5 Stocks To Watch Now Post Q3FY22 Results To Get Stellar Returns In 1-Year

Indoco Remedies, Tech Mahindra, Vinati Organics, HDFC Ltd, and Zydus Wellness have all received a buy call from brokerage company ICICI Securities. According to the brokerage, these stocks have a good potential upside after their Q3FY22 results.

Indoco Remedies

ICICI Securities has said in a report that "Indoco's share price has grown by ~1.5x over the past five years (from ~Rs 271 in Feb 2017 to ~Rs 397 levels in Feb 2022). We retain BUY rating on this stock due to steadiness in domestic business and outlook for inflows from exports amid better operating leverage. We value Indoco Remedies at Rs 510 i.e. 18x P/E on FY24E EPS of Rs 28.3."

Q3FY22 results according to the brokerage

• Indoco reported revenue growth due to traction in domestic business but exports were below our expectations.
• Sales were up 7.7% YoY to Rs 358 crore.
• Earnings before interest, taxes, depreciation and amortisation (EBITDA) were at Rs 73.5 crore, up 22.1% YoY with margins at 20.5%.
• Profit after tax (PAT) for Q3 was at Rs 33 crore (up 30.1% YoY).

Key triggers for future price performance of Indoco Remedies according to the brokerage

• Restructuring exercise for improvement in MR productivity & therapy calibration is likely to yield productive growth in Indian formulations.
• Clearance from UK-MHRA & lifting of USFDA warning letters for Goa plant II and III is likely to improve operating leverage for export formulations.
• Indoco will benefit as domestic sales normalise while export formulations are likely to grow with a strong pipeline and visible launch schedule.
• Niche ANDA filings in ophthalmic, injectable and oral solid dosages in the US to scale up the US share from a low base.

Tech Mahindra

The brokerage has said in a report that "TechM's share price has grown by ~3.3x over the past five years (from ~Rs 468 in January 2017 to ~Rs 1,570 levels in January 2022). We continue to remain positive and retain our BUY rating on the stock. We value TechM at Rs 1850 i.e. 23x P/E on FY24E EPS."

Q3FY22 results of Tech Mahindra according to the brokerage

• TechM reported weak numbers on the margins front.
• Dollar revenues increased 4.1% QoQ to US$1,533 million while revenue grew 4.7% QoQ in CC terms.
• Earnings before interest and taxes (EBIT) margins dipped 40 bps QoQ at 14.8%.
• The order book was at US$704 million in Q3FY22.

Key triggers for future price performance of Tech Mahindra according to the brokerage

• Healthy deal wins traction in the communication segment led by legacy modernisation, 5G, customer care, automation, network and cloud to drive revenues.
• Pruning off low return geographies, acceleration in Europe and improving demand from lift & shift deals to drive 13.6% compound annual growth rate (CAGR) growth in FY21-24E.
• Margins in the near term would be impacted due to continued higher employee and subcontractor costs but are expected to recover.

Vinati Organics

ICICI Securities has stated in a report that "The stock appreciated at 40% CAGR in the last three years. We retain a BUY rating on the back of a better growth outlook from ATBS and newer products such as Butyl phenols and antioxidants. We value Vinati Organics at 42x P/E FY23E EPS to arrive at a revised target price of Rs 2320/share (earlier Rs 2270/share)."

Q3FY22 results of Vinati Organics according to ICICI Securities

• Numbers were below our estimates across all parameters, impacted by a lower-than-expected performance from both ATBS & IBB.
• Reported revenue growth of 65% YoY to Rs 369 crore, led by a decent performance from the ATBS segment.
• Gross margins fell 600 bps YoY to ~48.9% while EBITDA margin contracted 720 bps YoY to 25.1%, due to higher other operating costs (up 106% YoY).
• EBITDA was up 29% YoY to Rs 92.8 crore.
• PAT increased 30% YoY to Rs 83.2 crore.

Key triggers for future price performance of Vinati Organics according to ICICI Securities

• Upcoming butyl-phenol CAPEX to aid revenue growth further.
• Vertical integration into antioxidants expands revenue visibility.
• Strong demand from ATBS likely to support group operating margins.

HDFC Ltd

The brokerage has claimed that "HDFC Ltd's share price has grown ~2x in the past five years. Market leadership, funding advantage and adequate capital lead us to remain positive on fundamentals. We retain our BUY rating on the stock. We value HDFC Ltd at ~2.5x FY24E core ABV and Rs 1676 (post15% discount) for subsidiaries and maintain a target price of Rs 3350/share."

Q3FY22 results of HDFC Ltd as per the brokerage

• Operationally steady performance; growth picks up.
• Loan growth at 11.4% YoY wherein individual loans were up 16% YoY.
• Net investment income (NII) up 5.2% YoY, Net Interest Margin Securities (NIMS) steady at 3.6% QoQ, Provisions decline 13% QoQ.
• Gross non-performing assets (GNPA) up 32 bps QoQ to 2.3%. R/s book at 1.3% of loans.

Key triggers for future price performance of HDFC Ltd as per ICICI Securities

• Continued growth momentum and potential pipeline bode well.
• Utilisation of surplus liquidity and adequate capital to cushion margins.
• Healthy provision buffer & improvement in collection to aid asset quality.
• Improved performance from subsidiaries to add value.

Zydus Wellness

According to the brokerage "Zydus Wellness' share price has given 96.3% return in the last five years (from Rs 865 in February 2017 to Rs 1700 in February 2022). We cut our FY23E & FY24E EPS estimates by 7.7% & 5.9%, respectively, on account of the adverse impact of commodity inflation. We continue to maintain our BUY rating on the stock. We value the stock at Rs 2200 on ascribing 30x FY24 earnings multiple."

Q3FY22 results of Zydus Wellness as per ICICI Securities

• Zydus reported dismal results with mere 1.7% sales growth.
• Sales were up 1.7%YoY impacted by slower demand in the rural region.
• EBITDA was at Rs 32 crore, down 34.8% YoY, with margins at 8.3%.
• Consequent PAT was at Rs 22.7 crore against adjusted PAT of Rs 35.9 crore.

Key triggers for future price performance of Zydus Wellness as per ICICI Securities

• Synergistic benefits from the integration of acquired Heinz India business to inch up operating margins above 20% in the next three years.
• Brand extensions & new variant launches in Glucon-D, Complan, Sugarfree, Nutralite to aid revenue growth.
• Expansion indirect distribution, chemist channel sales & doctor's advisory to play pivotal roles in growing the business.

Disclaimer

The stocks have been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.