5 Stocks To Buy With Strong Earnings That Are Both Fundamental And Sustainable: ICICI Direct

"Corporate earnings for January-March 2022 (Q4FY22) were satisfactory in the backdrop of extended geopolitical conflict, supply chain disruptions, especially on the logistics front and rise in key commodity prices viz. crude, metals & agri-commodities. Topline growth at the Nifty level (ex-financials) was at 9.8% QoQ. Operating profit, however, was up 3.4% QoQ factoring in the pressure on margins, which for the quarter was at 18.2%, down 110 bps QoQ. PAT for the quarter was up 5.3% QoQ, primarily tracking a decline in margins and other income, partially aided by lower effective tax rate (26.1% in Q4FY22 vs. 27.9% in Q3FY22). On a YoY basis, topline, bottomline growth at the index level was healthy at 24% & 14%, respectively, tracking commodity prices led outperformance in the metals and oil & gas domain as well as healthy high double digit growth witnessed in the IT & power space. The management commentary across businesses was positive on the demand outlook amid a pick-up in economic activity, revival in public
as well as private capex cycle but was wary of further input costs inflation resulting in broader price hikes and a tad soft margin trajectory", notes ICICI Direct in its earnings wrap up report.

Key surprises notes in the earniings of brokerage's coverage companies

As per the brokerage, some 5 companies have painted a positive surprise on the earnings number and this is to be fundamental and further sustainable:

Automotive Axles

The company is the largest independent manufacturer of rear axle drive assemblies in India (primarily for CVs; M&HCV). Its prominent clients include Ashok Leyland, VECV, M&M among others. It is a pure play beneficiary of the current cyclical recovery in the domestic CV space, especially in the M&HCV domain. Its recent quarterly results were encouraging, with total revenues for Q4FY22 coming in at Rs. 552 crore, up 48% QoQ. EBITDA in Q4FY22 was at Rs. 62 crore with margins at 11.2%, up 190 bps QoQ. PAT for the quarter was at Rs. 39 crore, nearly 2x on QoQ basis.
"Notably, it expects domestic M&HCV segment to witness volume growth of ~30% in FY23E. Building in the positives, we expect sales, PAT to grow at a CAGR of 25%, 48%., respectively, in FY22-24E with RoCE seen at ~25% in FY24E. The brokerage assigns BUY rating to the stock valuing it at Rs. 2,140 i.e. 20x P/E on FY24. This at the current price would offer potential upside of 28%.

Bandhan Bank

ICICI Direct suggests that Bandhan Bank posted a sharp improvement in asset quality with 435 bps QoQ decline in GNPA to 6.5%. Strong show on asset quality reflected positively on other parameters like NIMs, credit cost and ultimately the bottom-line. Guidance on loan growth with increasing focus on secured book and recovery from stressed accounts is encouraging in next fiscal. Thus, ICICI Direct believe NPA issues have bottomed out and remain positive on the stock with a target price of Rs. 365, valuing the stock at ~2.6x FY24E ABV for an expected RoA of approximately 2% in FY24E. This at the current share price of Rs. 326, offers an upside of 12%.

Bharat Electronics

BEL reported a better-than-expected operational performance in Q4FY22 (on lower-than-expected others cost). PAT was at Rs. 1141.8 crore (-15.6% YoY, +95.7% QoQ). FY22 revenue & PAT grew 8.9%, 13.7% to Rs. 15,313.7 crore & Rs. 2,348.9 crore, respectively. "Going forward, we expect healthy order inflows, pick-up in execution of large order backlog, sustained margins to drive E aid long term growth and help de-risk its bBITDA, PAT at around 14%, 12% CAGR (FY22-24E), respectively. "Strategy to diversify into non-defence areas, focus on increasing exports and services share would business. We remain long term positive on BEL and
maintain BUY with a TP of Rs. 290 (based on 24x P/E on FY24E EPS)", says the brokerage.

Kotak Mahindra Bank

Kotak Mahindra Bank reported a healthy performance in Q4FY22 led by 21.3% YoY growth in advances and margin expansion. Credit cost reversal led 64.5% YoY surge in PAT at Rs. 2767 crore. Asset quality continued to remain buoyant as GNPA, NNPA declined 37 bps, 15 bps QoQ to 2.34%, 0.64%, respectively. R/s book fell 10 bps to 0.44%. Expect about 21% CAGR in advances in FY22-24E. Increased proportion of unsecured portfolio to help yields though mobilisation of liabilities at a faster pace to safeguard margins need to seen. Overall, the brokerage
remain positive thereby valuing standalone bank at ~3.6x FY24E ABV & subsidiaries at Rs. 485
post holding company discount giving SOTP target of Rs. 2150 with a BUY rating on the stock.

Tata Motors

Tata Motors' Q4FY22 results were a beat as per the brokerageestimates. The key positive surprise was 220 bps sequential jump in EBITDA margins at 14.7%, largely attributable to operational outperformance at all the key divisions namely India CV, PV as well as overseas JLR. Notably, it also guided for reducing
net automotive debt from around Rs. 48,700 crore to near zero levels by FY24E through internal FCF generation & sale of non core assets. The brokerage likes Tata Motors for its continued EV alertness in India through concepts & real launches (PV market leader with Nexon; plans to introduce 10 models by 2025)
and JLR (Jaguar all-electric by 2025; 6 BEVs in Land Rover in next five years). Going forward, on the back of healthy demand prospects and strong order book, we expect healthy 13.2% revenue CAGR over FY22-24E backed by 15.8% total volume CAGR. Margins are seen at 14.3% in FY24E along with RoCE at around 13.7%.

Stock	CMP	Target price
Automotive axles	Rs. 1689	Rs. 2140
Bandhan Bank	Rs. 326	Rs. 365
Bharat Electronics	Rs. 243.5	Rs. 290
Kotak Mahindra Bank	Rs. 1857.8	Rs. 2150
Tata Motors	Rs. 432.25	Rs. 500