we upgrade RBL to buy from hold," Emkay Global said.

20. Emami

"Emami's stronger recovery with two consecutive quarters of double-digit volume growth provides significant upsides to our forecasts and makes us turn positive on the stock. We raise FY21-23 estimated EPS by 13-15 percent and upgrade the stock to Buy from Hold with a revised TP of Rs 580 (from Rs 350), valuing it at 33x FY23E EPS," Emkay Global said.

"We expect Emami to sustain growth momentum on account of the benefit of strong rural demand, re-energized portfolio, aggressive distribution expansion and a step-up in cost saving initiatives. Reduction in group leverage and promoter pledge is also positive," the brokerage added.

21. Lupin

"We upgraded Lupin to buy from hold earlier with a revised price target of Rs 1,350. New launches with high market opportunities (such as Metformin Hydrochloride extended release tablets, Sevelamer Carbonate Tablets, Tacrolimus) and faster than expected ramp up in ProAir, would drive US sales," Sharekhan said.

"Given improved growth traction in the US & India business and cost rationalisation efforts is likely to result in a strong 37 percent earnings CAGR over FY2021-FY2023," the brokerage added.

22. Cadila Healthcare

"We upgrade Cadila to Buy from Hold and raise the TP to Rs 655 from Rs 430. Our bullish view is based on 1) consistent double-digit revenue growth in the core business, coupled with 200bps EBITDA margin expansion during FY20-23E; 2) upside from Saroglitazar in PBC and NASH; and 3) potential success of Covid-19 vaccine, ZyCoV-D," Emkay Global said.

23. SBI Life Insurance

"SBI Life delivered a 7 percent de-growth in APE on 9MFY21 basis versus 14 percent de-growth in H1FY21 on back of 13 percent NBP YoY. Margins also improved by 50bps to 19.3 percent from H1 to 9M mainly on higher share of non-PAR especially led by individual protection. Although, in our view, despite mix change & decent volumes margin improvement was slightly slow, offset by faster recovery in ULIPs," Prabhudas Lilladher said.

"Looking from 9MFY21 we increase our estimates with 3 percent APE growth and margin tailwind from (i) conservative operating assumptions (ii) re-pricing of certain products especially protection which could see volume-pricing impact and (iii) improving growth, helping deliver closer to 20 percent VNB margins and 19 percent growth in ROEV for FY21 with tailwinds of same continuing in FY22/FY23. Favourable risk-reward (trading at 2.0x FY23), strong operating metrics and recent underperformance has led us to upgrade to buy (from accumulate) with revised TP to Rs1,080 (from Rs 1,026) on 2.5x FY23 EV," the brokerage added.

24. Mold-Tek Packaging

"We believe MPL is strengthening its positioning in IML packaging by expanding capacity, new products launches and entering into new markets. The company’s long standing association with its customers, increasing share of high margin Food and FMCG segment in total sales, backward integrated operations and strong pedigree of management bodes well for its future growth. We upgrade the stock to buy (from accumulate) with a revised target of Rs 400 (earlier Rs 335), assigning 17x PER on FY23E," IDBI Capital said.

25. Advanced Enzyme Technologies:

"We believe that SciTech Specialties Pvt Ltd. (SSPL) acquisition is an opportunistic move and would be a net positive for the overall earnings momentum of the business in the long run. We raise our EPS estimates for FY22 and 23 by 7 percent and 8 percent respectively and raise our target to Rs 368 (+11 percent) at FY23E (at 20x) EPS, upgrading to buy rating from hold earlier (remain EW in EAP)," Emkay Global said.