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Radhakishan Damani’s DMart hits fresh highs, but analysts shy away from giving buy calls

Radhakishan Damani’s Avenue Supermarts saw its share price surge to a fresh all-time high of Rs 3,130 per share on Monday morning as investors reacted to the strong earning growth of the firm. Avenue Supermarts, which own and operates the supermarket chain DMart, on Saturday, reported a 16.3% on-year jump in net profit to Rs 446.95 crore for the October-December quarter of the current fiscal year. This strong growth in profits was aided by an 11% jump in revenue for the firm as consumption picked up with India moving away from lockdowns as it looked to control the spread of the coronavirus.

Results beat estimates

However, analysts do not seem to be interested in giving a ‘buy’ call to the stock despite its stellar performance. Domestic brokerage and research firm Kotak Securities said that the revenue growth was ahead of expectations driven by strong festive demand, near-normal store operations and steady recovery in general merchandise sales. It did raise earning estimates expecting stronger margins but gave a ‘sell’ recommendation with a fair value of Rs 1,885. “Sharp stock price performance bakes in consistent revenue growth (possible, in view of large growth opportunity) and margin expansion (difficult, in a competitive business which may see sizeable capital infusion from peers in the near-term),” they added.

Valuations stretched

Since October, the stock price of Avenue Supermarts has jumped more than 50% making the valuations stretched. Analysts at Yes Securities said that the stock is currently trading at 68x FY23E P/E and 45x EV/EBITDA. “We, therefore, expect a period of consolidation in the stock with investors waiting to see the impact of aggressive online competition in the grocery space,” they added.

Pickup in earnings does give a strong outlook for what is in store for the company but the recent run-up is believed to have left no room for further growth in stock price.HDFC Securities has increased its EPS estimates by 5-6% to account for marginally higher revenue/sq. ft, but has downgraded the stock to ‘sell’ saying that the recent run-up leaves no room for an investment case. “An extended slump in non-essential sales could mean that discounting in staples will be lower, thereby opening up the space for competition. This, coupled with punchy valuations, leaves no margin of safety/error for the investor and the business,” they added.

E-commerce push to watch out for

The renewed focus on Radhakishan Damani’s DMart on e-commerce is, however, finding a favourable response. “Factoring beat in performance, we revise up FY21/22E PAT 11%/8%. Also, increased e-com aggression and potential market share gains enhance growth sustenance visibility,” said Edelweiss Securities in a note. With a target price of Rs 2,864 per share, Edelweiss has a ‘Hold’ rating on the scrip.

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TCS share price jumps over 2% ahead of Oct-Dec quarter results; large deal wins, outlook on margins eyed

TCS share price jumped over 2 per cent to Rs 3,098.35 apiece today on BSE ahead of October-December quarter earnings. Earlier this week, Tata Consultancy Services stock price hit a 52-week high of Rs 3,114.45 per share. The Information Technology (IT) sector has been among one of the best performing sectors in FY21. The Nifty IT index has surged nearly 2 per cent to 25,727.10 levels. According to an analyst, generally, Q3 is a slack quarter for IT companies. AR Ramachandran, Co-founder & Trainer, Tips2trades told Financial Express Online that this time, investors are expecting the best quarterly performance from TCS along with other companies like Infosys, HCL Technologies and Wipro with dollar revenue growth of over 3% as against 1%.

According to Suyog Kulkarni, Senior Research Analyst, Reliance Securities, Nifty IT is likely to enjoy premium valuation versus broader market, driven by mid-term growth visibility, stable margins and consistent cash return policy.

Analysts at JM Financial Services expect a 2.3 per cent sequential growth with a 50 bps cross-currency gain. “We are building in a sequential EBIT margin contraction of 80 bps due to wage increments implemented from Oct 1 and slight INR appreciation. According to the domestic brokerage firm, key things to watch out for would be large deal TCV, outlook on CY21 client spending, and outlook on margins over the medium term.

