10 stocks that won Covid-19 war in Q4 itself show promise to go the distance

NEW DELHI: March quarter earnings have been marred largely by bottom line shrinkage. But 10 BSE500 companies have stood out by clocking 20-30 per cent sales growth and up to four times profit expansion in a challenging quarter.

Analysts says most of these firms could fare better than peers post Covid-19 crisis, both in terms of earnings growth and market share gains.

For this study, only those firms were considered whose quarterly sales exceeded Rs 500 crore.

Retailer Trent surprised Dalal Street by reporting a four-fold jump in March quarter profit at Rs 32.65 crore against Rs 8.13 crore in the same quarter a year ago. The company also showed a 20 per cent jump in sales to Rs 842.93 crore from Rs 694.32 crore.

"Trent, like peers will go through its Covid-19 blues. However, its ability to navigate the crisis is strongest among the peer set, as the retailer remains well-capitalised. Ergo, it remains best-placed to gain market share in the aftermath of the crisis," said HDFC Securities.

ICICI Securities also likes Trent as it is a net-cash positive company better positioned to tide over current turbulent scenario, the brokerage said.

Agrochemicals company UPL reported over 2.61 times jump in profit at Rs 761 crore against last year’s Rs 291 crore. Sales jumped 30.68 per cent for the quarter to Rs 11,141 crore from Rs 8,525 crore YoY. Nirmal Bang Institutional Equities has maintained a price target of Rs 643, a 70 per cent upside on current market price.

Brokerage Emkay sees the stock at Rs 500. It said the stock will earn a re-rating from its five-year-low valuations due to continued market share gains, improvement in margins and a reduction in adjusted net debt/Ebitda to two times by FY22.

Hyderabad-based drug maker Laurus Labs reported over 100 per cent jump in profit. The bottomline for this drugmaker expanded 155 per cent to Rs 110.15 crore from Rs 43.17 crore YoY. Sales grew 32 per cent to Rs 839 crore for the quarter. The company expects to sustain the earnings momentum in FY21, backed by strong order visibility in formulations.

BoB Capital Markets said that benefits of hydroxychloroquine (HCQS) supplies, being used as Covid-19 treatment, will reflect from June quarter onwards. It has revised its price target on the stock to Rs 630 from Rs 510. Motilal Oswal has raised its price target to Rs 615 from Rs 520 earlier.

Two other drugmakers Alembic Pharma and Ajanta Pharma reported 30-32 per cent rise in sales and 45-55 per cent jump in Q4 profits. YES Securities believes the market would reward Alembic on better visibility of revenues and profits. It said the stock could trade at a premium to the sectoral average.

"The company is set to monetise Rs 2,000 crore worth of capex over the next three years, as filings commence from new facilities. This would drive a 20 per cent growth CAGR (ex-Sartans) surge in US revenues to $450 million by FY24. Moreover, the domestic business bottomed out in FY20. While we remain cognizant that gross margins would give up recent gains, Ebitda would pick up pace, especially beyond FY22," the brokerage said.

In case of Ajanta Pharma, which derives 30 per cent revenues from India, the management has guided for 10-11 per cent growth for branded business. ICICI Securities said a slowdown in the dermatology segment is a near-term challenge. But “the overall, calculated focus, healthy margins and return profile and lighter balance sheet, are some key differentiators for Ajanta. The company remains a play on global branded generics space."

Bottler Varun Beverages also surprised the Street with a 53 per cent YoY jump in profit to Rs 60 crore on a 23 per cent rise in sales at Rs 1,699.24 crore.

“Varun Beverages will witness a relatively faster recovery in earnings growth versus other discretionary consumption products given the relatively low ticket size of soft drinks versus other discretionary products," said Axis Securities.

The company is expected to consolidate its position in newly acquired territories, and gain market share in existing territory.

Among others, Avenue Supermarts, Hexaware Technologies, L&T Infotech and TV18 Broadcast also reported solid top and bottom line expansion in March quarter. However, despite strong growth, analysts see up to 20 per cent downside for Radhakishan Damani-led Avenue Supermarts, citing expensive valuations.

Hexaware says the current crisis will provide opportunities for market share gains, but expects meaningful weakness in revenues and margins in June quarter. Analysts are largely neutral on this stock. L&T Infotech expects Covid-19 impact on revenues to be minimal thanks to its lack of exposure to BPOs.

But analysts find the stock richly valued. “We value LTI now on 16 times earnings multiple to arrive at a changed target price of Rs 1,598 (from Rs 1,403). Valuations will curtail upside now. We maintain ‘hold’ rating," said Prabhudas Lilladher. This stock traded at Rs 1,800-odd level on Wednesday.

In case of TV18 Broadcast, analysts' 'buy' ratings on the stock remain same today as they were three months ago.