Nomura has issued a cautious outlook on the tire sector, citing a sharp jump in natural rubber prices as a headwind to margins. The firm noted that weak demand and rising commodity prices could normalize margins faster for the sector.
According to Nomura, natural rubber prices in the domestic market have surged 23% quarter-on-quarter, while international rubber prices have seen an even steeper increase of 66% quarter-on-quarter. Domestic rubber prices typically trade at a 10-15% premium to global prices, and there could be further upticks in the domestic market.
Companies in the sector will try to pass on some of the cost increases to consumers through price hikes, but Nomura believes this will be a difficult task given the current market conditions.
In other news, Kotak Institutional Equities has maintained a buy rating on IndiGo, with a target price raised to Rs 4,200 from Rs 3,700. The firm sees supply for the industry growing at or below 12% until FY30, and expects the company to add capacity at a pace similar to or faster than the market over this period.
Meanwhile, Morgan Stanley has reported that the Directorate General of Civil Aviation (DGCA) has decided not to extend the June 1 deadline for revised Flight Duty Time Limitation (FDTL) norms, which aim to mitigate pilot fatigue. IndiGo may need to add an additional 10-15% of pilots due to the tight capacity and potential shortage of pilots at some airlines.
In the aviation sector, Morgan Stanley also maintains a 6% FY25 capacity growth target, while Jefferies has an overweight call on Hindustan Aeronautics Limited (HAL) with a target price of Rs 3,636 per share. The firm has seen a strong pick-up in order inflows in March 2024, and the near-term prospect pipeline remains strong.
On the banking front, Jefferies has a buy call on HDFC Bank with a target price of Rs 1,800. The recent resignation of Arvind Kapil is seen as slightly negative given his seniority, but the firm believes retention and a smooth transition will be key, noting that the bank has a strong talent base.
Lastly, Kotak Institutional Equities has reiterated an add call on Pidilite with a target price raised to Rs 3,075 from Rs 2,825. The firm believes the company is well-placed to deliver double-digit volume and earnings per share growth over the next few years, with rural growth outpacing urban growth and the core portfolio showing promising growth potential.
In the pharmaceutical sector, Jefferies maintains a buy rating on Piramal Pharma with a target price of Rs 170 per share. The firm expects 12.5% year-on-year revenue growth for FY25, but believes the company could surpass this number, potentially driving a 45% EBITDA growth for the year. Piramal Pharma is currently trading at attractive valuations, and Jefferies anticipates earnings momentum and a potential valuation rerating in the future.
