BSE 200: Adani stocks outperform indices, Zomato down 57.8% in 2022 so far

Indian equity markets have been on a roller-coaster ride this year. The broader BSE 200 slipped in the first two months, followed by a 10% rise over a month starting early March and again a 15 per cent fall between April and late June. Since June lows, the index has rallied 18%. Individual stocks have seen higher volatility. Top gainers have surged between 50% and 315%, while new-age tech companies, such as Zomato and PB Fintech, have lost half their market value. Krishna Kant & Ram Prasad Sahu take a peek into the top movers from the BSE 200 Index. 

Gainers

Adani Group

 

 

 

1. There are six Adani Group stocks in BSE 200 and all of them have outperformed the leading indices in 2022 so far
2. Five of these Adani Group companies are among the top gainers on the bourses in 2022 so far. Adani Power tops the list with a nearly fourfold jump in market capitalisation (m-cap) and share price since the start of the year. Adani Power share price rose from Rs 99.97 at the end of December 2021 to Rs 412.35 on Tuesday
3. With an m-cap of Rs 1.59 trillion, Adani Power is now the largest power utility in the country, ahead of public sector NTPC by Rs 161 crore
4. Other top gainers in Adani Group include Adani Transmission (up 129.2 per cent), Adani Total Gas (up 118.9 per cent), Adani Enterprises (up 86.9 per cent), and Adani Green Energy (up 83.5 per cent)
5. By comparison, the benchmark BSE Sensex is up 2.2 per cent year-to-date (YTD), while the BSE 200 Index is up 3.5 per cent YTD
6. However, in most cases, the trailing 12 month-based financial performance of Adani Group companies hasn’t kept pace with the steep rise in their share prices
7. Their coverage by brokerages is also limited
8. Market experts attribute outperformance of these stocks to investor expectation of a faster growth in revenues and profits by Adani Group companies over the next few years
9. The group companies have done a string of acquisitions in various sectors in recent years to grow faster and attain market leadership
10. According to analysts, this has led to a rerating of Adani Group stocks, resulting in a sharp rise in their valuation ratios
11. The five Adani stocks that topped the gainers chart are currently trading at very high price-to-earnings (P/E) multiple (forward P/E ranges between 157 and 316), compared to the Sensex’s current P/E of 23.2x
12. Such high earnings multiple and valuation premium over the broader market, however, raises the downside risk in the event of a weakness in the broader market

Hindustan Aeronautics

 

 

1. The public sector fighter jet and helicopter maker Hindustan Aeronautics (HAL) is among the top gainers in 2022 so far, with its share price up 89.3 per cent year-to-date (YTD) 
2. The rally has been driven by a sharp jump in HAL’s earnings in the past two quarters
3. Analysts expect the growth momentum to continue on the back of new orders from defence forces
4. Sharp rise notwithstanding, the stock’s valuation is reasonable with a price-to-earnings multiple of 15.1x

Varun Beverages

 

1. The PepsiCo franchise has been an outlier in the consumer space over the past few quarters, even as peers struggle on the volume front  
2. Three-year compound annual revenue growth, too, is the best in the sector, with recent gains led by out-of-home consumption, organic growth, and acquisitions
3. The company has guided for a double-digit growth over the next three years
4. Expansion into new territories, new products, and lower debt are other positives
5. Edelweiss has increased its target multiple to 50x 2023 earnings estimates

Coal India

 

 

1. The public sector miner major Coal India’s (CIL’s) stock is up 60.8 per cent year-to-date, making it one of the top performing stocks during the year
2. The rally has been fuelled by a sharp rise in coal prices and CIL’s earnings in recent quarters
3. The company reported a record net profit of Rs 8,833 crore for the quarter ended June 2022, up 179 per cent year-on-year (YoY), while its net sales were up 39.5 per cent YoY in the quarter
4. Record high coal prices in global markets and a very low valuation hint at a further upside in CIL stock

Indian Hotels Company

 

1. After three years of revenue decline, the industry leader by market value is expected to be a key beneficiary of revival in travel and tourism
2. Revenues in April and May were 10 per cent higher than pre-Covid levels. Gains over the past few quarters were led by higher room rates and occupancy and will sustain, given supply constraints and business travel recovery
3. Reduction in costs has aided operational performance of the past few quarters, pushing up margins to multi-quarter highs
4. From a 235-hotel portfolio, Indian Hotels Company seeks to expand by 18 new hotels annually over 2022-23 through 2025-26 to reach 300 hotels

Tata Elxsi

 

 

1. Tata Elxsi has posted mid-single digit growth for eight consecutive quarters, while improving margins
2. The stock has significantly outperformed the CNX IT in 2022, given strong revenue growth visibility, consistent deal wins, long-standing relationships with marquee clients, and market-share gains, says Sharekhan Research
3. Growth in engineering and research and development outsourcing, especially in digital, software, and electronics, have aided these gains
4. The company is looking at participating in larger deals of $100 million, from the current range of $20-25 million
5. The offshore delivery model will continue, and help in sustaining margins at current levels, says ICICI Securities

Losers

Zomato

 

 

1. Zomato, which runs the popular restaurant food delivery application, is the biggest loser among BSE 200 stocks. It is down 57.8 per cent year-to-date in 2022
2. The stock has suffered from a mix of high valuation at the time of listing in 2021, continued losses in its operations, and a reversal in the global interest rate cycle
3. The recent decline in share price has significantly lowered its valuation, but low visibility on profitability creates uncertainty about the near-term outlook for the stock

