Query Board

This section gives decisive investment rationales to our subscribers on the stock queries they have raised to our research team.

FCS SOFTWARE SOLUTIONS LTD

FCS Software Solutions Limited is an information technology company that offers IT and IT-enabled services.The company’s quarterly performance shows net sales of Rs34.62 crore in Q4FY22 as compared to Rs34.06 crore in Q4FY21. The operating profit stood at Rs7.62 crore in Q4FY22 as compared to Rs8.33 crore in Q4FY21. The company made a net loss of Rs0.05 crore in Q4FY22 as opposed to Rs12.32 crore in Q4FY21. Analysing the annual numbers, the net sales for FY21 were to the tune of Rs9.99 crore, an increase of 48.09 per cent from Rs6.74 crore in FY20. The operating profit was Rs2.89 crore in FY21 as opposed to a loss of Rs1.85 crore in FY20. The company reported net loss for FY21 of Rs0.31 crore as opposed to Rs15.80 crore in FY20. FCS Software Solutions is a debt-free company.

Also, the account receivables or debtor days has been reduced to 20.77 days from 47.30 days. But the company has a low interest coverage ratio. It has delivered poor sales growth of 1.11 per cent over the past five years. Its financials indicate that the promoters’ holding in the firm is low, which shows less confidence in the company. In addition, the return on equity ratio (ROE) has been low for the past three years, delivering negative 2.33 per cent. Hence, we recommend AVOID.

TATA CONSULTANCY SERVICES LTD

TCS helps its customers achieve their business objectives by providing innovative, best-in-class consulting, IT solutions and services and to make it a joy for all stakeholders to work with them. The net sales for the quarter Q4FY22 were Rs50,591 crore as compared to Rs43,705 crore in Q4FY21. The operating profit in Q4FY22 was Rs14,826 crore as compared to 13,732 in Q4FY21, a slight increase of 7.97 per cent. The net profit rose by 7.29 per cent in Q4FY22 to Rs9,959 crore as opposed to Q4FY21 which stood at Rs9,282 crore. The annual performance of net sales stood at Rs191,754 crore in FY21, scaling up by 16.8 per cent. Also, the operating profit increased in FY21 by 14.89 per cent to Rs57,075 crore as opposed to Rs49,680 crore in FY20. The net profit stood at Rs38,449 crore in FY21 as compared to Rs32,562 crore in FY20 i.e. a staggering 18.08 per cent jump. In the recently released FY22 annual report, TCS has highlighted that its order book is at an all time high of USD 11.3 billion for Q4FY22 and USD 34.6 billion for FY22. Revenue is anticipated to be driven by investments in emerging technologies and cloud migration. Moreover, TCS has been able to maintain a high dividend pay-out ratio of 56.35 per cent. Its ROCE has been posting growth YoY, reported at 55 per cent this year. Hence, we recommend BUY.

REC LTD

REC is a central public sector company whose primary goal is to make power more accessible so that both rural and urban populations can enjoy better quality of life and experience faster growth. Additionally, it functions as a competitive, client-focused and development-oriented body for funding and advancing national initiatives involving power generation, power conservation, power transmission and the nation’s power distribution network. The company’s quarterly performance shows net sales of Rs9,574.29 crore in Q4FY22 as compared to Rs9,150.79 crore in Q4FY21.

The operating profit stood at Rs8,215.88 crore in Q4FY22 as compared to Rs8,143.52 crore in Q4FY21. The net profit increased by 10.99 per cent to Rs2,301.33 crore in Q4FY22 as opposed to Rs2,073.39 crore in Q4FY21. Analysing the annual numbers, the net sales for FY21 was Rs39,118.09 crore, a decent gain of 10.54 per cent from Rs35,389.19 crore in FY20. The operating profit was Rs34,511.54 crore in FY21, an increase of 6.91 per cent from Rs32,281.47 crore in FY20. The net profit for FY21 stood at Rs10,047.51 crore as opposed to Rs8,380.21 crore in FY20, an exceptional jump of 19.9 per cent.

The company provides a very good dividend yield of 10.78 per cent and a dividend pay-out of 34.59 per cent. The promoters hold above 50 per cent equity in the company while foreign institutional investors have a holding of 24.27 per cent. The company’s profit after tax in FY20-21 has been the highest in the last five years. India has power plants with a total installed capacity of 382 GW. The emphasis is gradually shifting from traditional energy sources toward renewable ones. Higher economic activity could be expected in the fiscal years 2021– 2022, which would raise the need for electricity. This will be in favour of REC Limited.

Hence, we recommend BUY. 

COCHIN SHIPYARD LTD.

In the last three decades Cochin Shipyard has emerged as a forerunner in the Indian shipbuilding and ship repair industry. Its yard can build and repair the largest vessels in India. Cochin Shipyard commenced ship repair operations in the year 1982 and has undertaken repairs of all types of ships including upgrades of ships of the oil exploration industry as well as periodical lay-up repairs and life extension of ships of the Indian Navy, UTL, Indian Coast Guard, Fisheries and Port Trust as well as merchant ships of SCI and ONGC. The yard has, over the years, developed adequate capabilities to handle complex and sophisticated repair jobs.

