Mphasis, Venus Pipes and Apollo Hospitals: Should you buy, hold or sell?

Shares of Mphasis are down 42 per cent in 2022 so far while that of Venus Pipes have rallied 109 per cent during the same period. Apollo Hospitals has fallen 4 per cent this calendar, underperforming the broader market that gained 3 per cent in 2022 so far. Select brokerages have retained their ‘Buy’ ratings on these three stocks in their latest updates. Here’s what they said:

Mphasis | Emkay | Buy | Target Rs 2,500

Emkay Global said furloughs, lesser number of working days, deferred spending, and continued weakness in mortgage (uptick in interest rates in the US) would weigh on the sequential revenue growth trajectory of Mphasis in Q3. The management expects Q4 growth to be better than Q3 growth, it noted.

Exposure of Mphasis to the interest rate-sensitive portion of the business is in a low single-digit percentage of revenue and the incremental impact will be limited. Mphasis, however, has exposure to home equity loans and Home Equity Lines of Credit (HELOC), which may come under pressure if home prices correct sharply, Emkay said.

Mphasis so far remained confident of delivering EBIT margin within the guided range of 15.25-17 per cent for FY23 but the pace of margin expansion would be slower due to growth moderation, Emkay said.

“We have revised our EPS estimates by 0.1 per cent to minus 2.7 per cent for FY23E-25E, considering the revised forex assumption for H2FY23 and lower growth assumptions. We have rolled forward our target to December 2024 and lowered the target multiple to 22x (earlier 23x), factoring growth moderation,” it said.

Venus Pipes | Nuvama | Buy | Target Rs 905

The government recently imposed an anti-dump​ing duty on imports of stainless steel seamless tubes and pipes from China. Nuvama Institutional Equities said the duty is likely to drive growth for Venus Pipes faster ramp-up of expanded capacities (tripling by Q4FY23); imports substitution (20–25 per cent of industry); and shift from small to large players. 

Besides, it expects exports growth is likely to benefit from backward integration and the 1 per cent exports incentive with effect from December 15.

“Given strong industry tailwinds and robust earnings growth visibility of 50 per cent-plus over FY22–25E, we maintain ‘BUY’ on Venus Pipes with a target of Rs 905 (24x FY24E EPS),” it said.

Nuvama said Venus is on track to treble its capacity, integrate backwards and add higher diameter pipes, enabling it to clock a 50 per cent PAT CAGR over FY22–25E. With the anti-dumping duty in place, the company is poised to enjoy great demand both in domestic and export markets, it said.

Apollo Hospitals | Kotak Institutional Equities | Buy | Target Rs 5,470

Kotak Institutional Equities  said delay in Apollo Healthco’s fundraise as well as elevated competitive intensity for 24/7 have been key investor concerns on Apollo Hospitals. Kotak said it agrees that fundraise in Apollo Healthco is important to ease out the cash drain on the core business, but  given the sturdy free cash flow (FCF) generation in the hospital and offline pharmacy segments, Apollo Hospital’s  fundamentals stay strong even without the fund raise.

Notwithstanding a seasonally soft 3Q ahead, Apollo Hospitals’  medium-term outlook remains robust, Kotak said.

Aided by improved profitability in both mature and new hospitals, it builds in 330 bps hospital Ebitda margin expansion over FY2022-24E led by improved occupancy, higher international patient mix, case mix and ongoing cost savings.

“Execution stays impressive and Apollo Hospitals is witnessing healthy demand tailwinds across all segments. At CMP, APHS’ hospital segment is trading at an implied valuation of 20 times, lower than peers like Max Healthcare,” it said.

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