The Sensex rose over 955 points to its new high of 70,540, whereas the broader Nifty50 index advanced 263 points to its record high of 21,189.55.
The US Federal Reserve has opted to maintain unchanged interest rates and has additionally signaled the likelihood of three quarter-point cuts to the benchmark interest rate in the coming year. This decision marks the conclusion of the interest rate hike cycle, with at least three anticipated rate cuts in 2024, which is viewed as a positive factor for the market outlook.
Amid the rally, brokerages have come out with a bearish view (sell/reduce calls) on these three stocks. Let’s understand why:
Torrent Power: Geojit Financial Services has a ‘sell’ call on the power stock with a target price of ₹833, implying a downside of almost 9 percent in 12 months.
Despite buoyant power demand benefiting the company from its long-term off-takers and merchant power markets, there is an anticipation of moderate growth. The brokerage expects the earnings to grow at an 11 percent CAGR, and BVPS at a 17 percent CAGR over the period from FY23 to FY26E. Due to the recent sharp increase in the company’s stock price and concerns about high valuation (trading at a 50 percent premium to the 3-year forward P/B average of 1.9X), the brokerage recommends ‘sell’. The valuation places TPL at 2.3 times FY26E P/B, with a target price of ₹833.
The stock has surged almost 74 percent in the last 1 year and over 118 percent in 2023 YTD. It hit its record high of ₹1,045.35 last week on December 7, 2023. Now, the stock has soared over 142 percent from its 52-week low of ₹430.90, hit on January 1, 2023.
Clean Science and Technology: InCred Equities retained its ‘reduce’ call on the chemicals stock with a target price of ₹663, indicating a downside of a massive 56 percent.
As per the brokerage, Clean Science and Technology is grappling with intensified competition in its core products, MEHQ (monomethyl ether hydroquinone) and BHA (butylated hydroxy anisole), leading to margin erosion. The analysis suggests that HALS (Hindered amine light stabilizers) and TBHQ (tert-butyl hydroquinone), intended to counteract this, will take a considerable time (at least 12-18 months) to impact earnings, and importing TBHQ by importing HQ is margin-dilutive.
Moreover, a slowing global economic environment and a highly concentrated product portfolio are also some challenges. The brokerage highlighted that HALS is not a cure-all, and both MEHQ spreads and export volume are decreasing. Additionally, BHA spreads are also declining, posing further challenges for the company. The market for MEHQ is small, and competitive pressures are increasing as both new entrants and established players expand their capacities.
Consensus EPS estimates are deemed overly optimistic, with the most likely scenario indicating a 20 percent decline in FY24F EPS compared to FY23. The brokerage has revised down its FY25F and FY26F EPS estimates to ₹22.1 and ₹25.5, respectively. A REDUCE rating is maintained on the stock, with a slightly reduced 12-month target price of ₹663 (down from ₹666). The potential for an upgrade lies in a significant recovery in MEHQ prices, it said.
The stock has lost over a percent in the last 1 year and gained 2 percent in 2023 YTD. Currently trading at ₹1,505.40, the stock is just over 4 percent away from its 52-week high of ₹1,574.95, hit on May 18, 2023. Meanwhile, it has advanced almost 23 percent from its 52-week low of ₹1,227.45, hit on March 31, 2023.
BEML: Elara Securities has reiterated a ‘reduce’ rating on the defense stock with a target price of ₹2,350, indicating a downside of 8 percent.
The brokerage noted that it has retained the rating as the stock outperformed by 50 percent over the past six months. It expects an earnings CAGR of 40 percent during FY23-26E and a ROCE of 12 percent over FY24-26E vs 5 percent during FY21-23. It also raised EPS by 10 percent for FY24E, 19 percent for FY25E, and 15 percent for FY26E based on an improved mix, staff cost containment, and better execution amid an improving pipeline and expansion program.
“The current order book at ₹12700 crore provides revenue visibility for the next three years, led by: 1) execution of the Mumbai & Bengaluru Metro and defense orders over FY24-26, 2) strong inflow pipeline in rail, metro & defense, due to indigenization focus, and 3) incremental orders for mining equipment in the coal segment. These bode well for growth prospects,” added Elara.
The stock has risen over 71 percent in the last 1 year and 77 percent in 2023 YTD. Currently trading at ₹2,558, the stock is around 6 percent away from its record high of 2,715.65, hit on September 11, 2023. Meanwhile, it has soared over 126 percent from its 52-week low of ₹1,129.10, hit on March 16, 2023.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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Published: 14 Dec 2023, 04:50 PM IST