This broking stock delivered 178% returns in four months; CLSA upgrades target price by 39%

In its quarter ended June 30, 2020, the broking firm reported a 70 percent jump in the net profit at Rs 193 crore, led by strong revenues and margin improvement.

The revenues surged 36 percent year-on-year (YoY) to Rs 546 crore in April-June 2020-21, as compared to Rs 402 crore during the same period last financial year.

During the quarter, equities and allied business rallied by 62 percent to Rs 389 crore. MD & CEO Vijay Chandok said, "We had an eventful quarter in which we saw increased market participation by all players –retail, HNIs and institutional, resulting in strong growth in our core equities, as well as wealth and investment banking business."

He also added that the company's distribution business was however soft as sentiments remained weak in debt funds and SIP (systematic investment plan) inflows slowed down with investors preferring to conserve cash during these uncertain times.

CLSA, in its report, gave a big target price upside over its strong core retail equity broking business performance. According to the brokerage, lower equity prices, paperless e-KYC leading to faster customer onboarding, a higher proportion of equity volumes vs derivatives and new open architecture likely drove buoyant Q1 core performance.

"We raise FY21CL EPS estimates 18 percent to factor in strong Q1FY21 earnings but expect revenue growth to normalise as the buoyant retail equity participation that drove Q1 performance subsides. We increase FY2022 estimates by a modest 3 percent," added the brokerage.

Hence, CLSA maintains BUY rating on the stock with target price raised from Rs 450 to Rs 625 based on 24x Jun-22CL P/E.