BackFederal Bank, Ashok Leyland, PNC Infra, Praj Ind among top picks of Axis Securities in midcap, smallcap stocks
Brokerage selected five midcap stocks and four smallcap stocks as its top picks. Some of these are Dalmia Bharat, Federal Bank, PNC Infratech, Praj Industries, and Ashok Leyland among others.
PremiumAxis Securities' top picks basket has been outperforming the benchmark Nifty 50 for the past 1 year. The brokerage's top picks portfolio has zoomed by 9.7% for overall FY23, compared to a decline of 0.6% posted by Nifty 50 for the same. Once again, the brokerage has taken a thematic approach to the Top Picks selection for April 2023. It has selected five midcap stocks and four smallcap stocks as its top picks. Some of these are Dalmia Bharat, Federal Bank, PNC Infratech, Praj Industries, and Ashok Leyland among others.
In its latest report, Axis Securities said, the basket, however, reported a flattish return (-0.3%) in a highly volatile March 23 which witnessed a rather mixed performance across the sectoral, market cap, and style indices, indicating an underlying change in the market positioning. Nonetheless, the basket has delivered an astounding return of 149% since its inception (May 20) which stands significantly higher than the 87% returns delivered by NIFTY 50 over the same period.
Specifically for March month, Axis Securities note said, that the market witnessed a mixed trend with notable volatility in both directions. For the first half of the month, the market was under pressure due to the banking challenges in the US and European markets. On account of this, profit booking was visible in high-beta stocks and the majority of the sectors were in the red.
However, in the second half of March, it said that "some of the banking challenges got reversed and sentiments revived with the buying seen in the beaten-down stocks. ‘Risk on’ sentiments were visible in the last one week with buying continued across the sectors."
Nevertheless, the brokerage stated that in the last one year, all indices have been moving in tandem albeit with divergence continuing in the SmallCap universe.
Going ahead, Axis Securities note said, "We believe MidCaps are in a sweet spot of growth, which is moving in line with the Large Caps in the last one year. However, in SmallCaps space, we believe it’s going to be a bottom-up play and the earning visibility play in the near term before we witness a broad-based recovery."
Here is the list of midcap and smallcap stocks that are top picks of Axis Securities:
1. Dalmia Bharat (Buy for TP of Rs2260 per share):
The company reported encouraging Volume/Revenue/EBITDA/APAT growth of 11%/23%/56%/108%YoY in Q3FY23.It reported EBITDA Margins of 19.2% and EBITDA/Tonne of ₹1022/ during the quarter.
Brokerage expects the company to register Revenue/EBITDA/APATCAGR of14%16/%/12% respectively over FY22-FY25E, driven by volume CAGR of11% and consistent realization improvement of 2% each year over the same period. Also, it believes that the company is well-positioned to grow its revenue and profitability moving forward, supported by a) Increasing cement demand in its key markets in both trade and non-trade segments, b) Cost optimization measures, and c) Increasing premium cement sales aided by capacity expansions.
2. Polycab India (Buy for TP of ₹3,390 per share):
Polycab continues to maintain its leadership position in the organized C&W segment with a market share of over 24%. With a strong distribution network and a strong brand recall, the company continues to gain market share in Wires & Cables and FMEG segments. Furthermore, the entry into the EHV Cables segment will aid revenues in the medium to long term. The management has set a revenue target of ~ ₹20,000 Cr by FY26, led by faster and more profitable growth in the B2C segments and industry-leading growth in the B2C business.
3. Federal Bank (Buy for TP of ₹170 per share):
Federal Bank is cautiously building a loan mix toward high-rated corporate and retail loans. The bank’s liability franchise remains strong with CASA plus Retail TD of over 90% and one of the highest Liquidity Coverage Ratios (LCR) among banks. Restructuring levels are also under control. The management has revised its FY23E RoA guidance upwards to 1.25+% and another 10bps improvement in FY24E, driven by lower slippages, benign credit costs (expectations of containing credit costs at ~60bps), and a well-managed cost structure (expectations of sub-50% C-I Ratio). With the high-yielding book at > ₹5000 Cr, the management remains confident of doubling this book over the next 2 years and this should support overall credit growth.
4. Varun Beverages (Buy for TP of ₹1,550 per share):
Brokerage believes VBL is well placed under current market situation as early onset of summer season is expected to drive overall beverage sales across regions. Further, initial report on possible El-nino (deficit rainfall) could delay the rural recovery which would lead the entire FMCG pack (exITC) under wait-and-watch mode. Hence, in this current volatile market situation, Axis Securities expect VBL provides better earning visibility than other FMCG peers in the near term.
5. Ashok Leyland (Buy for TP of ₹175 per share):
Ashok Leyland's broad strategy is focusing not only on the MHCV segment but also expanding its market share/revenue in LCV, Buses, Tractor-Trailer, EVs, Defence Equipment/Vehicles, Exports, Spares and Aftermarket; thereby hedging its dependence on the cyclical truck business. AL is targeting market share gains in its LCV and ICV business with the launch of superior products and expected foray into the electric LCV segment by Jun’23. With improved profitability (RM softening), market share gains (increased demand), new and superior product offerings in the pipeline to cater to growing IC and EV demand; and a focus on better services, AL remains well-positioned to benefit from the CV upcycle.
Smallcap stocks
1. Healthcare Global Enterprises (Buy for TP of ₹330 per share):
HCG is expected to turn around its operating profitability with Operating EBITDA Margins improving by 680bps over FY21-FY24E, majorly driven by a) Operating leverage driven by the increase in Average Occupancy rates (53%-58%) b) Increase in ARPOB led by the increase in international patients and high-end works, and c) Operating leverage in new centers that have already achieved breakeven.
Given variable and fixed costs comprise 35% and 65% in hospitals respectively, Axis Securities believe strong operating leverage in new centers may improve margins to 12%-15% over FY21-FY24E.
2. Praj Industries (Buy for TP of ₹550 per share):
Bioenergy in Domestic business, the overall demand-supply gap of Ethanol, increased interest in grain-based distilleries and decarbonization impetus is auguring well for Praj along with development in other key verticals such as CPS, ZLD & High Purity gaining traction. Praj is a key beneficiary of multiple tailwinds provided by the bio-economic revolution, giving strong growth &revenue visibility for the next 3-5 years.
3. CCL Products (Buy for TP of ₹650 per share):
Axis Securities remain positive on CCL Products given 1) Strong footing in the International markets as it continues to gain market share and access new business, 2) a Cost-efficient business model; 3) Doubling of Vietnam's capacity from the current 13,500 MT to 30,000 MT and new capacity expansion in India leading to strong volume growth visibility for the next 2-3 years; 4) Capacity addition in the value-added products (FDC and small packs), and 5) Foray into high-margin branded retail business (Continental Coffee, Plant-based meat protein).
4. PNC Infratech (Buy for TP of ₹390 per share):
The Road sector is witnessing good development owing to increased government thrust on infrastructure investment. Furthermore, the tightening of norms in bidding on road projects by the NHAI augurs well for an organised player such as PNCIL. Considering its strong and diversified order book position, healthy bidding pipeline, new order inflows, emerging opportunities in the construction space, the company’s efficient and timely execution, and strong financial credence, the brokerage expects PNCIL to report Revenue/EBITDA/APAT CAGR of 18%/22%/29% respectively over FY22-FY25E.
Disclaimer: 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.
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