The company caters to clients engaged in the defence and commercial sectors in India and worldwide. In addition to shipbuilding and ship repair, it also offers marine engineering training. The company’s quarterly consolidated financials reveal that the operating profit for Q4FY22 is Rs408.03 crore as compared to Rs325.46 crore for Q4FY21, an increase of 25.37 per cent. Net sales for Q4FY22 was Rs1,212.49 crore, recording an increase of 12.23 per cent as compared to net sales of Rs1,080.32 crore in the same quarter last year. The net profit has also improved and stands at Rs274.61 crore since the same period last year which was at Rs236.22 crore in Q4FY21, up by 16.25 per cent

The annual performance of net sales reported is Rs3,190.95 crore for FY22, which has increased by 13.2 per cent from last year’s value of Rs2,818.90 crore. The operating profit stood at Rs885.47 crore as compared to Rs906.59 crore for FY21, decreasing slightly by 2.33 per cent. The net profit was at Rs563.96 crore for FY22 as compared to Rs608.66 crore for FY21, a marginal fall by 7.34 per cent. The company has invested in ship repairing facilities, which is a higher margin business, and is expected to outperform shipbuilding in growth. It also has a healthy order book. However, the margins remain under pressure due to higher raw material prices and long execution cycles. Hence, we recommend HOLD.

COAL INDIA LTD.

Coal India Limited (CIL), the state-owned coal mining corporate, came into being in November 1975. With a modest production of 79 million tonnes (MTs) in the year of inception, CIL today is the single-largest coal producer in the world. CIL is one of those that have a privileged status conferred by the Government of India in order to empower them to expand their operations and emerge as global giants. The company is mainly engaged in mining and production of coal and also operates coal washeries.

The major consumers of the company are power and steel sectors. Consumers from other sectors include cement, fertilisers, brick kilns, etc. The company’s quarterly consolidated financials reveal that the operating profit for Q4FY22 is Rs10,867.76 crore as compared to Rs7,662.57 crore for Q4FY21, an increase of 41.83 per cent. Net sales for Q4FY22 were at Rs30,046.25 crore, recording a decrease of 22.58 per cent as compared to net sales of Rs24,510.80 crore in the same quarter last year. The net profit has also reduced and stands at Rs6,714.24 crore since the same period which was at Rs4,591.81 crore in Q4FY21, up by 46.22 per cent.

The annual performance of net sales is Rs100,623.37 crore for FY22, which has increased by 21.66 per cent from last year’s value of Rs82,710.32 crore. The operating profit stood at Rs28,595.03 crore as compared to operating profit of Rs22,372.30 crore for FY21, which has increased by 27.81 per cent. The net profit was Rs17,387.01 crore for FY21 from the net profit of Rs12,705.14 crore for FY21, a decent rise by 36.85 per cent. Coal India reported strong revenue growth on the back of robust demand and better prices due to shortage of coal globally while the demand for power surged and profit margins improved significantly as a result of higher revenues combined with stable fixed costs.

Hence, we recommend HOLD.

TATA STEEL LTD.

Tata Steel Limited is a public limited company incorporated in India with its registered office in Mumbai. The company is listed on the BSE and the NSE. It was established as Asia’s first integrated private steel company in 1907. The company has a strong presence across the entire value chain of steel manufacturing from mining and processing iron ore and coal to producing and distributing finished products. It offers a broad range of steel products including a portfolio of high value-added downstream products such as hot rolled, cold rolled, coated steel, rebars, wire rods, tubes and wires.

The company’s quarterly consolidated financials reveal that the operating profit for Q4FY22 is Rs15,321.81 crore as compared to Rs14,456.26 crore for Q4FY21, an increase of 5.99 per cent. Net sales for Q4FY22 were at Rs68,710.60 crore, recording an increase of 38.81 per cent as compared to net sales of Rs49,499.33 crore in the same quarter last year. The net profit has also reduced and was Rs9,675.77 crore since the same period at Rs7,011.50 crore in Q4FY21, up by 38 per cent. The annual performance of net sales is Rs242,326.87 crore for FY22, which has increased by 56.62 per cent from last year’s value of Rs154,719.28 crore.

The operating profit stood at Rs64,274.84 crore as compared to Rs31,399.86 crore for FY21, which has increased by 104.7 per cent. The net profit was at Rs41,100.16 crore for FY21 as compared to Rs7,862.45 crore for FY21, an increase of 422.74 per cent. Tata Steel is aiming to double its crude steel production capacity to 40 million tonnes (MT) by 2030. The Neelachal Ispat Nigam (NINL) share purchase agreement has been completed and the transaction is expected to be closed in Q1FY23. However, the stock looks over-valued.

Hence, we recommend EXIT.

(Closing price as of July 12, 2022)