India’s bellwether indices closed flat for the second week in a row, yet several of them closed the week in green.
Topping the returns’ chart this week, is the stock of the Information and Communication technology service (ICT) provider from the Tata’s stable – Tata Teleservices. The stock witnessed a massive 43 per cent rally since August 26. Interestingly, the company has been making losses for almost a decade now. The last time, the company reported profit at the net level was in FY11, with a modest Rs 50 crore post tax profit, compared to revenue of Rs 2249 crore, that year. What is more intriguing is the fact that the company’s revenue has more than halved over the last decade to Rs 1094 crore in the latest fiscal FY22. So, what is driving up the stock price?
Well, the company through its fibre optical cable network of 1.3 lakh kilometres caters to the connectivity and communication needs of small and medium sized businesses. The market is abuzz with reports that potential collaboration with other Tata Group companies and potential transformation of the business into a SaaS plus connectivity solution provider, can potentially be a gamechanger for the company. However there has not been any official statement from the company and with its financials not in the best of shape, this appears to be more like meme stock rally. The company trades at a whopping EV/Revenue of 42 times.
Hospitality sector has been in focus ever since the country relaxed covid restrictions and resumption of local and overseas business travel by India Inc. The stock of Oberoi group, EIH, was the other winner last week, gaining 17 per cent over the past week. While there has not been any company specific development, to justify the rally, the relative strength of Indian equities vis-à-vis global peers and themes such as travel and tourism which are a play on the economic recovery, have possibly fuelled the rally in EIH’s stock.
The company, which is flagship entity of the Oberoi group, has 33 hotels in its fold (two-third managed, one-third owned), with a capacity of 4512 rooms across categories – super luxury, five-star, and heritage. Besides this, the company also operates restaurants at airports and provides kitchen services to airlines amongst others. The stock currently trades about 47 times and 41 times its FY23 and FY24 estimated consensus earnings as per Bloomberg.
The other stock that investors favoured last week, was that of farm equipment manufacturing company Escorts Kubota. The stock jumped 13 per cent since August 26. The rally was helped by optimism around the 7 per cent increase in tractor sales (6111 units) for the company in the month of August. Of this, domestic sales were 5,308 units, implying an 8 per cent year-on-year growth. The economic growth recovery coupled with expectation of a better rabi season are likely helping stocks of companies in the agriculture and allied sectors.
Interestingly, the company has been losing share in the tractor segment, from 11.6 per cent in FY20 to 10.3 per cent in FY22, that too in its traditionally strong markets of North and Central India. Also, margin pressure due to higher costs of components was evident in the company’s June 2022 quarter performance. Even as the company’s revenue grew 21 per cent year-on-year to Rs 2014 crore, EBITDA declined 14 per cent compared to the same period, last year to Rs 196 crore. The stock currently trades 22.7 times and 20.2 times its Bloomberg consensus estimates for FY23 and FY24 respectively.