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Business News/ Markets / Stock Markets/  Lupin, Federal Bank and more: Axis Securities lists 7 top mid and small-cap picks for February

Lupin, Federal Bank and more: Axis Securities lists 7 top mid and small-cap picks for February

With the strong catch-up of mid and smallcaps in last couple of months, brokerage house Axis Securities believes the broader market may see some time correction in the near term but the long-term story of the market continues to remain attractive. It lists top mid and small-cap picks for February.

CreditAccess Grameen: The brokerage has a ‘buy’ call on the NBFC stock with a target price of  <span class='webrupee'>₹</span>1,970, indicating an upside of 24%. Axis prefers CAGrameen amongst the microfinanciers, despite its premium valuations. CAGrameen has continued to outperform its peers across parameters and is eligible to trade at a premium vs its peers. It believes the company remains well-poised to deliver a strong performance backed by (a) Adequate capitalisation, (b) Improving operational efficiency, (c) A strong margin profile despite offering the lowest rates in the industry, and (d) Robust asset quality. It expects CAGrameen to deliver a healthy RoA/RoE of 5.5%+/24-25% over the medium term and revised earnings estimates upwards by 3-5% over FY24-26E. (PIxabay)

1/7CreditAccess Grameen: The brokerage has a ‘buy’ call on the NBFC stock with a target price of 1,970, indicating an upside of 24%. Axis prefers CAGrameen amongst the microfinanciers, despite its premium valuations. CAGrameen has continued to outperform its peers across parameters and is eligible to trade at a premium vs its peers. It believes the company remains well-poised to deliver a strong performance backed by (a) Adequate capitalisation, (b) Improving operational efficiency, (c) A strong margin profile despite offering the lowest rates in the industry, and (d) Robust asset quality. It expects CAGrameen to deliver a healthy RoA/RoE of 5.5%+/24-25% over the medium term and revised earnings estimates upwards by 3-5% over FY24-26E. (PIxabay)

Federal Bank: The brokerage has a ‘buy’ call on the banking stock with a target price of  <span class='webrupee'>₹</span>180, indicating an upside of 23%. FB’s key strengths continue to be i) Sustained credit growth, ii) Strong liability franchise, iii) Improving fee income, iv) Gradually improving Cost Ratios, and v) Stable credit costs backed by healthy asset quality metrics, it said. The bank is working closely with the recruitment agency to identify the successor for the current CEO Shyam Srinivasan who is slated to retire in Sep’24. Axis expects FB to maintain its RoA/RoE at 1.3-1.4%/14-15% over FY24-26E.

2/7Federal Bank: The brokerage has a ‘buy’ call on the banking stock with a target price of 180, indicating an upside of 23%. FB’s key strengths continue to be i) Sustained credit growth, ii) Strong liability franchise, iii) Improving fee income, iv) Gradually improving Cost Ratios, and v) Stable credit costs backed by healthy asset quality metrics, it said. The bank is working closely with the recruitment agency to identify the successor for the current CEO Shyam Srinivasan who is slated to retire in Sep’24. Axis expects FB to maintain its RoA/RoE at 1.3-1.4%/14-15% over FY24-26E.

JTL Industries: The brokerage has a ‘buy’ call on the materials stock with a target price of  <span class='webrupee'>₹</span>300, indicating an upside of 12%. Axis pointed out that after strong Q3FY24 sales volumes, FY24 sales volume will reach 3.5 lakh tonnes, up 45% YoY, ahead of earlier growth guidance of 30% YoY. In Q4FY24, the VAP share could bounce back to 40% (35% for FY24) from 20% in Q3FY24, as the maintenance of the galvanising pot is over. 0.56 MT to 1 MT expansion is on track and will be complete before FY25. DFT facilities of 2 lakh tonnes out of the total incremental capacity of 4 lakh tonnes will start from Q1FY25, it added.

3/7JTL Industries: The brokerage has a ‘buy’ call on the materials stock with a target price of 300, indicating an upside of 12%. Axis pointed out that after strong Q3FY24 sales volumes, FY24 sales volume will reach 3.5 lakh tonnes, up 45% YoY, ahead of earlier growth guidance of 30% YoY. In Q4FY24, the VAP share could bounce back to 40% (35% for FY24) from 20% in Q3FY24, as the maintenance of the galvanising pot is over. 0.56 MT to 1 MT expansion is on track and will be complete before FY25. DFT facilities of 2 lakh tonnes out of the total incremental capacity of 4 lakh tonnes will start from Q1FY25, it added.

Lupin: The brokerage has a ‘buy’ call on the pharma stock with a target price of  <span class='webrupee'>₹</span>1,670, indicating an upside of 10%. Lupin has a strong pipeline of niche products for the US markets with limited competition. In a few of these products, Lupin has a first-mover advantage. Axis believes these products would increase the company’s gross margins by 150bps in the next two years. Moreover, further developments in the business could add value to its business such as 1) New launches in the US market 2) Double-digit growth in the India business, and 3) An uptick in the API business. Lupin’s margins at 13% are still below the industry levels of 22%. The brokerage, therefore, foresees a significant scope for margin improvement in the upcoming quarters. It expects the macro environment to be in favour of the industry, led by a fall in raw material prices along with low logistics and fuel costs.

