Q3 Earnings: PL overweight on banks, underweight on metals; lists Astral, Safari among high conviction picks

For the December quarter, brokerage house Prabhudas Lilladher estimates an 11.8 percent sales growth, 11.9 percent EBITDA (earnings before interest, taxes, depreciation, and amortization) growth and 16.9 percent growth in profit before tax (PBT) for its coverage universe. Excluding the Oil & Gas sector, it sees a 10.2 percent growth in EBITDA and 15.1 percent growth in PBT for its coverage universe.

According to PL, Auto, Capital Goods, Pharma, Metals, Building Materials, Housing Finance Companies, and Travel will lead growth, however, Chemicals, Media, Education and Telecom will be drags. "Domestic demand remains mixed as rural recovery is stunted due to inflation and poor spatial distribution of monsoons while urban India is resilient.

we believe that it is a passing phase and India will see a significant shift in consumer wallet share towards discretionary and premium products as we move towards a $5 trillion economy in the coming few years. We believe trends are already visible across PV’s, 2W, FMCG, Jewellery, Mobiles, Smartwatches, Real Estate, Food Delivery, Fintech and Travel etc," said the brokerage.

vs HCL Tech Q3 earnings: 5 most important comparisons you should know It believes India is in the most transformative phase in its history with massive infrastructure development (highways, logistics, ports, railways, metro), defence, PLI, and a significant increase in domestic demand with rising income levels and the youngest population globally.

Markets have been exuberant post state election results as chances of ruling NDA coming to power post elections have increased significantly, however, it remains the biggest risk also, it cautioned. The brokerage remains positive on Banks, Capital Goods, Hospitals, Pharma, and Discretionary consumption.

According to the brokerage report, the automotive sector is experiencing a robust 132 basis point margin expansion, fueled by strong volumes and favorable inputs. For banks, a 5.3 percent increase in PBT is projected, primarily driven by Net Interest Margin (NIM) compression and higher operating expenses.

In the capital goods sector, a notable 16.6 percent sales growth and 20.4 percent PBT growth are anticipated, led by government capital expenditure (capex) and the production linked incentive (PLI), it said. Travel companies are expected to report a substantial 36 percent growth in EBITDA due to a seasonally strong quarter, increased domestic leisure travel, and the impact of World Cup events, stated PL.

Additionally, a 24 percent PBT growth in the pharmaceutical universe is predicted, driven by robust domestic formulations and steady demand and pricing in the United States. The report also highlights that stable raw material prices and consistent demand will boost building material companies, while consumer companies are expected to report tepid performance in most staple segments, with steady growth in the jewelry sector.

Meanwhile, quick service restaurants (QSR) are projected to see a decline in profits. Durables, excluding wire and cable companies, are expected to report tepid growth. The oil and gas sector is anticipated to show the impact of lower refining margins, and chemical companies are expected to be affected by tepid global demand and pricing trends, it mentioned.

NIFTY is trading at a 10.8 percent discount to the 10 year average with 12.6 percent EPS CAGR over FY24 26 and the brokerage has increased its base case NIFTY target to 24,544 (from 22,584 earlier) with a clear focus on quality and companies with strong balance sheets and business moats. In the bull case, it values NIFTY at a 5 percent discount to the 10 year average PE (7.5 percent discount earlier) and arrives at the bull case target of 25,907 (24,573 earlier).

Bear case NIFTY can trade at a 25 percent discount to LPA (25 percent earlier) with a target of 20,453 (19,927 earlier). Model Portfolio The brokerage has increased its weight and remains ‘overweight’ on Banks, Cap Goods and Healthcare, and diversified financials (led by HDFC AMC). It is ‘equal weight’ on IT and ‘underweight’ on Auto, Metals, Cement, Consumer and Oil & Gas with most weight cuts in consumer space.

Maximum weight increase has been in Siemens, Larsen & Toubro, ABB India, ICICI Bank, , , , HDFC AMC, L&T Technology Services. However, it has removed / HDFC Life Insurance from the model portfolio and the maximum weight cut has been in , Hindustan Unilever and TCS. : The brokerage has added Astral, Jupiter Health, Safari, and Triveni Turbine in high conviction picks.

: ABB India, Avenue Supermarts, HDFC Bank, Hindalco Industries, ICICI Bank, Maruti Suzuki, Max Healthcare Institute, Reliance Industries, and Siemens. : Astral Ltd, Can Fin Homes, Eris Lifesciences, Jupiter Life Line Hospitals, Navneet Education, R R Kabel, Safari Industries (India), Sunteck Realty, and Triveni Turbine.

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