In the month of July, the focus of domestic stock markets and their movement will again switch back to how the earnings come out to be for the April-June quarter. Experts say it remains to be seen how earnings will come out for a quarter when Indians were asked to sit at home to tackle the spread of the coronavirus pandemic. Analysts at Kotak Securities believe that if earnings for the coming quarter do not come in line with the rally, stocks may see profit booking. After the March quarter earnings, stocks under the coverage of Kotak Securities saw a 20%-30% cut in estimates for the present fiscal. However, the brokerage firm is still seeing buying opportunities in some stocks.
Jindal Steel and Power
Fair value: Rs 200 (BUY)
Consolidated EBITDA for the company was ahead of estimates as steel division realization jumped 7% while cost declined. Even for the power division of the company a 25% jump in EBITDA was reported. Kotak Securities said they see upside from various events, which could benefit JSP in the medium term. These include divestment in Botswana and Oman along with finalization of PPAs at power division – L1 for 420 MW under PFC Pilot Scheme II. “ KIE investment thesis on JSP is based on high growth visibility due to under-utilized assets (70% utilization in steel and 32% in power in FY2020) and deleveraging with strong FCF generation,” the brokerage firm said. An upside of 27% would see the stock surge and reach the fair value of Rs 200 per share.
Fair value: Rs 690 (BUY)
The telecom giant’s Average Revenue Per User (ARPU) stood at Rs 154 in the March quarter. This was Rs 19 or 14% more than the previous quarter and 17% ahead of Reliance Jio. With all telecom operators claiming that the tariffs right now are too low, the possibility of another tariff hike by all players could turn out to be beneficial for Bharti Airtel. Telecom is also a sector that is still immune to the coronavirus pandemic.Besides tariff hikes, ARPU increase could also be driven by increase in the share of 4G subscribers. “Kotak securities continue to believe that Bharti will emerge a winner irrespective of the direction the Indian wireless industry structure takes,” the brokerage firm said. From current levels the stock will have to surge 23% to reach the fair value of Rs 690.
Fair value: Rs 80 (BUY)
The private sector lender saw operating profits jump 28% last quarter on-year basis, while net interest income grew 11%. However, loan growth has slowed. Non-performing loans have also been declining for the bank. Analysts at Kotak Securities believe that the loan book of the lender will further decline this fiscal before recovering in the next fiscal year. “Federal Bank is trading at a significant discount to private peers. KIE maintains BUY rating with a fair value of Rs. 80 valuing the bank at ~1.1X book and 10X March 2022 EPS for RoEs in the range of ~8-10% in the medium term,” it said. A 48% upside from current levels would take the stock close to its fair value of Rs 80.