Earnings: Oasis in the desert Amid continued downgrades, 6 firms witnessed upgrades forthree quarters in a rowand most of these make for good investment bets

SHEETALAGARWAL most analysts polled by benign crude oil prices and note. The government’s sup­ , 22 August Bloomberg have a ‘sell’ recom­ reducing working capital and portive stance against imports mendation on the stock, with interest costs. While diesel is another positive, though any ndia Inc’s earnings growth their average target price of price deregulation has been a discontinuance on this front has disappointed investors ?309, indicating a downside major positive for and will aid could impact the stock, and Iover the past few quarters, potential of 20 per cent from their marketing margins, the the domestic industry. as well as the past couple of the current levels. stock prices could rise further years. However, the March From the rest, here are some led by gradual increase in the M&M Financial Services quarter was relatively better. companies investors can con­ price of kerosene; full de-regu- M&M Financial Services Revenue growth came ahead sider on declines, given that lation will provide a big boost. stands to gain from a good of Street expectations, as well their stocks are also close to In fact, both can further gain monsoon, given its strong as over the preceding few quar­ analysts' target prices. These from value unlocking in their presence in rural markets. The ters. The trend in the June have been selected on earnings investments in Numaligarh improving rural outlook will quarter numbers so far is growth prospects and Refinery and HPCL-Mittal not only boost loan growth but mixed. Slowing economic favourable (buy) ratings by bro­ Energy, due to improving out­ also rub off favourably on its growth, high debt and a virtu­ kerages. look of refining business. asset quality as the loan repay­ HEALTHY PROSPECTS al freeze on greenfield capex BPCL’s Q1 results are on ment ability of existing bor­ Com pany FY 16-18E P/B P/E by private companies are BPCL/HPCL September 1, but on Monday rowers improves. The falling EPSCAGR(%) FY17E(x) FY17E(x) among the factors that have Oil marketing companies HPCL reported a 30 per cent cost of funds, along with an Corporation -0.3 2.7 12.1 hurt Inc’s results. Hence, HPCL and BPCL could witness year-on-year increase in net uptick in loans to the high- Corporation -7.0 2.1 9.9 it is no surprise a large part of flattish compounded annual profit to ?2,098 crore. yield segments of tractors and JSW Steel 132.4 1.8 13.6 the companies in BSE 100 growth in earnings over FY16- Favourable developments in utility vehicles could push up stocks universe have witnessed 18, according to Bloomberg its exploration and production the net interest margins as Mahindra & Mahindra Financial 31.3 2.6 18.5 earnings downgrades for many consensus estimates. But, that business will be another cata­ well. However, as the company UPL 20.6 3.417.5 quarters now. isn’t worrying the Street, given lyst for BPCL. In this backdrop complies with the Reserve Vedanta 43.0 1.1 12.8

However, there six stocks the improvement in opera­ of structural improvement in Bank rule of recognising bad E: Estim ates; EPS: Earnings persh a re; P/E: price to earnings that have seen increase in their tional parameters and business, most analysts are loans earlier (90 days versus P/B: price to book; Compiled by BS Research Bureau Source: Bloomberg one-year forward (FY17) earn­ enhanced visibility. These positive on both. 120 days currently), the non­ ings estimates for three quar­ companies had witnessed a performing assets ratios could basis points. A diversified port­ businesses will be key cata­ ters in a row now based on data significant improvement in JSW Steel trend slightly upwards. folio along with continued lysts for Vedanta, say ana­ till June 30. These eight com­ FY16 net profit, on the back of The company is likely to post focus on branding and new lysts. Increased availability panies include Bharat diesel price deregulation and strong double-digit volume UPL product launches are key pos­ of cheaper coal will also drive Petroleum Corporation, virtually nil underecoveries, growth. JSW has also been gen­ UPL is among the key benefi­ itives. The company could also cost efficiencies. “The merg­ Hindustan Petroleum, JSW creating a high base in the past erating healthy free cash flows ciaries from a good monsoon. derive synergy benefits from er of Cairn India will provide Steel, Mahindra and Mahindra financial year. Prior to this, and has high efficiency and Continued traction in the Latin merger of Advanta in FY18. Vedanta the much-needed Financial Services, UPL and their profits were highly conversion cost parameters American market, 20 per cent Unfavourable movements in access to its rich cash flows Vedanta. volatile, given the uncertain vis-a-vis other manufacturers. of revenues, will be another currency and sustained low and substantially improve Grasim and , too, timing of government com­ “We believe JSW will be able factor fuelling growth. crop prices are downside risks. tight liquidity at the stand­ figure in the list. But, given the pensation towards the undere­ to recalibrate its costs in the Management expects revenues alone entity level,” says recent merger of Aditya Birla coveries. So, a flattish earnings current challenging steel mar­ to grow 12-15 per cent this year Vedanta Tarang Bhanushali, analyst, Nuvo with Grasim, investors trajectory isn't worrisome. ket, better than peers, given its and earnings before interest, Improving prospects and IIFL. Reducing the debt bur­ may want to wait for more clar­ Going ahead, both these track record,” analysts at JM taxes, depreciation and amor­ capacity expansion of its den would also aid cash ity. For Tata Steel, though, companies stand to gain from Financial write in a recent tisation to improve by 60-100 zinc, aluminium and power flows.