Ashok Leyland and IDFC First Bank among top 9 midcap picks by Motilal Oswal
5 min read . Updated: 10 Jan 2023, 09:58 AM IST
PremiumMotilal Oswal has recommended investment in Varun Beverages, Ashok Leyland, IDFC First Bank and six more midcap stocks for January 2023
Hawkish stance of Federal Reserve Bank, fears of economic slowdown, geopolitical risks and high inflation are going to keep the markets volatility at domestic as well as global level.
In India, apart from the global setup, other factors that will chart the direction of markets in the short-term are corporate earnings, Union Budget. “Over the last three years, strong corporate earnings trend has been the most important driver of India’s outperformance; thus any slowdown in corporate earnings could have a bearing on the domestic market," said Motilal Oswal in a report.
Also Read: RIL, SBI and ICICI Bank among 12 investment ideas for January by Motilal Oswal
Based on the macro economic data and individual performance of mid-cap firms in their fields, Motilal Oswal has suggested 9 midcap stocks for investment in January 2023.
Varun Beverages
CMP: ₹1,309 | Target: 1,330 | Expected Return: 1.6 %
Varun Beverages' distribution network of over 3m outlets is expected to grow at 10-12% annually. The company is expanding its dealer network by ~5-10% every year.
Motilal Oswal expects Varun Beverages' revenue to grow by 23%. Whereas EBITDA and PAT CAGR will grow by 28% and 45% over CY21-24. Growth will be boosted by increased penetration in the newly acquired territories of South and West India, higher acceptance of newly launched products, and growing refrigeration in rural and semi-rural areas.
Concern: Company can face challenges from increased competition from global players.
Ashok Leyland
CMP: ₹148| Target: 180 | Expected Return: 21.6 %
Good demand, a stable pricing environment, and softening commodity prices should drive a strong recovery of Ashok Leyland's financial performance. Ashok Leyland is a good play on a CV cycle recovery, coupled with a recovery in market share and bet on expansion in revenue and profit pools. We expect revenue/EBITDA/PAT to grow at a CAGR of 45%/70.5%/361% over FY22–25E on the low base of FY22. Any fund raise in Switch Mobility (the EV business) can serve as a re-rating catalyst.
Concern: The company can divert from its growth trajectory if witnessed high loss of road share for freight movement from the upcoming DFCC. Delay in fund raise in Switch Mobility can also impact its performance.
IDFC First Bank
CMP: ₹60 | Target: 70 | Expected Return: 16.7 %
IDFCF Bank is entering a phase of strong loan growth as the drag from wholesale book moderates and we estimate loans to report 24% CAGR over FY22-24E. Brokerage firm estimates 41% CAGR in PPoP over FY22-24E, while controlled credit costs will drive 364% CAGR in PAT over the same period.
Concern: Company's elevated cost ratio can pose challenge to its growth trajectory in the coming time.
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Jubilant Foodworks
CMP: ₹503| Target: 740 | Expected Return: 47.1 %
Jubilant Foodworks remains Motilal Oswal's top pick in this space, given that it has the best Balance Sheet to fund expansion, its proven track record of managing both store expansion and healthy SSSG, and its technological edge over peers. The experience of the new CEO from Amazon India will further augment JUBI's clear leadership on the technology front.
Concern: The company has to constantly deal with pressure from material cost side. However, there will be no material concerns on lease rentals and employee costs.
Metro Brands
CMP: ₹114 | Target: 160 | Expected Return: 40.0 %
The company has been witnessing a consistent healthy double-digit revenue/PAT growth over the last 10 years. We have factored in revenue/PAT CAGR of 30%/37% over FY22-25E, respectively, led by healthy store additions and strong recovery in SSSG. Metro Brand’s combination of superior store economics and strong runway of growth should allow it to garner rich valuations going ahead.
Concern: Rising input costs and competition from foreign brands can hamper its growth.
Vinati Organics
CMP: ₹2,016 | Target: 2,500 | Expected Return: 54.5 %
With a global market share of 65%,Vinati Organics is the largest producer of ATBS in the world. The management is focusing on its already announced capacity expansion to 60ktpa from 40ktpa. A gradual ramp-up in expanded capacity over the next two years will drive growth for Vinati. The brokerage house expect revenue/PAT CAGR of ~29%/36% over FY22-24.
Concern: Global headwinds may impact export demand.
Angel One
CMP: ₹1,316 | Target: 2,200 | Expected Return: 67.2 %
Driven by its growth in F&O market share to 21.7%, Angel One's market market share in ADTO rose to 21.7% in 2QFY23 from 20.8% in 1QFY23. Its F&O market share remains the highest since 1QFY22. Its market share in Cash ADTO remained stable sequentially at 13.8%.
Despite the current industry headwinds, management expects the long-term growth story to remain intact. As and when the environment is relatively conducive, investments towards client acquisitions would be scaled up.
Concern: High market volatility can impact the business of the company.
CAMs Services
CMP: ₹2,221| Target: 2,900 | Expected Return: 69.4 %
Motilal Oswal predicts strong growth of CAMs Services based on the factors like the duopoly nature of the industry and high-entry barriers, relatively low risk of a market share loss, and higher customer ownership as compared to AMCs. CAMS is expected to deliver a revenue/EBITDA/PAT CAGR of 13%/12%/14% over FY22-25, respectively, with an RoE of 44.9% in FY25.
Concern: CAMs Services is prone to equity market volatility.
Lemon Tree
CMP: ₹79| Target: 110 | Expected Return: 39.2 %
Due to the expanding tourism industry post-COVID, Lemon tree is expected to witness strong growth, led by buoyant demand during the wedding season, improving traction in corporate travel, increase in inbound travel, and India assuming the G20 presidency . Motilal Oswal expects it to deliver a revenue/EBITDA CAGR of 59%/97% over FY22-24 and RoE to improve to 13% by FY24.
Concern: Covid will remain a constant cause of concern for the company.
Disclaimer 1: The promoters of HT Media Ltd, which publishes Mint, and Jubilant Foodworks are closely related. There are, however, no promoter cross-holdings.
Disclaimer 2: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
