Analyst Call Tracker | With all buy calls, Adani Ports tops the ‘Maximum Optimism’ list

An incriminating report by a short-seller, withdrawal of a massive follow-on public offering, followed by Rs 10-lakh-crore market capitalisation wipeout—none of this has been able shake analysts’ confidence in Adani Ports and Special Economic Zone.

It has 21 buy calls and zero sell or hold calls, indicating 100 percent optimism on Moneycontrol’s Analyst Call Tracker for February.

For Q3, Adani Ports reported a 16.04 percent fall in consolidated net profit to Rs 1315.54 crore, but it was in line with analysts’ estimates. Goldman Sachs maintained its buy rating on the stock with a target price of Rs 840. Since the publication of the Hindenburg Research report, the stock’s valuation has also tumbled from a trailing twelve months (TTM) price-to-earnings ratio of 33.9 times to 29.5 times.

“Its EBITDA (earnings before interest, taxes, depreciation and amortisation) guidance of Rs 14,500 crore for FY24 suggests healthy low-teens/high-teens organic/overall YoY (year-on-year) growth and a healthy quantum of deleveraging to 2.5X net debt to EBITDA,” Kotak Institutional Equities said in a report.

Next in the Maximum Optimism list is Hindalco. Both Hindalco and its subsidiary Novelis reported a weak set of numbers for Q3, with net profit declining 63 percent and 95 percent, respectively. Yet all 24 analysts covering Hindalco have buy calls on the stock. The bullishness is largely on the back of China reopening and inexpensive valuations.

According to foreign broking firm CLSA, “New pricing clauses and softening costs should lead to a gradual recovery. We see profitability returning to steady state guidance only in the second half of FY24. Strong free cash flow generation and phased capex augur well for leverage.”

On the flipside, JSW Steel has topped the Maximum Pessimism list with 19 sell calls, 7 hold and only 6 buy calls. Analysts have tagged the stock as an ‘expensive’ buy with high net debt to EBITDA ratio of 3.5 times.

Still bullish on financials

Financial names like State Bank of India, ICICI Bank and Axis Bank continued to remain in the Maximum Optimism list with 49 buy calls, 51 buy calls and 48 buy calls, respectively. They were among the top names in January too, as well as in the entire calendar year 2022.

While banks struggle to find deposits to keep up with the pace of loan growth, analysts are not too perturbed by the risk of net interest margin contraction.

“Banking stocks trade well below their decade’s peaks and even below their 10-year average PBx (price to book ratio) for some. The subdued valuations, despite strong operating metrics in Q3, make the risk-reward picture for Indian banks rather compelling,” noted research firm Bernstein.

Still bearish on IT

The Nifty IT index, which was among the worst sectoral performers in 2022, is up around 5 percent for the year, while the benchmark Nifty 50 is down over 2 percent. Last year, fears of a looming recession in the US and Europe that would eventually result in a clampdown of IT spending caused analysts to downgrade the stocks.

The narrative has not seen any drastic change this year, despite a decent Q3 show by the sector, but some optimism is slowly creeping back in. Demand has moderated for IT services companies but remains reasonable, believe analysts at Kotak Institutional Equities.

“The possibility of outlasting the inflationary environment with just a slowdown/mild recession and continuous prioritization of tech spending has led to an optimistic outlook on tech spending by some clients even in the current weak macro,” they said in a recent report.

Tata Consultancy Services has 22 buy, 15 hold and 11 sell calls. Tech Mahindra has 21 buy, 15 hold and 8 sell calls. HCL Tech has 27 buy, 16 hold and 3 sell calls.

What’s up with NTPC?

The PSU firm is loved by analysts and currently boasts of 25 buy calls, 1 hold and zero sell calls. Its optimism score is 96.

This is largely on the back of monetisation of renewable assets in the near term, new thermal orders, and commissioning of pipeline plants. Foreign brokerage firm Morgan Stanley has an overweight rating on the stock with a target price of Rs 198 per share.

Another key trigger is India’s increasing power demand. According to Sharekhan, India’s power demand grew strongly by 10 percent year-on-year in the first nine months of FY23, with a peak demand of 206 GW in December 2022.

“The outlook remains strong and bodes well for higher PLF (plant load factor) for thermal power plants and would benefit NTPC,” said the brokerage.

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