Profit margins of 7 BSE500 cos up for 4 straight quarters! Here's how their stocks performed

NEW DELHI: A total of seven BSE500 companies (excluding banking and financials) reported an improvement in profit after tax (PAT) margins for four straight quarters. Five of these stocks managed to match or better BSE Sensex's flattish returns in 2022 so far.

Shares of The Indian Hotels Company have soared 64.17 per cent this year to Rs 296.50 a piece from Rs 180.60 a piece on December 31. Profit margin of this company stood at 13.2 per cent in June quarter, an improvement from 9.14 per cent in March, 7.76 per cent in December, a negative 16.24 per cent in September (loss-making) and a negative 78.37 per cent a year-ago quarter.

Domestic travel demand is seeing a strong recovery while international travel is lagging, Motilal Oswal said, adding that with pick-up in foreign inbound travelers coupled with resilient domestic demand, H2FY23 is expected to be significantly better for hotel companies.

"The hotel sector is poised to continue its robust growth momentum in the coming quarters driven by an expected strong recovery in international travels and improving MICE activity," it said while suggesting a target of Rs 320 for IH.

Once shunned, Coal India is now a sought after stock. The scrip has climbed 56.93 per cent to Rs 229.20 a piece this year. The company reported a profit margin of 25.24 per cent in June quarter, 20.52 per cent in March, 16.03 per cent in December 2021, 12.61 per cent in September and 12.55 per cent in the year-ago quarter.

"We expect offtake to increase primarily due to higher power demand. Besides, e-auction realisation is expected to stay robust, mirroring record imported coal price. We maintain ‘buy’ on Coal India with an unchanged target of Rs 250 (6x Q2FY24E EPS). Our recommendation is also based on a sustainable dividend yield of 9 percent per annum," Edelweiss said on Thursday.

Gujarat Alkalies And Chemicals has seen its margins doubling to 19.68 per cent from 8.86 per cent in June quarter of last year. This scrip has surged 37.10 per cent this year.

From a 1.22 per cent margin in June 2021 to 3.79 per cent in June 2022, Blue Star has managed to deliver consistent improvement in margin. The scrip has risen 7.75 per cent so far this year against a 0.64 per cent drop in the BSE Sensex during the same period.

But Kotak in a note said margin will be under pressure for Blue Star in the September quarter due to high-cost inventory. Management indicated that its margins did not get impacted immediately when commodity prices were going up and it expects the same now when commodity prices are coming down. It expects margins to improve by 200 bps in the second half if the softening of commodity prices continues, while suggesting long term 12 per cent EBIT margin is feasible for room AC but 14-15 per cent margin is not possible.

Bata India's margin stood at 12.65 per cent in the June quarter. It reported losses in the year-ago quarter but saw consistent improvement in margins thereafter. The scrip has gained 2 per cent so far this year, largely in line with the market returns.

"We believe strong focus on formal, fitness and casual footwear, coupled with distribution expansion would help the company recoup lost volumes in the near term. Similarly, Bata's margins are at 90 per cent of pre-pandemic levels on account of higher marketing spend during the June quarter. We expect the company’s margins to gradually improve and reach pre-pandemic levels by FY24E," Edelweiss said.

Two stocks Rail Vikas Nigam and KPIT Technologies have fallen 5-8 per cent this year depsite improvement in margins. Margin improvement over the last four quarters stood at 55 basis points and 211 basis points for the two companies.

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