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Business News/ Photos / Want to pick midcaps? IIFL Securities lists 7 top stocks to buy this Diwali

Want to pick midcaps? IIFL Securities lists 7 top stocks to buy this Diwali

7 Photos . Updated: 09 Nov 2023, 04:26 PM IST Pranati Deva

Broader markets have largely outperformed benchmarks in 2023. Even though they underperformed in October, experts see the broader markets continuing to do well. Brokerage house IIFL Securities has come out with 7 midcap stock picks to buy this Diwali for next year. 

Godrej Industries: The brokerage has a ‘buy’ call on the stock with a target price of <span class='webrupee'>₹</span>783, implying an upside of 20%. The primary source of value for Godrej Industries Limited comes from its publicly listed subsidiaries and affiliated companies, which include Godrej Consumer, Godrej Properties, and Godrej Agrovet. In addition to these, GIL operates a standalone oleochemical business, and its palm oil trading activities are managed by its wholly-owned subsidiary, Godrej International. Furthermore, the company has recently initiated a housing finance venture under the name Godrej Capital. The current stock price reflects a substantial holding company discount of 59% in comparison to the combined market valuation of its publicly listed subsidiaries and affiliated companies.

1/7Godrej Industries: The brokerage has a ‘buy’ call on the stock with a target price of ₹783, implying an upside of 20%. The primary source of value for Godrej Industries Limited comes from its publicly listed subsidiaries and affiliated companies, which include Godrej Consumer, Godrej Properties, and Godrej Agrovet. In addition to these, GIL operates a standalone oleochemical business, and its palm oil trading activities are managed by its wholly-owned subsidiary, Godrej International. Furthermore, the company has recently initiated a housing finance venture under the name Godrej Capital. The current stock price reflects a substantial holding company discount of 59% in comparison to the combined market valuation of its publicly listed subsidiaries and affiliated companies.

Kaynes Technology: The brokerage is bullish on the stock and has a target price of <span class='webrupee'>₹</span>2,765, indicating an upside of 17%. Kaynes operates in the $18 billion Indian Electronics System Design and Manufacturing (ESDM) market, which is poised to grow at 32% CAGR over FY22-27, increasing India’s share from <2% to 7%. Focus on emerging segments in EVs, smart metering, railway signaling & safety, A&D, high-end IT servers will ensure higher profitability plus volumes. While PAT in FY26 will be 4x from FY23 levels, strategy to invest in backend semi-conductor value chain ensures an early entry and much deeper presence in India’s electronics value chain. Despite higher net working capital, strong net margin profile will drive RoEs. (Photo: Courtesy Kaynes Technology Ltd website)

2/7Kaynes Technology: The brokerage is bullish on the stock and has a target price of ₹2,765, indicating an upside of 17%. Kaynes operates in the $18 billion Indian Electronics System Design and Manufacturing (ESDM) market, which is poised to grow at 32% CAGR over FY22-27, increasing India’s share from <2% to 7%. Focus on emerging segments in EVs, smart metering, railway signaling & safety, A&D, high-end IT servers will ensure higher profitability plus volumes. While PAT in FY26 will be 4x from FY23 levels, strategy to invest in backend semi-conductor value chain ensures an early entry and much deeper presence in India’s electronics value chain. Despite higher net working capital, strong net margin profile will drive RoEs. (Photo: Courtesy Kaynes Technology Ltd website)

CMS Info Systems: IIFL Securities is positive on the stock with a target price of <span class='webrupee'>₹</span>439, which implies an over 17% upside. CMS had laid out its target of doubling revenue to <span class='webrupee'>₹</span>2500-2700 crore in FY25 from <span class='webrupee'>₹</span>1,300 crore in FY21. At mid-point, this implies an 18.7% CAGR. The company has been tracking ahead of this, having clocked 21% revenue CAGR between FY21 and FY23, bringing down the asking rate to ~17% for FY23-25. Valuations remain attractive, considering a healthy earnings outlook, strong return ratios, and an asset-light business model with <span class='webrupee'>₹</span>470 crore net cash, it said.

3/7CMS Info Systems: IIFL Securities is positive on the stock with a target price of ₹439, which implies an over 17% upside. CMS had laid out its target of doubling revenue to ₹2500-2700 crore in FY25 from ₹1,300 crore in FY21. At mid-point, this implies an 18.7% CAGR. The company has been tracking ahead of this, having clocked 21% revenue CAGR between FY21 and FY23, bringing down the asking rate to ~17% for FY23-25. Valuations remain attractive, considering a healthy earnings outlook, strong return ratios, and an asset-light business model with ₹470 crore net cash, it said.

MCX: The brokerage has a ‘buy’ call on the stock with a target price of <span class='webrupee'>₹</span>2,680, implying a 5% upside. MCX is the market leader by trading turnover in the Indian commodity exchange space, with 96% market share in the commodity futures segment. MCX’s reported PAT declined by 50% YoY, since the company paid <span class='webrupee'>₹</span>81 crore (5x of the usual amount) as technology expense to 63 Moons Ltd. The sharp payout masked the otherwise strong operational performance. There is likely to be a sharp recovery in FY25 considering the strong underlying performance, it said. ‘Despite no timelines shared by the company, we believe MCX is better positioned to complete the transition this time as significant progress has been made,’ it added.

