Earnings Review: ICICI Direct lists 5 stocks that positively surprised in Q3

Pranati Deva
Updated: 28 Feb 2023, 03:54 PM IST
TL;DR.

Margin recovery was the key highlight for Q3FY23,ICICI Direct noted in an earnings review report. The brokerage stated that Nifty's operating margins (ex-financials) rose 230 bps QoQ to 17%, primarily led by savings realised from lower raw material costs as gross margin expanded 230 bps QoQ. This is after a low of 14.7% margin recorded in the last quarter. On an aggregate basis (ex-financials), the Nifty topline for Q3FY23 was largely flat QoQ with EBITDA up 16% QoQ and PAT up 16.6% QoQ. Meanwhile, on a YoY basis, Nifty topline was up 16.9% YoY while PAT was down 3.9%. The brokerage has come out with 5 stocks that positively surprised during the quarter. These companies posted a strong set of numbers for Q3FY23, which, ICICI Direct believes, are more fundamental and sustainable in nature. Let's take a look:

ABB India: The brokerage has a ‘buy’ call and a target price of ₹3,735 for the stock, indicating an upside of 18%. ABB reported a strong performance in the December quarter with revenue up 15.5% YoY owing to better execution and value-added volume mix. Strong margin growth was led by revenue mix, operational efficiencies coupled with cost optimisation and favourable forex fluctuation. Hence, PAT surged 58% YoY. Going Forward, the brokerage expects ABB to continue to focus on the recovery of growth industries like electronics, railways & metros, data centre, warehousing and other large core industries amid a revival of the long due capex cycle. It expects revenue, and EBITDA to grow at CAGR of 18.5%, and 26.7%, respectively, in CY21-24E due to strong traction in short-cycle products and services. 

Bank of Baroda: The brokerage has a target of ₹200 for the stock with a ‘buy’ call, implying a potential upside of 22%. BoB reported a robust performance with the highest quarterly profit, up 75.4% YoY, led by robust credit growth at 19.7% YoY and elevated margins at 3.4%. Healthy treasury income and recovery from written-off accounts coupled with a decline in NPA provisioning enabled an improvement in earnings. Moderation in slippages (<1%) led to further improvement in GNPA and NNPA to 4.53% and 0.99%, respectively. ICICI Direct retains its ‘Buy’ rating on BoB given the anticipated recovery in credit momentum coupled with lower credit costs ahead. The continued benefit of faster repricing of assets in Q4FY23 coupled with steady opex and credit cost is seen keeping RoA at 1% in FY24-25E with an upward bias, it said. Factoring credit growth at 13% CAGR in FY24-25E, it expects PAT to grow at 32.9% CAGR to ₹17,062 crore and RoA at 1% in FY25E.  

Dr Reddy's: The brokerage is bullish on the stock and has a target of ₹5,210 for the pharma stock, indicating an upside of 17%. The company put up a strong performance during Q3FY23 with revenues up 27.2% YoY mainly due to the surprise in the US business, which grew a massive 64% YoY due to the new launches besides continued traction from gRevlimid. This was followed by the upbeat performance from Russia & CIS markets. India business grew in double digits. If adjusted for Covid growth, pharmaceutical services and active ingredients witnessed growth due to favourable currency movements, said ICICI Direct. On the operational front, EBITDA showed robust growth of 60.6% YoY whereas margins grew 597 bps YoY to 28.7%, supported by a better product mix. Adjusted PAT increased 81.1% YoY to ₹1251 crore. It remains positive on the company’s growth story based on simultaneous launches across major geographies.  

Larsen and Toubro: The brokerage is positive on the stock with a target of ₹2,795, implying an upside of 26%. L&T reported a decent Q3FY23 with standalone revenue up 8.3%, standalone EBITDA up 10.3% YoY, and margins flat YoY at 8.3%. Order inflows were strong, up 21% YoY. L&T has become more selective in choosing business opportunities coupled with a strong backlog allowing the company to use discretion in winning relatively profitable orders, noted ICICI Direct. The prospect pipeline is quite robust given Q4FY23 opportunity pie of ₹4,87,000 crore is still 50% of the opportunity pie at the beginning of FY23E, it added. “With a strong order inflow and improving margins, we expect L&T to achieve revenue, and EBITDA CAGR of 15.1%, and 16.6%, respectively, in FY22-25E," predicted the brokerage. "Also, we upgrade EPS for FY23E to 54.2, FY24E to 74.5 and FY25E to 90.1,” it said.   

Tata Motors: The brokerage sees a 20 percent upside in the stock and has a target of ₹530. Tata Motors posted a robust performance in Q3FY23. JLR reported EBITDA margins of 11.9%, up 160 bps QoQ while CV business reported EBITDA margins of 8.4% & PV business reported margins at 6.9%. The company reported a positive PAT figure after seven quarters. ICICI Direct expects healthy 18.2% revenue CAGR over FY22-25E driven by 13.8% total volume CAGR and a healthy 20% RoCE profile by FY25E. It also upgraded the stock to ‘Buy’. Incrementally, positives are further fundraising and valuation pegging in the E-PV domain and board approval for a partial stake sale of the company’s holding (74.4% stake) in Tata Technologies through the IPO route, noted the brokerage.

First Published: 28 Feb 2023, 03:54 PM IST