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Business News/ Photos / Lupin, Federal Bank, Relaxo Footwear and more: Axis Securities lists 8 mid and small-cap stock picks for January 2024

Lupin, Federal Bank, Relaxo Footwear and more: Axis Securities lists 8 mid and small-cap stock picks for January 2024

Brokerage house Axis Securities believes style and sector rotation are key factors at the current juncture. It said that ‘Growth at a Reasonable Price’ looks attractive and recommends investors to use dips to buy high-quality firms. Let's take a look at its top mid and small-cap picks for January:

Lupin: The brokerage is positive on the pharma stock and has a target price of  <span class='webrupee'>₹</span>1,470, implying an upside of 11%. Lupin has a strong pipeline of niche products for the US markets with limited competition. In a few of these products, the firm has a first-mover advantage. Axis believes these products would increase the company’s gross margins by 150bps in the next two years. Lupin’s margins at 13% are still below the industry levels of 22%. Axis, therefore, foresees a significant scope for margin improvement in the upcoming quarters and 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.

1/8Lupin: The brokerage is positive on the pharma stock and has a target price of 1,470, implying an upside of 11%. Lupin has a strong pipeline of niche products for the US markets with limited competition. In a few of these products, the firm has a first-mover advantage. Axis believes these products would increase the company’s gross margins by 150bps in the next two years. Lupin’s margins at 13% are still below the industry levels of 22%. Axis, therefore, foresees a significant scope for margin improvement in the upcoming quarters and 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.

Federal Bank: Axis has a ‘buy’ call on the banking stock with a target price of  <span class='webrupee'>₹</span>180, indicating an upside of 15%. FB’s key strengths continue to be i) Sustained credit growth, ii) Strong liability franchise, iii) Improving fee income with the bank looking to deepen the relationship with corporates to improve client wallet share, iv) Improving Cost Ratios, and v) Benign credit costs backed by robust asset quality metrics, noted Axis. The bank eyes an RoA of 1.4%+ by FY25E, it added. 

2/8Federal Bank: Axis has a ‘buy’ call on the banking stock with a target price of 180, indicating an upside of 15%. FB’s key strengths continue to be i) Sustained credit growth, ii) Strong liability franchise, iii) Improving fee income with the bank looking to deepen the relationship with corporates to improve client wallet share, iv) Improving Cost Ratios, and v) Benign credit costs backed by robust asset quality metrics, noted Axis. The bank eyes an RoA of 1.4%+ by FY25E, it added. 

Relaxo Footwear: The brokerage has a ‘buy’ call on the consumer stock with a target price of  <span class='webrupee'>₹</span>1,020, indicating a 13% upside. According to Axis, the management’s FY24 outlook gave the brokerage confidence that the worst is behind the company as – a) The demand environment is likely to recover in FY24, especially in rural India, 2) Raw material prices are now stable, which will aid in gross margins expansion, 3) The company is regaining its lost market share from unorganised players, 4) It is focusing on premiumisation by increasing the share of a fast-growing sports and athleisure category, and 5) The company is doubling its capacity of Sparx from the current 50,000 pairs/day to 100,000 pairs/day at Bhiwadi (Rajasthan), which Axis believes is a step in the right direction from the long-term perspective.

3/8Relaxo Footwear: The brokerage has a ‘buy’ call on the consumer stock with a target price of 1,020, indicating a 13% upside. According to Axis, the management’s FY24 outlook gave the brokerage confidence that the worst is behind the company as – a) The demand environment is likely to recover in FY24, especially in rural India, 2) Raw material prices are now stable, which will aid in gross margins expansion, 3) The company is regaining its lost market share from unorganised players, 4) It is focusing on premiumisation by increasing the share of a fast-growing sports and athleisure category, and 5) The company is doubling its capacity of Sparx from the current 50,000 pairs/day to 100,000 pairs/day at Bhiwadi (Rajasthan), which Axis believes is a step in the right direction from the long-term perspective.