4/7Lupin: The brokerage has a ‘buy’ call on the pharma stock with a target price of 1,670, indicating an upside of 10%. Lupin has a strong pipeline of niche products for the US markets with limited competition. In a few of these products, Lupin has a first-mover advantage. Axis believes these products would increase the company’s gross margins by 150bps in the next two years. Moreover, further developments in the business could add value to its business such as 1) New launches in the US market 2) Double-digit growth in the India business, and 3) An uptick in the API business. Lupin’s margins at 13% are still below the industry levels of 22%. The brokerage, therefore, foresees a significant scope for margin improvement in the upcoming quarters. It expects the macro environment to be in favour of the industry, led by a fall in raw material prices along with low logistics and fuel costs.

Westlife Foodworld: The brokerage has a ‘buy’ call on the QSR stock with a target price of  <span class='webrupee'>₹</span>930, indicating an upside of 12%. The company is well placed to capitalise on the growing QSR opportunity by a) Driving consistent growth in the SSSG and keeping the innovation funnel on, b) Launching new products that suit the Indian taste palate, c) Entering and quickly scaling up the growing QSR categories – fried chicken and coffee, and d) Pushing affordability through combo meals, noted Axis. The brokerage maintains its positive outlook, supported by a strong execution track record of Revenue/EBITDA growth of 17%/51% over FY16-20, which was driven by new product launches and cost rationalisation programs. Axis expects the company to deliver healthy Revenue/EBITDA growth of 28%/43% CAGR over FY22-25E led by above growth tailwinds. (Hemant Mishra/Mint<br />)

5/7Westlife Foodworld: The brokerage has a ‘buy’ call on the QSR stock with a target price of 930, indicating an upside of 12%. The company is well placed to capitalise on the growing QSR opportunity by a) Driving consistent growth in the SSSG and keeping the innovation funnel on, b) Launching new products that suit the Indian taste palate, c) Entering and quickly scaling up the growing QSR categories – fried chicken and coffee, and d) Pushing affordability through combo meals, noted Axis. The brokerage maintains its positive outlook, supported by a strong execution track record of Revenue/EBITDA growth of 17%/51% over FY16-20, which was driven by new product launches and cost rationalisation programs. Axis expects the company to deliver healthy Revenue/EBITDA growth of 28%/43% CAGR over FY22-25E led by above growth tailwinds. (Hemant Mishra/Mint
)

CIE Automotive: The brokerage has a ‘buy’ call on the auto stock with a target price of  <span class='webrupee'>₹</span>585, indicating an upside of 22%. Axis continues to like the company’s growth story driven by (a) Operational performance and focus on building an EV product portfolio, (b) Healthy order book position and steady growth in Indian operations, (c) Strong FCF generations and negligible debt on the balance sheet, (d) Capacity building to meet demand from India OEMs. The growth trajectory in EU operations is expected to gradually recover in H2CY24 by the management. Keeping these factors in view, it forecasts the company to post a Revenue/EBITDA/PAT CAGR of 9%/17%/19% over CY22-25E.

6/7CIE Automotive: The brokerage has a ‘buy’ call on the auto stock with a target price of 585, indicating an upside of 22%. Axis continues to like the company’s growth story driven by (a) Operational performance and focus on building an EV product portfolio, (b) Healthy order book position and steady growth in Indian operations, (c) Strong FCF generations and negligible debt on the balance sheet, (d) Capacity building to meet demand from India OEMs. The growth trajectory in EU operations is expected to gradually recover in H2CY24 by the management. Keeping these factors in view, it forecasts the company to post a Revenue/EBITDA/PAT CAGR of 9%/17%/19% over CY22-25E.

PNC Infratech: The brokerage has a ‘buy’ call on the industrial stock with a target price of  <span class='webrupee'>₹</span>505, indicating an upside of 15%. The road sector is witnessing encouraging development owing to increased government thrust on infrastructure investment. Furthermore, diversification into railways augurs well for the company implying lower dependence on the road projects, noted Axis. The company reported good operating performance in Q2FY24 with Revenue/EBITDA/PAT growth of 8%/10%/7% which were broadly in line with estimates, it added. 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, Axis expects PNCIL to report Revenue/EBITDA/APAT CAGR of 11%/11%/12% respectively over FY23-FY26E.

7/7PNC Infratech: The brokerage has a ‘buy’ call on the industrial stock with a target price of 505, indicating an upside of 15%. The road sector is witnessing encouraging development owing to increased government thrust on infrastructure investment. Furthermore, diversification into railways augurs well for the company implying lower dependence on the road projects, noted Axis. The company reported good operating performance in Q2FY24 with Revenue/EBITDA/PAT growth of 8%/10%/7% which were broadly in line with estimates, it added. 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, Axis expects PNCIL to report Revenue/EBITDA/APAT CAGR of 11%/11%/12% respectively over FY23-FY26E.

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