Brokerage Reports: HSBC, MOSL on Glenmark Pharma; Jefferies on Indian Hotels; Morgan Stanley on Suzlon Energy; CITI on Indus Tower; UBS on RK Forgings.

Glenmark Pharma

HSBC: Holds a cautious stance on Glenmark Pharma, reducing its target price to ₹1,600 (from ₹1,660). Q2 performance was below estimates due to higher overheads, though India sales remained robust in an otherwise lackluster quarter. The company’s US prospects hinge on new launches and Monroe plant supplies, crucial for improving margins and execution in the region.

MOSL: Maintains a Buy call with a target price of ₹1,820. Strong earnings were driven by India and Europe, although higher marketing and freight costs weighed on margins. The company is addressing the Monroe USFDA issue and expects the China Ryaltris NDA approval in FY26. Plans are underway to file Envafolimab in over 20 markets by FY25, with initial launches expected in FY26. Glenmark’s innovation arm, Ichnos, will maintain annual R&D spending at $60-70 million.

Jefferies on Indian Hotels

Reiterates a Buy call with a target price of ₹785. The stock has surged 68% CYTD and tripled since May 2022, surpassing its margin and portfolio goals for 2025. Management remains focused on overall growth but has refrained from issuing new margin guidance. Strategic initiatives to maintain consistent growth are anticipated to be key discussion points.

Morgan Stanley on Suzlon Energy

Upgraded to Overweight with a target of ₹71, citing the recent stock correction as an opportunity to accumulate. Suzlon’s strong business moat and growth potential in the wind energy sector remain intact. While FY25 sales volume has been lowered to 1.3 GW (from 1.5 GW), the FY25-27 total remains at 7.15 GW.

Jefferies on Indian Financials

Retail NPLs are expected to experience a shallower cycle, especially for leading banks. While growth in unsecured loans may moderate, SME loans could offset the slowdown. Banks differ in their approaches to rates, liquidity, and sector growth, but overall, the market remains in a favorable position. Affordable housing finance companies also received constructive feedback from channel checks.

CITI on Indus Tower

Maintains a Buy call with a target price of ₹485. Highlights include an acceleration in past due recoveries from Vodafone Idea, reduced capex boosting free cash flow, and growing visibility for dividend reinstatement by Q4 FY25.

UBS on RK Forgings

UBS: Retains a Buy call with a target price of ₹1,500. Growth is supported by higher EV and aluminum forging penetration, contributions from recent acquisitions, and client additions across sectors like oil & gas, farm equipment, and rail. The rail segment, in particular, is expected to drive operational performance.

City Gas Distributors Face Earnings Cuts After Gas Allocation Reduction

City gas distributors are under pressure as Citi Research, following other global brokerages, has slashed their earnings estimates and target prices. This comes after an unexpected second consecutive cut in domestic gas allocations by GAIL (India) Ltd.

Impact on Companies and Prices

The reduction in domestic gas allocation ranges from 13-20%, forcing gas companies to hike CNG prices by Rs 6-8 per kg for retail buyers. Indraprastha Gas Ltd. (IGL), Mahanagar Gas Ltd. (MGL), and Adani Total Gas Ltd. have seen allocation cuts of 20%, 18%, and 13%, respectively. This is the second cut in recent months, with similar reductions of 16-20% announced in October 2024.

Brokerage Ratings and Target Prices

Citi has adjusted its outlook for the affected companies. It cut EBITDA estimates for IGL, MGL, and Gujarat Gas by 21%, 5-10%, and 8-9%, respectively. Gujarat Gas now has a ‘sell’ rating, with its target price reduced to Rs 440 per share from Rs 490, suggesting a 2.35% downside from the previous close. On the other hand, Citi has maintained ‘buy’ ratings for IGL and MGL, but reduced their target prices to Rs 450 and Rs 1,650 per share, respectively.

While Citi acknowledges that current stock levels may limit immediate losses, it cautions against near-term gains due to policy uncertainty. However, it sees potential opportunities for long-term investors.

Broader Market Concerns

Earlier this week, Jefferies also downgraded gas distributors, citing the domestic gas allocation cuts as a key factor. According to Jefferies, there is a risk that domestic gas supplies may completely stop by mid-2025, which could further strain profit margins.

Reliance on Domestic Gas

City gas distributors like IGL and MGL depend heavily on domestic gas for their CNG and PNG operations. Reduced allocation forces them to rely more on expensive imported gas, directly impacting their cost structure and consumer prices.

Foreign investors have withdrawn approximately $13 billion from Indian equities since October, according to data from CDSL. At the same time, they have channeled $11.5 billion into IPOs and primary share sales, signaling a shift in investment strategy. India’s IPO proceeds in 2024 have reached a record $28.4 billion, more than double the amount raised in 2023. This surge in primary market activity comes even as the NSE Nifty 50 index has undergone a correction, driven by significant outflows from global funds amid broader market volatility.

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