Up to 550% rally! Stocks that shone in hard times showing muscles too

NEW DELHI: Whoever said the stocks rally since March lows was reckless should be eating crow now.

Many of the stocks that saw a stellar run in the rally have also turned out to be the ones delivering solid top line and bottom line growth through these hard times, and showing strong earnings visibility for the near future.

The best part is, investors sit easy in these stocks, as the rest of the market gets busy fixing stop losses and booking partial profits in anticipation of an imminent correction.

Shares of 23 companies with healthy earnings outlook (at least for the short term) rallied up to 550 per cent from March lows. And June quarter earnings validated those bets, as these companies reported more than 20 per cent rise in both sales and profit in an otherwise washout quarter, data compiled by corporate database AceEquity suggests.

The chart-topper was Aarti Drugs, whose shares rallied a whopping 548 per cent since March lows. For June quarter, the company reported a 280 per cent YoY surge in profit after tax (PAT) at Rs 85.45 crore on a 34.34 per cent rise in net sales at Rs 544.67 crore. While disruptions in China helped, Anand Rathi says the company is a prime candidate to benefit from the government’s push for indigenous API manufacturing.

Shares of LT Foods soared 288 per cent from March lows. The owner of Basmati rice brand Daawat delivered 82.24 per cent rise in net profit at Rs 83.58 crore on a 24 per cent rise in net sales at Rs 1,215 crore. Analysts like the business on account of strong product line and consistent market share gains, which they believe may help the company outperform peers.

Sugar producer Dalmia Bharat Sugar & Industries more than doubled June quarter profit at Rs 125.86 crore on a 51 per cent rise in net sales at Rs 881.52 crore. This stock has risen 247 per cent from March lows. ICICI Securities said optimum byproduct capacities helped Dalmia Bharat Sugar bring stability to earnings and cash flows. This brokerage likes the company as likely additional sugar exports and higher sugarcane diversion towards heavy ethanol is expected to help it cut sugar inventory by 50,000 tonnes over next two years.

Laurus Labs’ June quarter bottom line was higher than the average annual profit it had reported over FY17-20. The June quarter numbers redefined earnings assessment for the company over near to medium term, Motilal Oswal said.

Brokerages now look at Laurus Labs as a solid play on the formulation business, and have revised earnings estimates sharply, suggesting a 20-30 per cent potential upside. This stock has rallied 245 per cent from March lows.

Among others, Vaibhav Global, Granules India, Triveni Engineering & Industries. Bombay Burmah Trading Corporation and Deepak Fertilisers have jumped 138-163 per cent from March lows. These companies reported at least 46 per cent rise in profit on 23-32 per cent rise in sales.

Tata Coffee, Muthoot Finance, Balrampur Chini Mills and ICICI Securities were among other stocks that have delivered over 100 per cent returns since March 24, the day BSE Sensex hit its 52-week low of 25,638. The BSE barometer is up over 50 per cent since then. These companies also reported stellar numbers for the June quarter, AceEquity data showed.

Nitin Raheja, Co-Founder, AQF Advisors says if an investor keeps on getting obsessed with the market level, s/he is never going to get it right. “You probably have missed out huge gains that you could have made in last three or four months. The lesson here is to focus on your companies: Be bottoms-up and focus on stocks, where you have the growth visibility. That is what we continue to do. It is true that a period of consolidation normally occurs after a runup. But this is a long-drawn thing,” Raheja told ETNow.

Other stocks that have seen 40-100 per cent recovery from March lows have all reported healthy quarterly numbers. Among them were stocks like Alembic Pharmaceuticals, PI Industries, Bayer CropScience, Manappuram Finance, Divi’s Laboratories, Britannia Industries, Coromandel International, Ipca Laboratories, Bajaj Finserv and REC.

Only companies with Rs 500 crore in quarterly sales and at least Rs 50 crore in profits were picked for the study.

Waqar Naqvi, CEO of Taurus Mutual Fund, said he prefers companies with stable cash flow and stronger balance sheets where the debt is minimal. “Investors will do good to trace those investment ideas where balance sheets are stronger and can absorb shocks induced by black swan events like the current pandemic. Debt-free companies or at least those making attempts to reduce the overall debt by recasting their balance sheets will be better investment options for the cautious investor,” he said.