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Market Outlook of the Week: Midcaps in driving seat, 12 month Nifty target retained at 21,500

ICICIdirect 13 Mins 02 Jun 2023

Strong macros like Earnings, GDP, GST data, FII flows to drive outperformance in Mid and small caps

Earnings outperform in Q4F23; Nifty target retained at 21,500

  • Quarterly earnings in Q4FY23 were positive and 6% ahead of estimates wherein Nifty EPS came in at Rs 233/share (est of Rs 220/share).
  • Nifty Excl. BFSI space, topline ( up 4.4% QoQ), EBITDA (up 6.8% QoQ) with corresponding EBITDA margins at 17.4% up 40 bps QoQ. Net profit was up 14.8% QoQ.
  • Nifty estimates undergo a minor ~1% downgrade. Major upgrades were seen in the BFSI (index heavy), Auto, FMCG and Power space while downgrades were witnesses across IT, Oil & Gas.
  • Over FY23-25E, Nifty earnings are seen growing at a CAGR of 16.5%. We value Nifty at 21,500 i.e. 20x PE on FY25E EPS of Rs 1080/share (Sensex 71,600).

Q4FY23 GDP buoyancy surprised positively, lead indicators continue to remain strong

  • Real GDP surprised positively with growth of 6.1% YoY in Q4FY23 vs estimates of 5.2-5.4%, making full year GDP reach 7.2% beating estimates of 7% for FY23.
  • FY23 Nominal GDP stood at Rs 272 lakh crore growing 16.1% YoY.
  • Largely all segments reported higher than expected growth, Manufacturing (forming ~17% of Real GVA) grew 4.5% in Q4 vs last 2 quarters of negative growth. Agriculture at 5.5% (est 3.3-3.5%). Construction sector up 10% YoY.
  • Expect buoyancy in economic growth to continue with GDP growth estimated around 6.5-6.7% in FY24. Inflation moderation to further offer room for rate cuts by RBI.


  • GST collection for May-23 (for the activities done in April-23, eway bill 8.4 crore, up ~12%) was at Rs 1.57 lakh crore, a growth of 11.5% YoY.
  • We expect GST collection trend to remain robust ahead with positive high frequency indicators such as Auto volume sales in May (double digit YoY growth), manufacturing PMI (May, 2023) at 58.7 at 31 months high, credit growth tracking healthy ~15%+YoY, among others.
  • For FY24E, the average budgeted monthly GST collection is at ~Rs 1.59 lakh crore (FY24YTD is tracking at Rs 1.73 lakh crore monthly run rate)

FIIs bought over $5 billion in May

  • India continued its outperformance on strong FII inflows in May. FIIs have poured nearly $ 5 bn (Rs 41,000 Crores) which is highest monthly figure since August last year.
  • Net flows for the year finally turned positive with net flows of nearly $4.4 Billion.

Healthy Auto volumes in May 2023, 2-W space shines

  • In the 2-W space, Hero MotoCorp outperforming its peers with 31.1% MoM growth at 5.2 lakh units (third such reading of 5 lakh+ volume during last 1 year). Also positive was volumes at Eicher Motors (Royal Enfield) growing 5.9% MoM at 77,461 units (highest reading in last 7 months). Encouragingly green shoots of demand recovery are visible for rural economy with motorcycle segment leading the growth trajectory.
  • In the PV space, volumes at Maruti posted 10.7% MoM growth at 1.75 lakh units with key positive being its UV volumes at ~46k+ units (highest ever, tracking new model launches like Grand Vitara, Fronx) whereas rest of the peers reported muted show tracking chip concerns.
  • In CV segment, Tata Motors posted 28.9% MoM growth at 28,989 units, Ashok Leyland posted 1.2% MoM growth to 13,134 units. Buses segment continues to witness healthy demand.
  • In Tractor space, Escorts surprised positively and grew 8.9% MoM at 9,167 units, M&M's tractor sales were down 4.5% YoY at 34,126 units. 

Our top bets in the OEM space are Maruti Suzuki (Target price: Rs 11,000), Tata Motors (Target price: Rs 650) and in Auto Ancillary space are Gabriel India (target price: Rs 225), Mayur Uniquoters (target price: Rs 610).

