Query Board
This section gives decisive investment rationales to our subscribers on the stock queries they have raised to our research team.
FEDERAL BANK
Can you share your opinion about holding or accumulating shares of Federal Bank? - R K Narayan Among the commercial banks in the country, Federal Bank is considered to be notable player. A company is believed to have growth potential when it has its roots nurtured in strong philosophy from the past. Federal Bank operates through four segments, namely, treasury, wholesale banking, retail banking and other banking operations. Looking at the consolidated quarterly financial statements, the total interest earned was Rs3,459.52 crore in Q3FY21 as against Rs3,330.36 crore in Q3FY20, posting a rise of 3.42 per cent. The operating profit before provisions and contingencies showed a decline of 4.3 per cent in Q3FY21 as compared to Q3FY20. The overall net profit was seen at a decline of 8.2 per cent at Rs404.10 crore in Q3FY21 as compared to Rs440.64 crore in Q3FY20. On an annual basis the deposits saw an increase of 12.84 per cent in FY20 as compared to FY19. The borrowings also saw an increase of about 33 per cent in FY20 as compared to FY19. Federal Bank has seen 86 per cent digital migration along with 28 per cent YoY growth in active users. CRISIL, a well-known analytical company, recommends an A1+ rating for Federal Bank and this reflects the bank’s comfortable capitalisation, good resources and a strong brand presence among NRIs. Considering these parameters we recommend ACCUMULATE.
KUSHAL LIMITED
Kushal Limited is a trading, manufacturing and infra-structure development conglomerate based in India with global aspirations. The company provides India and the world with agricultural products, coal, steel, paper, clothing, drug APIs, electronics and hundreds of other basic necessities, including homes. Considering the financial statements on a consolidated quarterly basis, its net sales grew by 10.39 per cent to Rs39.06 crore in Q2FY21 from Rs32.43 crore in Q2FY20. An upward movement was seen in operating profit of Rs6.12 crore recorded in Q2FY21 by 39 cent as compared to Rs4.39 crore reported in the same quarter in the previous financial year. The company reported net profit of Rs1.15 crore in Q2FY21 as against net profit of Rs2.5 crore in Q2FY20, giving a decline of 53.92 per cent. On the annual front the company reported net sales of Rs895.98 crore in FY20, giving a decrease of 61.64 per cent as compared to net sales of Rs2,335.41 crore in FY19. The operating profit came in at Rs66.02 crore in FY20 as compared to Rs123.56 crore in FY19, giving a decline of 46.57 per cent on an annual basis. Profit after tax was Rs51.16 crore in FY20 as compared to Rs109.66 crore in FY19, giving a decrease of 53.37 per cent. Taking into consideration the company’s de-growth in revenue, profits, operating profit margins and the profit after tax margins as well as its weak ability to generate cash, we recommend EXIT.
CAPACITE INFRAPROJECTS
Capacite Infraprojects is a boutique construction company which provides high-quality services in every domain of its operations. The organisation is structured in three zones (west, north and south) that act as profit centres and which play the role of enabling and supporting the performance of corporate functions. The business development activities are carried out from the respective zonal hubs. The objective of the company’s operations include: (a) optimization of time, cost and investment, (b) compliance with statutory, contractual and procedural requirements, and (c) client satisfaction.
Taking a look at the financial statements on a consolidated quarterly basis, its net sales de-grew by 55.3 per cent to Rs181.30 crore in Q2FY21 from Rs405.58 crore in Q2FY20. A dip was seen in operating profit of Rs45.26 crore recorded in Q2FY21 by 39.85 per cent as compared to Rs75.24 crore reported in the same quarter in the previous financial year. The net profit gave a significant decrease of 88.58 per cent being at Rs4.54 crore in Q2FY21 and Rs39.78 crore in Q2FY20. On the annual front, the company reported net sales of Rs1,528.99 crore in FY20, a decrease of 14.9 per cent as compared to net sales of Rs1,796.62 crore in FY19. The operating profit came in at Rs282.10 crore in FY20 as compared to Rs287.12 crore in FY19, a decline of 1.79 per cent on an annual basis. Profit after tax was Rs91.03 crore in FY20 as compared to Rs97.28 crore in FY19, a decrease of 6.42 per cent.
Recently,the infrastructure sector has become biggest focus area for Government of India. The second quarter of the company saw improvement in debtors and collections. The company also has clients with strong balance-sheets and cash flows on their roll which increases the pace of execution of processes. The client’s businesses also have investment by global players. The improving pace of execution predicts better revenue traction in the latter half of FY21. An increased traction is also witnessed in government orders as well as commercial office space. In spite of declining financials currently, a growth in business can be forecast with a robust business model. Hence, we suggest HOLD.
PRAJ INDUSTRIES
Having started with an entrepreneurial venture three decades ago, Praj Industries has managed to be the most successful company in the field of bio-based technologies and engineering with presence all over the world. It is engaged in the business of process and project engineering. The business portfolio of Praj Industries includes bio-energy, high-purity systems, critical process equipments and systems, brewery plants and wastewater treatment systems. With its headquarters in Pune, the company extends up to 750 refer-ences in more than 75 countries. Considering the financial statements on a consolidated quarterly basis, its net sales de-grew by 11.53 per cent to Rs260.24 crore in Q2FY21 from Rs294.14 crore in Q2FY20.