Ramachandran also said that technically, if earnings remain as estimated, then he believes that it has been factored in the stock price. “Investors are advised to book profits on every rise,” he said.

From the 52-week low of Rs 1,504.40 apiece, TCS stock price has more than doubled, rising 106 per cent. Analysts at ICICI Securities expect Indian IT sector to deliver strong sequential revenue growth led by fewer-than-usual furloughs, and residual recovery from Covid decline over H1CY20. It also believes that product-related seasonality/large deal ramp-ups too should help in some cases and margins may remain stable.

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PVR fundamentals intact despite near-term hiccups

PVR has scheduled a board meeting on December 18 to consider raising funds through issue of equity (or other instruments) by way of QIP (or other modes). We believe that the company is adequately funded to sustain operations for 6-7 months even if occupancy remains subdued and cash burn elevated at current levels. Additional funding would help reduce debt to enable investments in organic/inorganic opportunities post-Covid, or in event of resurgence of Covid-19.

PVR had liquidity of Rs 5.5 billion as at end-October 2020. It has to repay debt of Rs 1 billion by March 2021. As per our estimate, PVR is incurring Ebitda loss of Rs 500-600 million/month and interest expense of Rs 110 million/month at present (from November 2020).

Cash burn is higher (on expected lines) versus 1HFY21, as operations have resumed at subdued occupancy pending release of key movies. PVR is adequately funded to sustain operations for 6-7 months even if one assumes cash burn to continue at the current run rate.

PVR’s gross/net debt is about Rs 15 billion/Rs 10 billion as of date; equity fund raise would reduce leverage enabling PVR to invest in organic and inorganic growth opportunities post-Covid. We note that PVR raised Rs 3 bn in August 2020 through a rights issue.

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Laxmi Organic to launch Rs 800-cr IPO following strong listing by Rossari Biotech, Chemcon Speciality

Laxmi Organic Industries is set to raise Rs 800 crore through initial public offer (IPO). The speciality chemicals manufacturer has filed preliminary papers with the capital market regulator Securities and Exchange Board of India (Sebi). Laxmi Organic Industries’ issue will comprise fresh issue of shares aggregating to Rs 500 crore and an offer-for-sale (OFS) worth Rs 300 crore by the promoter Yellow Stone Trust, according to the draft red herring prospectus (DRHP) filed.

The book running lead managers to the Mumbai-based Laxmi Organic are Axis Capital Ltd and DAM Capital Advisors Ltd (formerly known as IDFC Securities Limited), while the registrar is Link Intime India Private Ltd. Laxmi Organic Industries’ plan comes after the recent success and fundraising by specialty chemical companies, Rossari Biotech and Chemcon Specialty Chemicals, which were subscribed almost 80 times and 149 times respectively. Moreover, Chemcon Speciality Chemicals has witnessed the best share market listing, gaining 114 per cent from the IPO price, so far in 2020.

Laxmi Organic Industries is a leading manufacturer of acetyl intermediates and specialty intermediates. According to the draft red herring prospectus (DRHP), net proceeds from the issue will be utilised for setting up of a manufacturing facility for fluoro specialty chemicals, working capital requirement, and for the purchase of plant and machinery for augmenting infrastructure development. In addition, funds would be used for prepayment or repayment of all or a portion of outstanding loans, besides general corporate purposes. The company will not receive any proceeds from the offer-for-sale. The company has a global presence with customers in over 30 countries including China, Netherlands, Russia, Singapore, United Arab Emirates (UAE), United Kingdom and the United States of America.

The two recently listed specialty chemical companies, Rossari Biotech Ltd shares were trading at Rs 826.60 apeiece, up 0.89 per cent, while Chemcon Speciality Chemicals Ltd shares ended 0.79 per cent up at Rs 432.50 apiece. In comparison, S&P BSE Sensex ended at 46,666, up 0.87 per cent, at an all-time high closing level.

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