PB Fintech

1. The stock of PB Fintech, which operates the online insurance-selling platform PolicyBazaar and online lending platform PaisaBazaar, is down 47.1 per cent year-to-date in line with some of the other internet and e-commerce companies
2. Analysts attribute the fall to market’s worries about rising competitive intensity, slowdown in insurance premium growth, and high valuations
3. The company has, however, gained from a tie-up with industry leader Life Insurance Corporation of India
4. Continued losses in operations and rising interest rates are among the overhangs

One97 Communications

1. One97 Communications, which operates the popular payment and e-commerce platform Paytm, has been one of the biggest laggards and is down 46.2 per cent YTD
2. The stock has suffered from a general decline in the valuation of loss-making new age technology companies after the US Federal Reserve started raising interest rates earlier this year
3. As compared to the earlier focus on high growth, investors in general as well as most of these new age tech companies are looking at profitable growth
4. Continued losses reported by the company and expectation of further rate hikes by the US Federal Reserve are key overhangs for the stock

Wipro

1. Wipro’s first-quarter performance was disappointing, with modest revenue growth and sharp fall in margins
2. It is estimated to underperform peers on the growth front and miss its margin guidance range of 17-17.5 per cent for 2022-23
3. With continued concerns on the macroeconomic environment, Wipro’s consulting exposure (over 10 per cent of revenue added in the past year) is a potential risk to both growth and profitability, says Motilal Oswal Research
4. PhillipCapital, which has downgraded the stock, says that there is no significant potential trigger in the near future. Inexpensive valuations and high dividend yield can, at best, limit the downside potential of the stock, it says

Vodafone Idea

1. Lack of investments, loss of subscribers, and high debt remain an overhang on the stock  
2. While revenues met estimates in the first quarter, the company posted a weak operating performance, with sequential dip in margins
3. YES Securities expects operating profit margins to increase, led by lower spectrum usage charge and some savings on rentals after renegotiation with Indus Towers
4. In the absence of significant equity raise (net debt at Rs 1.98 trillion), the company’s capital expenditure will remain below peers, potentially leading to gradual revenue market-share loss, believes IIFL Research, which has a ‘reduce’ rating

Coforge

1. The mid-cap information technology services exporter, Coforge, is among the biggest losers in sector and the BSE 200 Index, with a 39.5 per cent year-to-date fall in share price
2. The poor stock performance came on the back of sharp contraction in operating margins and net profit earnings in the first quarter
3. The company’s management has guided for quicker revenue growth in 2022-23, but analysts expect margins to remain under pressure
4. Analysts expect limited upside in the stock, given high valuations and margin pressure

Tech Mahindra

1. While growth was broad-based in the first quarter, the muted margin (11 per cent) performance led to cut in earnings estimates
2. Additionally, deal wins or total contract value at $802 million, which was 1.6 per cent lower year-on-year and 21 per cent sequentially, saw moderation
3. While wage hikes will exert pressure in the current quarter, Tech Mahindra expects margins to improve to 14 per cent margins by the fourth quarter of 2022-23, led by tailwinds from employee utilisation, offshore mix, and operating efficiencies
4. Sustained revenue growth momentum, management guidance on margin recovery, and 4 per cent-plus dividend yield make the risk-reward favourable, says Emkay Research

Gland Pharma

1. A sluggish first-quarter performance and brokerage downgrades with cut in earnings estimates of up to 20 per cent reflect the muted expectations and overhang on the stock
2. Supply-chain related issues, slowdown in India business, and higher expenditure led to the cut in earnings estimate
3. IIFL Research expects 2022-23 to be a washout year, led by a 40 per cent year-on-year dip in Gland Pharma’s India revenues, and 20 per cent fall in the rest of the world revenues
4. While there are near-term headwinds, the medium-term outlook is strong, given a product pipeline comprising 61 abbreviated new drug applications and entry into new markets

Mphasis

1. Mphasis’ revenue growth was below expectations in the first quarter
2. A stock overhang has been Mphasis’ exposure to DXC (formerly HP) business, although its share has been coming down and is currently below 5 per cent of revenues
3. Deal timelines are getting stretched, with impact of the current macro environment higher on the European market
4. Weakness in the mortgage servicing business negatively correlates to the US interest rate hike and has surfaced as a new growth headwind, says Elara Securities
5. Its growth prospects, says HDFC Securities, however, remains strong, given healthy deal intake, improved deal pipeline, lower revenue DXC contribution, and high growth from the account acquisition channel

Larsen & Toubro Infotech

1. The stock has underperformed its mid-cap information technology peers on merger concerns (with Mindtree) and potential execution risks
2. Recent performance has been mixed. After a marginal miss in the March quarter due to flat onsite volumes, the company’s first quarter (Q1) was strong, led by broad-based growth
3. The company closed Q1 with four large deal with total contract value of $79 million and is witnessing healthy demand across verticals
4. Higher revenue share of financial services (46 per cent), especially capital markets, could be a near-term headwind
5. IIFL Research believes that the recent correction offers a good entry opportunity as valuations are now in line with mid-cap peers (versus premium earlier)

*12-month forward price-to-earnings ratio; ^ trailing 12-month net sales, net profit; price and market capitalisation figures rounded off; CMP: Current market price; LTP: Loss-to-profit; compiled by BS Research Bureau         

Sources: Bloomberg, exchange, Capitaline