100% profit growth in Q1! Should you invest in these Nifty companies?
Data showed that 10 Nifty companies logged more than 100% growth in net profit in Q1FY22, while eight companies turned around
The earnings season for the June quarter has come to an end with 41 components of the Nifty pack reporting a rise in quarterly profit. Overall, the bottom line of Nifty50 companies jumped more than 175% year-on-year (YoY) to Rs 1.27 lakh crore due to a low base in the same quarter last year. The corresponding quarter of FY21 was a watershed for India Inc as the country came to a complete halt due to the Covid-19 pandemic.
Over 100% profit growth
Data showed that 10 Nifty companies logged more than 100% growth in net profit in Q1FY22, while eight companies turned around during the quarter under review. On the top, ONGC posted over 51 times YoY rise in net profit at Rs 5,985 crore. Brokerage Prabhudas Lilladher is positive on ONGC with a target price of Rs 155.
“ONGC stock underperformed the broader index, due to divestment concerns of the government of India’s share and inefficient capital allocation policies. However, we are positive about long-term prospects given production improvement in new projects, higher crude oil realisation with low cost, and attractive valuations,” Prabhudas Lilladher said.
It was followed by Grasim Industries (up 611%), Hero MotoCorp (up 333%), Larsen & Toubro (up 287%), Bajaj Auto (up 196%), Power Grid (up 193%), Indian Oil (up 174%), Asian Paints (up 160%), UltraTech Cement (up 114%) and Axis Bank (up 114%). On the other hand, total net sales of Nifty companies also increased by 44% YoY to Rs 12.93 lakh crore.
From the list, IIFL Securities is positive on Hero MotoCorp with a target price of Rs 3,300. “Retail demand for two-wheelers is improving much slower than seen post the 2020 lockdowns, due to wider impact of Covid in its second wave. This, combined with relatively higher dealer inventory, may keep dispatches muted in the near term. We expect YoY growth in volumes to come in H2FY22. Margins, which have been under pressure due to rising input costs, seem to be bottoming out. Management is hopeful of RM benefit in H2FY22,” the brokerage said.
On the other hand, Motilal Oswal Financial Services had a ‘Neutral’ call on Grasim with a target price of Rs 1,590.
“We raise our FY22E and FY23E standalone EBITDA by 18% and 6%, respectively, to factor in an improved demand outlook and better margin for both the VSF and chemicals. The holding company discount of 46% is in line with its 10-year average of 48%,” Motilal Oswal said.
Up to 100% rise in profit
As many as 22 Nifty firms posted up to 100% growth in net profit in Q1FY22. IndusInd Bank and Shree Cement posted over 90% growth in the bottom line. On the other hand, Adani Ports, State Bank of India, Coal India, ICICI Bank, BPCL, HDFC, Tech Mahindra, Wipro, ITC, TCS, Cipla UPL, Infosys, NTPC, HDFC Bank, Divi’s Labs, Nestle, HUL, HCL Technologies and Bajaj Finance posted 4%-75% growth in net profit.
Brokerage KR Choksey is bullish on FMCG major HUL with a target price of Rs 2,805. “We expect revenue, profit after tax CAGR to grow by 6% and 14.4%, respectively, during FY21-23E, respectively. We continue to apply a P/E multiple of 63 times (to reflect the resilient nature of the business amid Covid-19 and benefits derived from the GSKCH merger) to the FY23E EPS of Rs 44.5 per share. We upgrade the rating on the shares of Hindustan Unilever to a “Buy”, KR Choksey said.
Turnaround stories
Data available with Ace Equity showed that eight companies reported a profit in Q1 against losses in the corresponding quarter last year. Some of the Nifty companies in the list including Bharti Airtel, Titan, Sun Pharma, Maruti Suzuki, Tata Steel, Hindalco Industries, Eicher Motors, Mahindra & Mahindra and JSW Steel.
Elara Capital has an ‘Accumulate’ call on Maruti Suzuki with a target price of Rs 8,030. “While raw material cost pressure would remain a headwind in H1FY22, price hikes in April and July 2021 would aid gross profit per vehicle, thus improving H2 outlook,” the brokerage said.
On the other hand, players like Kotak Mahindra Bank, Reliance Industries, Britannia, Bajaj Finserv, Dr Reddy’s Labs, HDFC Life, SBI Life, Tata Consumer and Tata Motors reported 2%-47% drop in net profit.