Short Call | No compelling triggers for a big surge; Chalet Hotels, VIP Industries, Sona BLW, GOCL in focus

“The world changes. This is the biggest problem in markets.” – Bill Miller

The weakness in the last hour of trade on Thursday once again showed that the mood seems to be one of ‘sell-on-rise’ more than ‘buy-on-dips’. The focus will now shift shortly to March quarter earnings. The December-quarter earnings were nothing earth-shattering in the context of high expectations factored in the stock prices. Another quarter of so-so earnings could make even die-hard bulls think twice. For now, the only big positive trigger in the near time appears to be an emphatic win for the NDA coalition in the upcoming general elections. The news flow in most sectors is by no means dire, but they don’t seem to make a strong case for the stock prices to rise sharply from these levels.

A Centrum report last week said that order awards at Rs 434 billion in February were down 46 percent over last year. This was the third straight month of year-on-year decline in order awards. There was decline across all major sectors, except for roadways where the inflow surged 10 percent.

Yes Securities analysts write that their interaction with automobile channel partners hints at weak retail demand for March. Growth is likely to be in low to mid single digits for two wheelers, and high single to double digit decline for passenger vehicles, commercial vehicles and tractors. JM Financials analysts write that prices of several basic chemicals declined in March and that in the near term, weak polycarbonate demand environment is likely to weigh on the phenol prices.

Chalet Hotels (Rs 889.50, + 2%)

The company plans to raise Rs 2,000 crore through a qualified institutional placement at a floor price of Rs 780.

Bull argument: Outlook on the hospitality sector remains upbeat, as demand continues to exceed supply and average room rents have been showing a strong trend. The company’s other verticals—office space leasing and residential project—too are doing well.

Bear argument: The stock has already reached ICICI Securities’ and Prabhudas Lilladher’s target prices. Equity dilution will keep the prices in check in the near term. Also, the floor price is at a significant discount to the market price and the final price could be even lower.

Garden Reach Shipbuilders & Engineers (Rs 765.9, -1.42%)

The company recorded the highest-ever year-on-year annual turnover growth of 33 percent in FY24.

Bull argument: The management is targeting a revenue growth of 25 percent per annum for the next three years and is also optimistic about securing a

sizeable chunk of potential orders of next-gen corvettes (NGC) and P-17B frigates by the end of 2026 and 2027.

Bear argument: GRSE’s order book as of December 2023 stands at Rs 236 billion and the management expects it to deplete by FY28 and peak out in FY26. According to ICICI Securities, even if GRSE secures five NGCs and four P-17B frigates, earnings per share is likely to be constrained at Rs 60-70 per share through FY32.

Sona BLW Precision Forgings (Rs 702, +3.02%)

The stock rallied 3 percent after global brokerage Bernstein raised the target price to Rs 780 from Rs 770, implying an upside of 14.5 percent with an outperformance call.

Bull argument: The brokerage said the company is on the right side of auto disruption. The increasing demand for electric vehicles is expected to benefit the company. The battery-driven electric vehicle (BEV) segment reported a 28 percent on-year revenue increase, constituting 30 percent of overall revenues.

Bear argument: The stock is trading at expensive valuations. Nuvama said it is improbable for the company to sustain the outperformance in this magnitude due to scale and maintaining market share.

GOCL (Rs 453.60 , +19.9%)

The stock gained almost 20 percent after the company entered into an agreement with Squarespace Builders to sell land worth Rs 3,402 crore in Hyderabad.

Bull argument: Most analysts estimate that while there are challenges in the short term, long –term improvements in operational performance will be seen; the stock has gained over 50 percent in the last one year.

Bear argument: GOCL reported a weak operational performance in the December quarter due to increased imports and reduced soda ash realisation.

VIP Industries (Rs 516.95, +11%)

VIP Industries shares jumped 15 percent after the luggage maker shared its growth strategy.

Bull argument:  The company’s renewed focus on premiumisation would act as a key margin lever and drive growth, says Prabhudas Lilladher. The stock has corrected 30 percent in the last six months, making valuations reasonable.

Bear argument: The company has almost Rs 9 billion of unsold inventory which is a year-old.