As the domestic stock market continued to gain momentum, at least half of Nifty constituents including Reliance Industries Ltd (RIL), Adani Ports & Special Economic Zone Ltd (Adani Ports), Tech Mahindra Ltd (TechM) and Grasim Industries Ltd, among others are trading at huge premium over their average 10-year PE multiples.
Cement maker Grasim Industries at a PE of 22.5 at end-January traded at a 67 per cent premium over its 10-year average PE of 13.5 times. Oil-to-telecom major Reliance Industries quoted at a PE of 24.3 times, which is at 62 per cent premium to issue price. Two IT stocks Tech Mahindra and HCL Technologies traded at premiums of 59 per cent and 50 per cent, respectively. The Adani group firm Adani Ports also traded at a 47 per cent premium over its historical valuation.
Grasim Industries will be reporting its December quarter results on Thursday. ICICI Securities is expecting the cement maker to report a 36 per cent YoY drop in December quarter profit at Rs 1,645 crore on 2 per cent rise in sales at Rs 6,323.60 crore. The brokerage has a ‘buy’ rating on the stock with a target of Rs 2,332.
In the case of RIL, a couple of brokerages suggested target prices in the Rs 2,900-3,200 range post its quarterly results. Antique Stock broking said the current phase of capex could be the last for this decade in O2C and telecom, delivering large cash flows in the second half.
"Telecom and retail are likely to drive earnings over the next two years. RIL announced the start-up of new energy factories by the end of the current year, clearing the likely announcement of its next phase of investment," it said while suggesting a target of Rs 3,005 on RIL.
Kotak expects HCL Tech to growth above the industry level going ahead, aided by a ramp-up of mega deals. TechM is seen as an outlier, with 510 basis points margin expansion ahead, due to a sharp drop in FY2024. Net-net, results from IT majors were weak and yet on expected lines, it said.
Analysts are positive on Adani Ports post Q3 results. "We raise our estimates by 3-5 per cent to reflect the 3QFY24 performance and improved outlook. We value APSEZ at 16x EV/Ebitda (10 per cent premium to its 3-year median of 14.5 times to reflect optimism on growth prospects) and roll forward to March 2025 of Rs 1,430," JM Financial said.
Bajaj Auto traded at 43 per cent premium, Tata Consumer at 40 per cent, Divis Labs' at 39 per cent, Wipro at 22 per cent and Nestle India at 21 per cent premium over their historical values.
Nifty valuations, on the other hand, are close to historical averages. At present, Nifty is trading at a 12-month forward return on equity of 16.1 per cent, which is above its long-term average. On the other hand, Nifty is trading at a 12-month forward PE ratio of 19.7 times, which is near its LPA of 20.3 times. On a trailing basis, Nifty stands at 23 times, near its LPA of 22.2 times.
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