MCX, Sobha, PVR Inox, ZEE, TechM shares: FY24 profit estimates fall but stocks up. Is it time to sell?

Shares of a dozen companies climbed up to 55 per cent this earnings season despite seeing downgrades to FY24 profit estimates post Q1 results. They included MCX, Sobha, PVR Inox, ZEE Entertainment Enterprises (ZEE), VIP Industries, Tech Mahindra and ACC. Shares of Tata Steel, Punjab National Bank (PNB), Devyani International, NALCO and V‐Mart Retail also jumped, despite seeing earnings downgrades, data compiled by IIFL Securities suggest.

In the case of MCX, the stock has risen 5.5 per cent despite seeing a 59.3 per cent downgrade in FY24 profit estimate. The technology transition remains the key overhang for the exchange and the extension of the tech contract with the existing vendor will impact its profitability in FY24E, said HDFC Institutional Equities.

"We remain constructive on the options growth story, supported by increasing retail participation, the launch of new contracts (mini and index options) and a pick-up in bullion volumes. We maintain our BUY rating with a target price of Rs 1,780, based on a P/E of 23 times June-25E core PAT and net cash," it said.

Realtor Sobha saw its shares rising 5.4 per cent despite seeing a 21.5 per cent reduction in FY24 profit estimates.

"The management targets 15-20 per cent growth in sales bookings in FY24. The current pipeline of launches, unsold inventory and landbank show good operational visibility. Although timely launches are vital, a comfortable debt position leaves room for new business development. We reiterate 'Buy' with a target of Rs 706 on 1 time one-year forward NAV," Elara Securities said.

PVR Inox shares in fact have jumped over 25 per cent despite 21.4 per cent drop in FY24 profit estimates.

ZEE, VIP Industries and Tech Mahindra are among stocks that rallied up to 55 per cent despite earnings downgrades. For ZEE, Motilal Oswal said the gradual recovery in ad revenue with improving spends from FMCG segment appears to be a silver lining. Recovery could be seen from 2HFY24 onwards with the onset of the festive season, it said.

Centrum Broking cut its FY24 estimates (excluding exceptional income) for VIP Industries by 10 per cent and FY25 by 14 per cent. "We expect VIP to grow its sales/EBITDA/PAT at CAGR of 13/18/28 per cent over FY23-25E. We maintain BUY rating valuing at 43 times FY25 (earlier 45 times) to arrive at target price of Rs 762," it said.

Tech Mahindra posted q1 revenue growth that was much below analyst estimates.

"The sequential CC revenue decline came in at 4.2 per cent, which was lower than our estimate of flat QoQ CC growth. The weakness in the quarter seemed to stem from the CME vertical which declined 9.4 per cent on a sequential basis and made up 38 per cent of revenues in 1QFY24," said Nirmal Bang.

"We continue to believe that the worst on the US macro front is ahead of us and not behind us and that customer spending will remain constrained. Hence, we are cautious on the IT sector and TechM," it added.

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