Adani to Zee: Companies that have seen biggest rise, decline in FPI stake

Krishna Kant and Ram Prasad Sahu draw up five stocks each that have seen the biggest rise and decline in FPI stake during the April-June quarter: 

COMPANIES WITH BIGGEST INCREASE IN FPI STAKE

Max Healthcare

* Foreign portfolio investor (FPI) stake in hospital chain operator Max Healthcare Institute was up at 24.4 per cent in the first quarter of 2022-23, from 15.7 per cent in the fourth quarter (Q4) of 2021-22 (FY22) — the biggest increase among BSE 200 companies

* The company’s faster growth in recent quarters is among major reasons attributable to the increase in stake by FPIs

* Its net sales were up 17 per cent year-on-year, while net profit jumped 77.54 per cent in Q4FY22 — one of the best in the sector

* The Street remains upbeat on the company, given corporatisation of hospitals and its industry-leading position

* It, however, remains an expensive stock, with trailing price-to-earnings of 110x and a price-to-book value of 5.8x

Varun Beverages

* The June quarter performance of Varun Beverages, which has seen the second-biggest increase in foreign portfolio investor stake in the quarter, stood out among consumer companies, led by doubling of revenues and expansion of margins

* Rising out-of-home-consumption and favourable climatic conditions have also aided performance

* Three-year organic volume and value growth of 12.2 per cent and 15 per cent, respectively, is by far the strongest growth across the fast-moving consumer goods space, according to IIFL Research

* The company expects to clock double-digit volume growth over the next three to four years due to increase in reach and expansion of the product portfolio, coupled with higher consumption trend. A capital expenditure of Rs 1,200 crore in calendar year (CY) 2023, boosting capacity by 30 per cent, should come in handy

* Most brokerages expect the company to deliver earnings growth in excess of 50 per cent during CY21-CY23

Adani Enterprises

* Adani Enterprises is a conglomerate with presence across diverse businesses, such as roads, data centres, airports, coal, defence, green hydrogen, petrochemical, and copper

* The company is looking at being the lowest cost producer of green hydrogen and having a global presence in partnership with French multinational energy major TotalEnergies

* Domestic brokerage Sunidhi Research remains positive on Adani’s airport and coal businesses in the short term and believes that the prospects of the green hydrogen and road segments remain robust in the long term

* A demerger of the incubating business can result in significant value unlocking and is an upside risk to estimates, believes Ventura Research

* Given that the stock has gained 27 per cent since the start of July and target prices are around the Rs 2,800-mark, there is little upside from the current levels of Rs 2,792

Patanjali Foods

* Formerly Ruchi Soya Industries, Patanjali Foods is a diversified fast-moving consumer goods company, with one of the largest integrated edible oil refining facilities in India

* Present in the entire value chain of palm and soya segments, it has tied up with multiple state governments to establish palm oil plantations

* Pioneer in soya chunks under the Nutrela brand, it has since extended the brand into wheat flour and honey segments. It also expanded its food portfolio (Patanjali products) and has biscuits, cookies, rusks, noodles, and breakfast cereals

* Last year, the company forayed into the fast growing health goods segment with the launch of its nutraceutical business

* After the follow-on public offer, the company has repaid its entire debt of about Rs 3,000 crore, which should boost earnings, meet working capital needs, and help invest in expansion

Tata Elxsi

* Tata Elxsi is one of the few information technology (IT) majors to have posted a 6 per cent-plus sequential growth for eight consecutive quarters, while expanding its margins

* Commentary on demand, acceleration in vertical adjacencies, and 2022-23 hiring outlook point to strong near-term momentum. Robust deal wins and healthy pipeline offer revenue visibility in the medium term

* HDFC Securities expects a 28 per cent annual profit growth during 2021-22 through 2023-24 (FY24) and a doubling of profit in three years

* Engineering research and development spends tend to be more discretionary in nature, compared to IT services, and are likely to be impacted more by potential global slowdown/recession, says ICICI Securities

* Given demand concerns, premium valuations of 60x FY24 earnings estimates factor in a lot of high expectations and are keeping some brokerages on the sidelines

