Six stocks that seem to underperform according to one report | Daily News Byte

Six emerging names from across sectors such as IT, automation, finance, consumer, and property Trading capital, including. Coforge, Bharat Forge, Mahindra & Mahindra Finance, Cummins India, Asian Paints, and Tata Power.

Incidentally, Mahindra & Mahindra Finance hit a 52-week high only on Monday, while Cummins India and Bharat Forge also extended their 52-week highs in the recent past.

Here’s Jefferies’ reasoning behind each one:

Coforge

Amid the deteriorating macroeconomic environment, Jefferies expects Coforge’s revenue to grow from 21 percent annually to just 12 percent in fiscal 2024. The recessionary environment poses higher revenue risks for medium-sized players, due to their greater share. Decision products, according to Jefferies.

Almost 70 percent of Coforge’s customers are below the $1 million mark, making it highly vulnerable in the event of a drop in demand and possible vendor consolidation.

The challenge in Europe is another weakness for Coforge as almost 40 percent of its revenue in the first half of the current financial year came from the continent. Despite the correction seen by the stock, Jefferies found its valuation to be rich.

Other factors:

Bharat Forge

Brokers also expect the company’s export revenue growth to moderate to 18 percent this year and only 4 percent in the next financial year. However, it expects healthy domestic revenue growth led by trucks, passenger vehicles and industry. Jefferies also expects an increase in electric vehicle orders.

The large defense order is a major potential risk to Bharat Forge’s earnings, according to Jefferies.

Other factors:

Mahindra & Mahindra Finance

Jefferies expects M&M Financial’s inflation to be a negative surprise as it expects yields to moderate due to strong disbursements in lower-yielding products. It is also expected that the cost of funds will increase as the full impact of higher interest rates is reflected in the cost of funds.

Brokers called the improvement in the quality of the company’s assets as one led by settlements and write-offs and not due to meaningful improvements in collections.

Other factors:

Asian color

Grasim’s foray into the paint business and big announcements in financial year 2025 prompted Jefferies to declare this a “Jio moment” for the paint industry.

Aggressive pricing strategies or otherwise tactics from Grasim may disrupt the market structure and have a greater impact on smaller players, according to Jefferies. However, Asian Paints is still vulnerable.

The entry of players like Grasim, JK Cement, Astral and Infra.market has shaken the oligopolistic structure of the Indian paint industry.

Jefferies believes that Asian Paints’ current valuation does not factor in Grasim’s overhang and their risk premium is unfavorable.

Cummins India

Jefferies cited aggressive competition from global major Perkins, which set up a manufacturing plant in India in 2016, and weak pricing power behind its lower rating on Cummins.

Brokers expect Cummins’ profitability ratio to be responsible for overestimating demand, setting its RoE at 18-20 percent, despite a recovery in the current financial year.

The current price target of Rs 1,030 reflects no earnings growth this financial year and next.

Tathagata energy

Tata Power’s management has set out plans to double its RoE to 12 percent by financial year 2025. However, Jefferies is concerned that competition and capex will keep RoE below 14 percent in the medium term.

The broker further said that the maximum positive news for Tata Power is behind as the company’s asset monetization has disappointed the street.

The Mundra Tariff hike solution is not seeing a favorable stand from the State Electricity Boards (SEBs).

Jefferies’ price target values ​​the stock at 15.9 times price-to-earnings for September 2024, given expectations of limited growth ex-coal, along with the return ratio.