Don’t expect fireworks in Q4, but these 10 stocks may double profit YoY

D-Street enters the March quarter earnings season with muted expectations amid the coronavirus outbreak, which has virtually shut down the economic activity across the world.

The March quarter earnings will offer a glimpse of the damage and the bigger dent could come in the upcoming quarters, say experts.

“For the most part of Q4 FY20E, the quarter progressed reasonably well. However, the fag-end saw a nationwide lockdown and subsequent measures which took a heavy toll on business and operations on the ground,” Sharekhan said in a report.

“In Q4FY20, the aggregate profit of Sensex companies is expected to grow at a decent 7.2% y-o-y, which will be reasonable considering the present situation. While the lockdown poses significant uncertainties, we believe that the major impact will be seen in the subsequent quarter (Q1 FY21),” it said.

Given the “black swan” event and an extended lockdown until May 3, experts foresee a significant downgrade in FY2021 earnings’ estimates.

Consumers, private banks (benefit of low base) and healthcare are expected to be the outperformers this quarter and all the key matrices could show multi-quarter low growth.

"The Nifty sales are estimated to decline 10% YoY, while EBITDA/PBT/PAT should decrease 9%/21%/20% YoY in 4QFY20. Our FY20/FY21 Nifty EPS estimates are revised downwards by 8%/27%," Motilal Oswal said in a report.

"We now expect Nifty FY20 EPS to remain flat at INR485 while FY21 Nifty EPS is now projected at a muted 3% growth to Rs 499. Estimating earnings in such fluid global and local environment is fraught with risks, and to that extent, is expected to undergo more revisions as we move forward in FY21," it said.

From an investor’s perspective, valuations have come down, and investors should look beyond disruption in earnings in FY2021 and accumulate quality companies, say experts.

A list of 10 stocks collated from various brokerage that could see more than 100 percent or double net profit in the March quarter on a YoY basis:

Note: Stocks mentioned are for reference and not buy or sell ideas

Brokerage Firm: Motilal Oswal

Motilal Oswal sees more than 1,000 percent growth in the net profit for Tata Consumer on a year-on-year basis. Tata Consumer’s reported numbers are likely to be unusually high due to the addition of the Tata Chemicals consumer business, like-for-like sales and EBITDA would remain healthy at 7 percent and 25 percent, respectively.

Motilal Oswal sees more than 100 percent growth in the net profit for Dr. Reddy’s Laboratories YoY. The brokerage firm is of the view that the US business is likely to witness growth, led by new launches. The EU,India and Russia expected to report robust growth.

Gujarat Gas: PAT likely to rise by nearly 100% YoY

Motilal Oswal sees nearly 100 percent growth in the net profit for Gujarat Gas YoY. It expects volumes at 9.2mmscmd as demand at Morbi was marginally affected, led by the nationwide shutdown, in the last week of March.

Competition from cheaper alternative fuels such as propane (at Morbi) and FO (at other GAs) would be minimal as gas prices were lower and economies remained competitive.

The domestic brokerage firm expects the EBITDA margin to improve ~INR5.0/scm as the company enjoys the full benefit (without any price cut) of lower PMT and spot prices during the quarter.

Motilal Oswal sees nearly 300 percent growth in the net profit for JSW Energy YoY. After a fairly muted 3QFY20, power demand showed signs of recovery in the first two months of 4QFY20.

Torrent Power: PAT likely to rise by 223% YoY

Motilal Oswal sees over 200 percent growth in the net profit for Torrent Power YoY. EBITDA increase is likely to be led by the commencement of UnoSugen PPA. The progress of renewable projects will be a key monitorable.

Brokerage Firm: Kotak Institutional Equities

Tata Power: PAT likely to rise by 687% YoY

Kotak Institutional Equities sees a Tata Power’s net profit to grow by nearly 700 percent YoY on lower tax outgo. The standalone business may bear the brunt of lower sales towards the end of the quarter due to higher institutional customers.

HCG: PAT likely to rise by 140% YoY

Kotak Institutional Equities sees the net profit of HCG to grow by over 100 percent YoY. “We expect revenues to increase by 9% YoY led by 8% YoY growth in mature centers along with a ramp-up of newly set up facilities,” said the report. The moderation of revenue growth is driven by the impact of the COVID-19 lockdown.

Laurus Labs: PAT likely to grow by nearly 100% YoY

Kotak Institutional Equities sees the net profit of Laurus Labs to grow by nearly 100 percent YoY. “We expect ARV API's to grow 7% YoY. We expect oncology and ingredients business to decline 18% YoY and 28% YoY, respectively,” said the report.

The brokerage firm expects the synthesis business to grow 33% YoY and formulations to remain stable on a QoQ basis.

Embassy Office Parks REIT: PAT likely to grow by 185% YoY

The brokerage sees the net profit of Embassy Office Parks REIT to grow by nearly 200 percent YoY. The sequential improvement in earnings from commercial assets driven by re-leasing of the expired area at market rents.

“Earnings from hotels to decline due to COVID-19 outbreak despite seasonally strong quarter,” said the report.

GMR Infrastructure Ltd: PAT likely to grow by 349% YoY

Kotak Institutional Equities sees the net profit of GMR Infrastructure grow by over 300 percent YoY. “We factor in a meaningful ~15% YoY decline in passenger volumes and note that the true-up exercise would limit the loss of passengers through higher aero tariffs in Hyderabad,” said the report.

“We build in the full impact of lower revenues (after revenue share) to EBITDA. This yields a 600 bps QoQ contraction in EBITDA margin to 27%,” the report added.