4/7MCX: The brokerage has a ‘buy’ call on the stock with a target price of ₹2,680, implying a 5% upside. MCX is the market leader by trading turnover in the Indian commodity exchange space, with 96% market share in the commodity futures segment. MCX’s reported PAT declined by 50% YoY, since the company paid ₹81 crore (5x of the usual amount) as technology expense to 63 Moons Ltd. The sharp payout masked the otherwise strong operational performance. There is likely to be a sharp recovery in FY25 considering the strong underlying performance, it said. ‘Despite no timelines shared by the company, we believe MCX is better positioned to complete the transition this time as significant progress has been made,’ it added.

JB Chemicals: IIFL is bullish on the stock with a target price of <span class='webrupee'>₹</span>1,595, indicating a potential upside of 14%. JB Chemicals & Pharma’s India business has consistently outperformed IPM growth by 500-600 bps p.a. over the past five years, as its big brands become bigger with its five-pillar brands growing 18-27% in FY23, while JB’s volume growth has been 7.7% CAGR over FY20-23 vs IPM volume growth of only 1.8% CAGR, it said. ‘We believe its twice-the-market growth rate in the chronic segment led by Cardiac therapy and robust execution in acquired portfolios will continue to drive its sustained 400-500bps outperformance in the domestic market. We forecast JB India’s sales to grow at 14% CAGR over FY23-26. With improvement in margins expected over the next 3 years led by India/CMO biz, we expect JB’s RoIC (post-tax) to again bounce back to 25-30% in FY25/26 from 18% in FY23.’

5/7JB Chemicals: IIFL is bullish on the stock with a target price of ₹1,595, indicating a potential upside of 14%. JB Chemicals & Pharma’s India business has consistently outperformed IPM growth by 500-600 bps p.a. over the past five years, as its big brands become bigger with its five-pillar brands growing 18-27% in FY23, while JB’s volume growth has been 7.7% CAGR over FY20-23 vs IPM volume growth of only 1.8% CAGR, it said. ‘We believe its twice-the-market growth rate in the chronic segment led by Cardiac therapy and robust execution in acquired portfolios will continue to drive its sustained 400-500bps outperformance in the domestic market. We forecast JB India’s sales to grow at 14% CAGR over FY23-26. With improvement in margins expected over the next 3 years led by India/CMO biz, we expect JB’s RoIC (post-tax) to again bounce back to 25-30% in FY25/26 from 18% in FY23.’

Cholamandalam Financial Holdings: IIFL is positive on the stock with a target price of <span class='webrupee'>₹</span>1,300, which implies an upside of almost 16%. The company holds 45.36% in the paid-up equity share capital of Cholamandalam Investment and Finance Company Limited (‘CIFC’) which operates as a non-banking financial institution, specialising in lending services. CIFC has a market cap of <span class='webrupee'>₹</span>98,000 crore and CFHL’s investment in it alone is worth <span class='webrupee'>₹</span>44,450 crores. CIFC is well placed to deliver 27% AUM CAGR and 30% earnings CAGR on the back of distribution expansion and scale-up of new businesses. While absolute valuations are rich at 4.8x 1YF P/B, they are reasonably adjusted for superior profitability and growth, it said.

6/7Cholamandalam Financial Holdings: IIFL is positive on the stock with a target price of ₹1,300, which implies an upside of almost 16%. The company holds 45.36% in the paid-up equity share capital of Cholamandalam Investment and Finance Company Limited (‘CIFC’) which operates as a non-banking financial institution, specialising in lending services. CIFC has a market cap of ₹98,000 crore and CFHL’s investment in it alone is worth ₹44,450 crores. CIFC is well placed to deliver 27% AUM CAGR and 30% earnings CAGR on the back of distribution expansion and scale-up of new businesses. While absolute valuations are rich at 4.8x 1YF P/B, they are reasonably adjusted for superior profitability and growth, it said.

JSW Energy: The brokerage has a ‘buy’ call on the stock with a target price of <span class='webrupee'>₹</span>450, implying over 14% upside. JSW Energy stands at the forefront of energy storage technologies, exemplifying its commitment to innovation through investments in solar power battery storage and hydro pump storage. As the company prepares to launch new generation capacities, there are expectations of a substantial increase in net profit. It is estimated that the net profit will double in the next three years. Additionally, starting from FY'27, the company is poised to benefit from both operational and financial leverage, providing an additional advantage. Its Q2FY24 EBITDA stood at <span class='webrupee'>₹</span>2,008 crores, which was its highest ever quarterly EBITDA and the management remains confident of achieving the EBITDA guidance of <span class='webrupee'>₹</span>1,650 crores for FY25, said IIFL.

7/7JSW Energy: The brokerage has a ‘buy’ call on the stock with a target price of ₹450, implying over 14% upside. JSW Energy stands at the forefront of energy storage technologies, exemplifying its commitment to innovation through investments in solar power battery storage and hydro pump storage. As the company prepares to launch new generation capacities, there are expectations of a substantial increase in net profit. It is estimated that the net profit will double in the next three years. Additionally, starting from FY'27, the company is poised to benefit from both operational and financial leverage, providing an additional advantage. Its Q2FY24 EBITDA stood at ₹2,008 crores, which was its highest ever quarterly EBITDA and the management remains confident of achieving the EBITDA guidance of ₹1,650 crores for FY25, said IIFL.

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