Smallcap: Mahindra CIE, PNC Infratech among top picks by Axis Securities for up to 28% upside | Mint
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Business News/ Markets / Stock Markets/  Smallcap: Mahindra CIE, PNC Infratech among top picks by Axis Securities for up to 28% upside
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Smallcap: Mahindra CIE, PNC Infratech among top picks by Axis Securities for up to 28% upside

Axis Securities believes that the broader market may see some time correction in the near term while flows are likely to shift to largecaps. However, it believes the long-term story of the broader market continues to remain attractive

Among smallcap stocks, Axis Securities' top picks include Kirloskar Brothers, JTL Industries, Mahindra CIE Automotive, Praj Industries, CCL Products (India), CreditAccess Grameen and PNC Infratech.Premium
Among smallcap stocks, Axis Securities' top picks include Kirloskar Brothers, JTL Industries, Mahindra CIE Automotive, Praj Industries, CCL Products (India), CreditAccess Grameen and PNC Infratech.

The broader markets, midcap and smallcap indices, outperformed largecaps by notable margins in the month of August 2023. During the month, sector rotation was visible in the market in which media, IT, and pharma indices delivered positive returns while banks, financial services, energy, commodities, and PSU banking indices witnessed weakness.

According to Axis Securities, the Indian stock market is likely to see a style and sector rotation from here. 

“With the strong catch-up by Midcaps and Smallcaps in the last couple of months, we believe that the margin of safety at current levels has reduced as compared to Largecaps. Keeping this in view, the broader market may see some time correction in the near term while flows are likely to shift to Largecaps," Axis Securities said in a report.

However, it believes the long-term story of the broader market continues to remain attractive.

Among smallcap stocks, the brokerage’s top picks include Kirloskar Brothers, JTL Industries, Mahindra CIE Automotive, Praj Industries, CCL Products (India), CreditAccess Grameen and PNC Infratech.

Let us take a detailed look at the top smallcap stock picks by Axis Securities:

Kirloskar Brothers | Buy | TP: 975

Axis Securities believes its recommendation is supported by robust improvement in the company’s order book, increasing revenue contribution from the Services segment, restructuring of business activities resulting in improving ROE and ROCE and operating margins.

In view of the above-mentioned growth drivers, the brokerage firm values the company at a revised 19x on FY25 earnings to arrive at an upgraded Target Price of 975 per share, implying an upside of 17% from the current levels backed by consistent business performance in the last couple of quarters.

Also Read: Stocks to Buy: ICICI Bank, SBI, ITC, Maruti Suzuki among top large cap picks by Axis Securities; check list here

JTL Industries | Buy | TP: 470

With the phase-wise volume expansion progress, Axis Securities models Revenue, EBITDA and PAT CAGR of 46%, 45% and 51% over FY23-FY25. It has a ‘Buy’ rating on the stock and values JTL at 22x it's FY25 EPS to arrive at 1-year forward target price of 470 per share.

However, key risks include delay in execution of expansion projects and volatility in steel raw material prices.

Mahindra CIE Automotive | Buy | TP: 585

The brokerage continues to like the company’s growth story driven by operational performance and focus on building an EV product portfolio; healthy order-book and steady growth in Indian operations; strong FCF generations and negligible debt on the balance sheet and capacity building to meet demand from India OEM’s.

The growth trajectory in EU operations is expected to remain flat in CY24 and recovery is expected by management post that. Based on strong fundamentals and ability to generate FCFs, we value the company at a 1-year Forward PE multiple of 24x in Indian operations and 10x on moderate European operational earningsJun’25 EPS, thereby arriving at our SOTP-based TP of 585 per share, Axis Securities said.

Key risks include higher interest rate, slower-than-expected two-wheeler demand recovery and business skewed towards ICE vehicles.

Also Read: Stocks to buy this week: Maruti, Tata Power, Power Grid among eight technical picks; do you own any?

Praj Industries | Buy | TP: 550

Domestic business augurs well as Ethnaol Blending continues with strong traction in FY23 and mostly like preponing its target, 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, according to Axis Securities.

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. The company is a pure equity play on global decarbonisation theme, the brokerage firm said.

It maintained a ‘Buy’ rating on the stock with a target price of 550 per share.

CCL Products (India) | Buy | TP: 750

Axis Securities remains positive on CCL Products given strong footing in the International markets, cost-efficient business model, doubling the capacity to 77,000 MT by FY25 across Vietnam and India; capacity addition in the value-added products in Vietnam, and foray into high-margin branded retail business.

It has a target price of 750 per share on CCL Products.

CreditAccess Grameen | Buy | TP: 1,600

Axis Securities prefers CreditAccess Grameen amongst the microfinanciers, despite its premium valuations.

“We believe the company remains well poised to deliver superior performance over the medium to long term. This will be supported by (a) Strong rural presence and focus, (b) Customer centric approach, (c) Robust technology infrastructure, (d) Strong Risk Management Framework and (e) Adequate capitalization," Axis Securities said.

Despite a strong show in Q1FY24, the management has retained its earlier guidance. However, the brokerage expects some upwards revision in the management’s guidance across most parameters (GLP growth, NIMs and RoA/RoE). 

It maintained a ‘Buy’ recommendation on the stock with a revised target price of 1,600 per share.

PNC Infratech | Buy | TP: 425

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 road projects. 

Management has also indicated that the intensity of competition for high-value projects has decreased and that most awards are expected to be completed by the NHAI by Q3FY24 before the onset of the General election in FY24, the brokerage report said.

Considering 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 Securities expects PNC Infratech to report Revenue, EBITDA and APAT CAGR of 12%, 11% and 13% respectively over FY23-FY25E.

It has a ‘Buy’ rating on the company and values the stock at 11x FY25 EPS and HAM portfolio at 1x book value to arrive at a target price of 435 per share.

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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Published: 04 Sep 2023, 03:17 PM IST
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