A downward movement was seen in operating profit of Rs21.97 crore recorded in Q2FY21 by 7.18 per cent as compared to Rs23.67 crore reported in the same quarter in the previous financial year. The net profit reported a decrease of 29.39 per cent at Rs11.39 crore in Q2FY21 and Rs16.13 crore in Q2FY20. On the annual front the company reported net sales of Rs1,102.37 crore in FY20, yielding a decrease of 3.39 per cent as compared to net sales of Rs1,141.11 crore in FY19. The operating profit came in at Rs108.08 crore in FY20 as compared to Rs111.65 crore in FY19, giving a decline of 3.2 per cent on an annual basis . On the contrary, the profit after tax was Rs70.43 crore in FY20 as compared to Rs68.22 crore in FY19, posting an increase of 3.24 per cent.
Praj Industries is able to bag some high-value repeat orders from leading domestic pharmaceutical players. It is also on the verge to make an entry in the Canadian market with a multi-product facility of Canada. The high-purity business segment of Praj Industries also has a good traction in international as well as domestic markets. Taking into account the potential growth in the company’s operations as well as predicting the recovery of financials in the future, we recommend HOLD.
PATEL ENGINEERING
Founded in 1949, Patel Engineering Limited is one of the most integrated infrastructure and construction services conglomerates in India. It has a wide breadth of experi-ence in encompassing all the sectors in the infrastructure indus-try, including dams, tunnels, micro-tunnels, hydroelectric projects, irrigation projects, highways, roads, bridges, railways and refineries. The company specializes in hydro-electric projects, transportation projects, water treatment projects as well as real estate such as buildings, townships, malls and structures. Considering the financial statements on a consoli-dated quarterly basis, its net sales de-grew by 33.14 per cent to Rs441.12 crore in Q2FY21 from Rs659.75 crore in Q2FY20. A downward movement was seen in operating profit of Rs63.92 crore recorded in Q2FY21 by 45.91 cent as compared to Rs118.17 crore reported in the same quarter in the previous financial year.
The company incurred net loss of Rs61.10 crore in Q2FY21 as against net profit of Rs25.88 crore in Q2FY20. On the annual front the company reported net sales of Rs2,617.21 crore in FY20, giving an increase of 10.8 per cent as compared to net sales of Rs2,362.20 crore in FY19.The operating profit came in at Rs391.06 crore in FY20 as compared to Rs535.22 crore in FY19, giving a decline of 26.93 per cent on an annual basis. Profit after tax was Rs31.29 crore in FY20 as compared to Rs159.41 crore in FY19, a significant decrease of 80.37 per cent. We can observe that the financials of the company have been shaky in the second quarter.
Meanwhile, the debt service coverage ratio as well as interest service coverage dropped in the second quarter of FY21, indicating weak signs in fundamentals. Moreover, the promoters’ holding has also decreased over the last quarter and the company is showing signs of being unable to produce sufficient cash flows. Considering the weak financials, downward performance and credit ratings, we recommend EXIT.
WIPRO LIMITED
Wipro Limited is a leading global information technol-ogy consulting and business process services company. It harnesses the power of cognitive computing, hyper-automation, robotics, cloud, analytics along with emerging technologies to help clients adapt to the digital world and be successful. The company is recognised globally for its comprehensive portfolio of services, strong commitment to sustainability and good corporate citizenship. Wipro has over 1,80,000 dedicated employees serving clients across six conti-nents. It is also a reseller of third-party enterprise products through its direct sales force. Having a glance at financial statements on a consolidated quarterly basis, its net sales grew by 1.29 per cent to Rs15,670 crore in Q3FY21 from Rs15,470 crore in Q3FY20 .Operating profit of Rs4,771.50 crore was recorded in Q3FY21 which was up by 25.9 per cent as compared to Rs3,789.80 crore reported in the same quarter in the previous financial year. The company reported net profit of Rs2,987.70 crore in Q3FY21 as against net profit of Rs2,459.60 crore in Q3FY20, giving a rise of 21.47 per cent. On the annual front the company reported net sales of Rs61,137.60 crore in FY20, giving a increase of 3.59 per cent as compared to net sales of Rs59,018.90 crore in FY19. The operating profit came in at Rs15,067.30 crore in FY20 as compared to Rs14,230.70 crore in FY19, giving a increase of 5.88 per cent on an annual basis. Profit after tax was Rs9,768.90 crore in FY20 as compared to Rs9,022.20 crore in FY19, giving an increase of 8.28 per cent.The IT services business of Wipro has grown at a CAGR of 6.5 per cent in the last 10 years. It has over 1,000+ active global clients and 15 USD 100 million relationships. Wipro’s localisation in US is now at 71.9 per cent. It has hired about 12,000 employees recently which include 3,000 freshers. The long-term fundamentals of the India off-shoring story remain intact. The company has been able to maintain cash balance to pursue strategic organic investments as well as mergers and acquisitions. Looking at the strong financials and predicted growth of the company in the future we recommend ACCUMULATE.
(Closing price as of Jan 25, 2021)