The 110% increase in DMart’s net profit does not impress investors; analysts see massive downside

Radhakishan Damani’s Avenue Supermarts reported a sharp 110% increase in net income in the July-September quarter, but did not impress investors as the stock fell more than 5% on Monday morning. Analysts were also unimpressed, advising investors to sell the stock, predicting downside potential and pointing to extremely expensive valuations. The DMart share price initially peaked at Rs 5,899 per share but quickly slipped from highs and was near an intraday low of Rs 5,014 per share. So far this year, the DMart share price has soared 85%.
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Buy HDFC Bank; target of Rs 2000: Motilal Oswal

HDFCB reported an inline quarter with NII/PPoP growth of 12%/14% YoY and PAT growth of 18% YoY to INR88.3b (inline). Profitability came in strong despite creating an additional contingent provision of INR12b, thus taking the total buffer to ~INR78b (~0.65% of loans). The bank witnessed a healthy pickup in business momentum as deposits / loans were up 4.5% QoQ each. Retail segment grew ~13% YoY while Commercial and Rural Banking grew robustly at 27.6% YoY. CASA deposits grew 29% YoY and the ratio now stands at 46.8% (+130bp QoQ). On the asset quality front, GNPA/NNPA ratio improved by 12bp/8bp QoQ to 1.35%/0.4%, with slippages moderating to INR53b (1.8% of loans). On the other hand, the restructured book increased to 1.5% of loans (v/s 0.8% in 1QFY22). The management said the net impact of the restructured book on NPAs is likely to be 10-20bp. Higher provision coverage, along with a contingent provision buffer, provides comfort on asset quality.
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Buy Mahindra CIE; target of Rs 300: Motilal Oswal

MACA’s strong performance in 3QCY21 was driven by strong revenue trajectory in its India operations, while its EU operations were affected by chip shortages and an adverse exchange rate. New order for EVs provides support against an expected loss of revenue growth in its ICE-dependent portfolio. We largely maintain our EPS estimates, despite good beat in 3QCY21, as we factor in the impact from semiconductor shortages. We maintain our Buy rating.

Buy Infosys; target of Rs 1960: Motilal Oswal

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E. Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution. Motilal Oswal’s research report onInfosys.

Neutral Mindtree; target of Rs 4460: Motilal Oswal

MTCL delivered another excellent quarter, with a revenue of USD350m (+12.8% QoQ, est. 8.3%), driven by broad based growth across verticals and regions. The only pocket of weakness in 2QFY22 was in its top client (flat QoQ), which now accounts for 24% of revenue (exposure down by ~600bp v/s the peak in 1QFY21). Deal TCV stood at USD360m (-29% QoQ/+19% YoY), with a good mix of annuity and transformational deals. EBITDA margin rose 20bp sequentially, despite the impact from a wage hike. Margin in 2QFY22 was aided by operating leverage and currency benefits, which was partially offset by a wage hike (~140bp QoQ). EBIT margin benefitted from lower depreciation, given the strong growth. -Net additions (2,476, +9% QoQ) were strong in 2QFY22. MTCL added ~2k freshers in 2HFY22, which is expected to continue. During our AGIC, the management had indicated that it plans to hire 4-5k freshers in FY22. This implies continued management conviction on the demand environment.

Neutral Wipro; target of Rs 710: Motilal Oswal

WPRO reported a strong (8.1% QoQ CC) revenue growth in IT Services in 2QFY22, ahead of our estimate of 6.9%. Organic growth (excluding Capco) of 4.5% QoQ also came in ahead of our estimate. The management highlighted that the growth was broad based in 2QFY22, including at Capco, which it is delivering ahead of plan. Despite a M&A impact and wage hike, EBIT margin in IT Services was flat QoQ (excluding a one-off in 1QFY22) at 17.8%, 170bp ahead of our estimate. It reported a TCV of USD580m in 2QFY22, down 19% QoQ. Deal TCV is up 19% YoY in 1HFY22. WPRO’s operational metrics remain impacted by supply tightness, with attrition increasing by 500bp QoQ to 20.5% and utilization (excluding trainees) of 89.2% (+240bp QoQ), despite adding 11.5k employees (5.5% of its 1QFY22 strength). The management expects attrition to further inch up in 3QFY22 and said it will take a few quarters to normalize. 3QFY22 revenue growth guidance of 2-4% QoQ (including impact of Ampion acquisition) was in line with our estimate. We see the guidance as positive, given the supply constraints and seasonality, but remain watchful on margin as the company continues to operate ahead of its guidance of 17-17.5%. We now expect FY22 IT Services’ revenue growth at 28% (19.5% YoY organic growth). With better than expected margin performance, we have raised our FY22E/FY23E EBIT margin estimate by 100bp/30bp, which will result in a FY21-23E PAT growth of 13%.

Top stocks bought by mutual funds in September: Aditya Birla AMC stocks among top fund buys

Mutual fund managers continued to corner stocks of early stage companies in September, with Aditya Birla Sun Life AMC and Vijaya Diagnostic being in the portfolios of several mutual fund companies. According to data from Edelweiss Alternative Research, fund managers have deployed Rs 15 billion in IPOs, most of it going to Vijaya Diagnostic. The fund houses have invested nearly Rs 8 billion in the IPO of Vijaya Diagnostics. In addition, mutual funds have seen their weight increase in public services, pushing it to a seven-month high, while decreasing the weight of the telecommunications sector and private banks, said analysts at Motilal Oswal.

Federal Bank Q2 Net Profit seen up 22.1% YoY to Rs. 375.6 cr: Motilal Oswal

Federal bank — Motilal Oswal has come out with its second quarter (July-September’ 21) earnings estimates for the Banking sector. The brokerage house expects Federal Bank to report net profit at Rs. 375.6 crore up 22.1% year-on-year (up 2.3% quarter-on-quarter). Net Interest Income (NII) is expected to increase by 5.2...

Union Bank of India Q2 Net Profit seen up 113.3% YoY to Rs. 1,102 cr: Motilal Oswal

Next on the list of lenders offering lowest interest rate on education loans is, expectedly, another public sector giant. Union Bank’s interest rates start at 6.8 percent, with the EMI amounting to Rs 29,990. — Motilal Oswal has come out with its second quarter (July-September’ 21) earnings estimates for the Banking sector. The brokerage house expects Union Bank of India to report net profit at Rs. 1,102 crore up 113.3% year-on-year (down 6.7% quarter-on-quarter).

IndusInd Bank Q2 Net Profit seen up 61.9% YoY to Rs. 1,073.5 cr: Motilal Oswal

Representative image — Motilal Oswal has come out with its second quarter (July-September’ 21) earnings estimates for the Banking sector. The brokerage house expects IndusInd Bank to report net profit at Rs. 1,073.5 crore up 61.9% year-on-year (up 5.7% quarter-on-quarter). Net Interest Income (NII) is expected to increase by 13.1...