CIE Automotive: Axis is positive on the stock with a target price of  <span class='webrupee'>₹</span>585, indicating an upside of 24%. The brokerage 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 OEM’s. It forecasts the company to post a Revenue/EBITDA/PAT CAGR of 9%/17%/19% over CY22-25E. 

4/8CIE Automotive: Axis is positive on the stock with a target price of 585, indicating an upside of 24%. The brokerage 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 OEM’s. It forecasts the company to post a Revenue/EBITDA/PAT CAGR of 9%/17%/19% over CY22-25E. 

Westlife Foodworld: The brokerage has a ‘buy’ call on the stock with a target price of  <span class='webrupee'>₹</span>1,000, indicating a 22% upside. Axis likes the stock on the back of rising market share, multi-year growth tailwinds in the QSR space, and large headroom for expansion. Its confidence in the company’s bright future prospects is supported by its 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 (100-200bps cost reduction every year). It expects the company to deliver healthy Revenue/EBITDA growth of 28%/43% CAGR over FY22-25E led by above growth tailwinds.

5/8Westlife Foodworld: The brokerage has a ‘buy’ call on the stock with a target price of 1,000, indicating a 22% upside. Axis likes the stock on the back of rising market share, multi-year growth tailwinds in the QSR space, and large headroom for expansion. Its confidence in the company’s bright future prospects is supported by its 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 (100-200bps cost reduction every year). It expects the company to deliver healthy Revenue/EBITDA growth of 28%/43% CAGR over FY22-25E led by above growth tailwinds.

JTL Industries: The brokerage is bullish on the small-cap stock with a target price of  <span class='webrupee'>₹</span>265, which implies an 11% upside. Axis prefers the steel tube pipes manufacturer on the back of its capacity expansion and value growth plans, wide distribution reach through strategically located plants, and stable operating profits and returns during the expansion phase. With the phase-wise volume expansion in progress, Axis models the firm's  Revenue/EBITDA/PAT CAGR of 46%/45%/51% over FY23/25E.

6/8JTL Industries: The brokerage is bullish on the small-cap stock with a target price of 265, which implies an 11% upside. Axis prefers the steel tube pipes manufacturer on the back of its capacity expansion and value growth plans, wide distribution reach through strategically located plants, and stable operating profits and returns during the expansion phase. With the phase-wise volume expansion in progress, Axis models the firm's  Revenue/EBITDA/PAT CAGR of 46%/45%/51% over FY23/25E.

CreditAccess Grameen: The brokerage is bullish on the stock with a target price of  <span class='webrupee'>₹</span>1,935, which indicates a potential upside of 21%. Axis prefers CAGrameen amongst the microfinanciers, despite its premium valuations. It believes the company remains well-poised to deliver superior performance over the medium to long term. This will be supported by (a) a strong rural presence and strong rural focus, (b) a customer-centric approach, (c) robust technology infrastructure, (d) a strong risk management framework, and (e) adequate capitalisation. Axis expects CAGrameen to continue delivering strong RoA/RoE of 5.5+/23-25% over the medium term.

7/8CreditAccess Grameen: The brokerage is bullish on the stock with a target price of 1,935, which indicates a potential upside of 21%. Axis prefers CAGrameen amongst the microfinanciers, despite its premium valuations. It believes the company remains well-poised to deliver superior performance over the medium to long term. This will be supported by (a) a strong rural presence and strong rural focus, (b) a customer-centric approach, (c) robust technology infrastructure, (d) a strong risk management framework, and (e) adequate capitalisation. Axis expects CAGrameen to continue delivering strong RoA/RoE of 5.5+/23-25% over the medium term.

PNC Infratech: Axis is positive on the stock with a target price of  <span class='webrupee'>₹</span>415, implying an upside of 18%. 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 12%/11%/12% respectively over FY23-FY25E. 

8/8PNC Infratech: Axis is positive on the stock with a target price of 415, implying an upside of 18%. 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 12%/11%/12% respectively over FY23-FY25E. 

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