Cement Sector: Record high-capacity utilisations

  • Overall volumes for our coverage universe grew 13.2% YoY to 69.0 MT.
  • Capacity utilization rates improved by ~ 390 bps YoY to 91% (Q3FY23: 80%). Industry leader operated at nearly 100% capacity utilisation rate in March 2023. Amongst the pack, Ramco Cements (south player) outperformed with robust growth of 47% YoY to 4.7 MT with sharp uptick in utilisation rates (85% vs. 66% in Q4FY22).  
  • Pricing scenario remained weak as blended realizations declined by 1% QoQ to Rs 5,680/t.
  • Despite lower realizations, EBITDA/t improved by Rs 135/t (QoQ) to Rs 912/t (Q4FY22: Rs 1032/t). UltraTech & Shree Cement surpassed Rs 1000+ EBITDA/T mark.
  • Cement production is expected to remain healthy in the medium term (8-9% growth). Furthermore, International pet coke prices have reduced significantly from US ~$ 175/t in Q4FY23 to US $ 130/t currently. We expect overall cost reduction of Rs 200-250/ton in FY24E and expect EBITDA/T to surpass Rs 1,000 levels in FY24E (FY23: Rs 830/t).  
  • Our Preferred large cap picks are UltraTech (TP: Rs 9,000), Ambuja Cement (TP: 470) and among mid-caps we like JK Cement (TP: 3780) & Ramco Cements (TP: Rs 980).   

Hospitality - ARR’s and occupancies drives strong operational

  • FY23 has been a progressive year for the hotel industry with buoyancy in ARR and occupancy ratio.
  • Industry ARRs are trending 12-15% higher (Rs 6,810) than pre-Covid levels (Rs 6,100) and higher by 40%+ over FY22 ARR (Rs 4,700).
  • Occupancy has improved from pandemic low levels of ~ 35% in FY21 to 66% in FY23 and is trending marginally below pre-pandemic level of 68%.
  • Lemon Tree Hotels occupancy jumped to 74% in Q4FY23 (62% in Q4FY20). Indian Hotels occupancy stood at 66% in FY23 vs 63% in pre-covid level. EIH occupancy increased from 62% in Q4FY20 to 80% in Q4FY23.
  • Over FY23-FY27, the hotel demand is expected to increase by 9.7%, while hotel supply is expected to increase by 5.2% which would enable Average room rates and occupancy to remain at healthy levels.
  • Indian Hotels (TP: Rs 405), Lemon Tree (TP: Rs 115) Hotels are our top bets in Hotels.

Hidden Gem

Anup Engineering (Market Cap: Rs 1,550 crore CMP: Rs 1,552, TP: Rs 1,880)

  • Anup Engineering is primarily engaged in designing and fabrication of process equipment’s like heat exchangers & pressure vessels. The company is well poised to do well from higher capex in sectors like petrochemicals, refineries, chemicals, pharmaceuticals, fertilizers etc.
  • The company is doing well in the domestic heat exchangers market and is now focusing on tapping key exports market (19% of FY23 revenue) like US.
  • In FY23, company did revenues of Rs 411 crore which was up by 43% and with the new capex and healthy order inflows, company sees revenue visibility of over ~Rs 600 core by FY25. In the longer term, company targets to reach revenue of Rs 1,000 crore by FY27, which implies CAGR of 25%.
  • Order inflows during FY23 was robust at Rs 548 crore and company sees about 30% increase in inflows in FY24. The company is also in process of capacity expansion also which is expected to commence from Q3FY24.
  • EBITDA margins also expected to improve from current 20% levels to 23%+ in the next 2 years, giving strong visibility on bottom-line growth in the coming period.
  • Expect Topline to grow at 24% CAGR to Rs 631 cr in FY25 and Net Profit to grow at ~ 35% CAGR to Rs 93 cr.
  • Current valuations at 16.5x P/E on FY25E earnings look attractive considering the strong growth ahead. We have a target price of Rs 1,880 which is 21% upside from current levels.


Nifty is likely to consolidate with support near 18,300 amid broader market outperformance in the coming week as well. We believe the trend may continue ahead of crucial RBI policy meet and Fed Policy meet a week after.

Source: ICICIdirect Research

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