COMPANIES WITH BIGGEST DECREASE IN FPI STAKE

Zee Entertainment

* Zee Entertainment Enterprises (ZEEL) has the biggest decline in foreign portfolio investor (FPI) holding among BSE 200 companies

* FPI stake in ZEEL declined to 50.14 per cent in the first quarter (Q1) of 2022-23 (FY23), from 58.7 per cent in the fourth quarter (Q4) of 2021-22 — the fifth consecutive quarterly decline at least. It was 74.9 per cent in Q4 of 2020-21

* Deterioration in financial performance is among reasons attributed to the decline in FPI stake

* ZEEL’s net profit was down 33.2 per cent year-on-year in Q1FY23, notwithstanding 18.2 per cent year-on-year growth in net sales — its second consecutive quarter of earnings decline after positive growth in the previous three quarters

* Annually, the company’s profitability has steadily deteriorated in the past five years due to slow growth in revenues and faster increase in expenses

* The outlook remains challenging due to growing competition and lack of a clear ownership at ZEEL

Tech Mahindra

* Tech Mahindra has seen the second biggest fall in foreign portfolio investor (FPI) holding in the first quarter (Q1) of 2022-23 (FY23). While it is the only information technology (IT) player among top five stocks to have seen a decline, FPI stake has been on the wane for the past five consecutive quarters

* Like peers, it faced margin pressures in Q1FY23, with the metric slipping 220 basis points (bps) sequentially and 420 bps year-on-year to 11 per cent

* While the management believes margins have bottomed out and has guided for a sequential improvement in the approaching quarters, profitability will be watched closely, given the salary hikes, subcontractor and large deal costs, and visa expenses

* Although the IT major remains confident of sustaining revenue growth momentum, given the broad-based demand, robust order wins, and a strong deal pipeline, macro worries in core markets could play spoilsport

* Brokerages have reduced the company’s earnings estimates by up to 9 per cent for FY23 and 2023-24, and have also cut their target prices

SBI Card

* Foreign portfolio investor (FPI) stake in SBI Card is down from 12.8 per cent in the fourth quarter (Q4) of 2021-22 to 8.5 per cent in the first quarter (Q1) of 2022-23 (FY23) — the fifth consecutive quarterly decline from 20.4 per cent in Q4 of 2020-21

* Decline in SBI Card’s margins due to faster rise in interest cost can be attributed to a decline in FPI stake

* Interest expenses grew faster than interest income for the first time in six quarters in Q1FY23, reversing the trend of steady expansion of its net interest margin

* It also faces growing competition from HDFC Bank, ICICI Bank, and Axis

* Domestic brokerages remain bullish on the stock on the back of rising credit card spends, notwithstanding rich valuations, with a price-to-earnings of 44.6x and a price-to-book value ratio of 11x

Hindalco

* Hindalco, like other metal stocks, has seen selling by foreign portfolio investors on account of a decline in metal prices and persistent fears of a recession in major global economies

* The London Metal Exchange is down nearly 30 per cent from March highs, raising doubts on the earnings outlook for metal producers

* A mix of low metal prices, global recession due to rising interest rates, monetary tightening, and the Russia-Ukraine stand-off is likely to lead to sharp decline in the demand for industrial metals such as aluminium and copper in 2022-23 (FY23)

* The Street expects a sharp decline in Hindalco’s margins and profits in FY23, from the record high levels of last year

* Hindalco remains a contra bet due to its low valuation and a likely recovery in the prices of industrial metals

Shriram Transport Finance

* Shriram Transport saw selling by foreign portfolio investors (FPIs) in the first quarter (Q1) of 2022-23 (FY23) on concerns of a decline in margins because of a reversal in the interest rate cycle

* FPI stake in the company declined to 50.09 per cent at the end of June, from 54.01 per cent in the previous quarter — one of the biggest decline in FPI holdings among non-banking lenders

* The company’s revenue growth slowed in Q1FY23, compared with the fourth quarter of 2021-22, although its earnings zoomed due to a year-on-year decline in interest cost, as well as provisions for bad loans

* Calculated net interest margins were down 14 basis points sequentially in Q1FY23 due to higher cost of funds

* The stock valuation remains attractive, with a price-to-earnings of 10.7x and a price-to-book value ratio of 1.44x — one of the lowest among non-banking lenders