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Two stocks to watch out for in the near term

By Ram Prasad Sahu
April 03, 2021 20:48 IST
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Check out some of the stocks that will react on the basis of their numbers in the near term.

Ram Prasad Sahu reports.

Photograph: Kind courtesy Gerd Altmann/Pixabay

TVS Motor: With crude oil prices rising sharply, the company will benefit from higher exports to oil-dependent economies.

New launches, market share gains over the last year and robust exports bode well for TVS Motor.

Analysts also expect the company to post improvement in margins due to higher volumes, cost controls and improving product mix.

The company has been gaining market share in FY21 with the trend continuing in February.

 

Even as overall two-wheeler sales were up by 8 per cent y-o-y, TVS posted a 21 per cent rise in sales with volumes in the domestic market growing by 15 per cent.

The two segments, which have helped it recoup its 100 basis point market share it lost in FY20 were mopeds and scooters.

Higher demand from the rural segment due to multiple favourable factors such as monsoons, government measures led to the growth in mopeds.

In the scooter segment steady growth of Ntorq and Scooty Pep led to market share growth, its share of the scooter market crossed the 20 per cent mark for the first time, according to Centrum Broking.

Anish Rankawat of the brokerage expects scooters to grow faster in FY22 driven by gradual opening up of schools, colleges and offices in the IT industry.

With crude oil prices rising sharply, the company will benefit from higher exports to oil-dependent economies.

Exports were up 23 per cent in February and are expected to post a growth in FY21 as compared to a 12 per cent decline for domestic sales.

Exports, which accounted for less than 15 per cent of overall volumes four years ago, now account for 34 per cent.

While demand trends are favourable, the street will keep an eye out for supply constraints as the management highlighted that the scarcity of containers is impacting volumes.

Improving margin profile is another trigger.

Operating profit margins expanded 70 basis points to 9.5 per cent in the December quarter due to better than expected gross margins, lower marketing spends and cost savings.

With volumes expected to grow at 15-20 per cent over the next few years and product mix improving, analysts expect margins to trend upwards.

Higher share of exports, scooters and premium motorcycles (recently launched the Apache RTR 160 4V) should aid in profitability improvement.

From FY20 levels of 8.2 per cent, margins are expected to improve by 150 basis points over the next two years.

In the near term, however, a sharp rise in commodity costs could cap the gains.

At the current price, the stock is trading at over 30 times its FY22 earnings estimates.

This is at a significant premium (90 per cent) to larger peers Bajaj Auto and Hero MotoCorp.

Investors will have to await sharp corrections and reasonable valuations before adding the stock to their portfolios.


Oberoi Realty: The company is the top pick of brokerages in the realty space

Oberoi Realty is expected to be a key beneficiary from the rebound in residential real estate in FY22 owing to inventories nearing completion and a launch portfolio.

After a decline this financial year, experts expect the residential segment to post robust growth, with the organised segment consolidating its gains.

Analysts led by Abhishek Shukla of India Ratings and Research expect residential real estate to stage a sharp K-shaped recovery in FY22, with the overall floor space sold likely to increase by 30 per cent y-o-y in FY22.

The gains come after an estimated 34 per cent decline in FY21.

The recovery, according to him, is expected to be dominated by Grade 1 players, whose sales are likely to grow by 49 per cent in FY22 after a 14 per cent y-o-y increase in FY21.

Oberoi Realty could benefit from this macro trend.

Amar Kedia and Ayush Bansal of Emkay Global Research have highlighted that with unsold residential inventories 10 times its FY20 revenues and the potential to list its annuity assets portfolio of over 8 million square feet in a Real Estate Investment Trust by FY25 indicate that Oberoi Realty is well placed for opportunities.

The immediate trigger for the company would be the success of Oberoi Elysian, a 70-storeyed tower in Goregaon, Mumbai.

The tower, which is expected to have 362 units with a ticket size above Rs 4.5 crore, could generate revenues of Rs 1,800 crore.

Adhidev Chattopadhyay of ICICI Securities said: "While the response to completed inventories has picked up from Q3FY21 with Oberoi recording its highest ever quarterly sales bookings in five years at Rs 970 crore in Mumbai, the response to this new tower launch may provide an indicator of underlying demand for new launches in luxury/premium projects."

He expects the realty player to clock over Rs 3,000 crore of sales bookings each in FY22 and FY23 owing to launches and completed/near completion inventories in Worli/Mulund/Borivali projects.

Analysts at CLSA, who have an outperform rating on the company, prefer it to Godrej Properties in the realty space.

In addition to the surge in residential volumes, coupled with the scaling up of the rental portfolio, they also expect the cash flow outlook to be strong.

While improvement in the residential segment is the key trigger, the occupancy levels for its office portfolio continue to be stable.

The pick-up in the retail segment would depend on how consumption demand pans out and the restoration of rents to pre-Covid levels.

It is the hospitality segment (Westin Hotel) that could face headwinds, given the lack of corporate travel and low occupancies.

Given the target prices, there is a 15 per cent upside for the stock from the current levels.

Investors can add the stock on dips to benefit from the ongoing consolidation, a strong product portfolio, and low leverage (net debt to equity of 0.17) of Oberoi Realty.

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Ram Prasad Sahu
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