Short Call: Bulky order books a double edged sword, IT sector, JSW Steel, Aptus, Delhivery in focus

Demand in IT remains weak and clients are slower in taking decision on discretionary spends

Market continues to be fixated with order wins, as can be seen from the upbeat reaction whenever companies announce one. A healthy order book matters no doubt, but right now the Street appears to be ignoring the fact that execution matters too. And if the execution goes awry, it will have an immediate impact on profitability. Blue Star’s Managing Director B Thiagarajan made this point a couple of weeks back in an interview with my colleague Srushti. “What will you do with the order book unless and until it gets converted into cash? Unless the speed of execution goes up and it gets converted into cash, there is no purpose of order book whatsoever,” he said, adding that he was focused on faster execution rather than just adding to the order book.

Other experts have cautioned that many companies are bidding aggressively for unprofitable orders because it helps bump up market capitalisation in the short term.

CNBCTV18’s Nimesh Shah made an interesting point to Short Call. “People getting ecstatic over order wins tend to forget that infra and cap good stocks too had massive order books during the 2007 bull run. When the market crashed, those order books were of little help in sustaining the high valuations.”

GREED and fear newsletter on interest rates

The base case must remain that Asian central banks will, for now at least, remain on hold in terms of delaying cutting rates until it has become clear that the Fed has commenced easing. In GREED & fear’s view, it will require only one month of bad US labour market data for that to happen regardless of any continuing stickiness in inflation.

Centrum on IT

Overall, demand remains weak and clients are slower in taking decision on discretionary spends. Positives: Growing digitalization across enterprises and rising demand for Gen AI based solutions. Performance to improve in H2FY25 on lower base and traction on Gen AI projects.

JSW Steel (Rs 923, + 3.7%)

Stock hit a record high despite a tepid set of Q4 numbers

Bull argument: Easing coking coal prices to aid margins in the quarter. Volume sales were strong in the March quarter and this trend is expected to continue.

Bear argument: Realisations were weak in the March quarter. Despite strong domestic demand, steel prices have been steady as fear of dumping by China remains. JSW’s debt continues to be on the higher side.

Delhivery (Rs 390, -10.3%)

The stock took a beating after fourth-quarter numbers disappointed.

Bull argument: A strong balance sheet and tapering capex is likely to shield the company from competitive intensity, according to Emkay Global.

Bear argument: The company reported flat Q4 volume in the parcel segment. According to Prabhudas Lilladher, this was due to “general softness in online deliveries.” For a company valued at over Rs 28,000 crore, profits have been slow to come.

Aptus Value Housing Finance (Rs 298.6, -5.5%)
SBI Mutual Fund and East Bridge Capital Master Fund bought a 3.6 percent stake and 0.87 percent stake respectively in Aptus Value Housing Finance.

Bull argument: The company will continue delivering an AUM growth of around 28 percent CAGR over FY24-25, driven by home loans and small business loans, said Axis Securities. Growth is expected to be higher because the company is expanding into newer geographies.

Bear argument: Net interest margins are likely to contract going ahead as interest rates continue to remain high.

(With contribution from Anishaa and Srushti)