Midcap Stocks To Buy In October; Lupin, Federal Bank, Ashok Leyland Are Attractive Bets, 10-19% Upside Seen

Midcap stocks have seen an extraordinary surge since last year, outperforming benchmarks like Sensex and Nifty 50. For October 2023 month, brokerage Axis Securities believes four midcap stocks from sectors like pharma, banking, auto and even consumer products are attractive to buy. The upside in these four stocks is seen to range from 10% to 19% at their current price level. These stocks are Lupin, Federal Bank, Ashok Leyland and Relaxo Footwear.

In its October top picks report, Axis Securities said that the margin of safety at current levels in certain pockets of midcap has reduced as compared to largecaps. Thereby, the broader market may see some 'time correction' in the near term and the flows will likely shift to largecaps.

However, in the long term, the broader market continues to remain attractive. On top of it, Axis Securities said, 'Growth at a Reasonable Price' looks attractive at the current juncture on account of domestic play, cool-off in commodity prices and inflation, and expectations of rural recovery in the upcoming quarters.

Accordingly, Axis Securities has given an investment rationale for buying these four midcap stocks. Here's what the brokerage said:

Lupin:

Axis Securities said, " We get more confidence in Lupin's business due to the launch of these 2 new products where it has a first-mover advantage. We believe both these products would increase the company's gross margins by 100bps in the next two years."

Moreover, further developments in the business could add value in the business such as 1) New launches such as Darunavir, Cynocobalamin, Diazepem Gel, Vereniciline, Bromfenac, etc. in the US market (excl. gSpirva), 2) Double-digit growth in the India business as the company has already increased MR numbers to 1,000, and 3) An uptick in the API business with the API industry witnessing demand comeback.

Lupin's margins at 13% are still below the industry levels of 22%. The brokerage added, " We, therefore, foresee a significant scope for margin improvement in the upcoming quarters. We expect 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."

The brokerage sets Rs 1,290 as the target price for Lupin. From the current price level of Rs 1,155.55 apiece (October 6th) on BSE, the stock has the potential for a 10.42% upside ahead.

Federal Bank:

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.

The brokerage said, "We maintain our BUY rating on the stock with a target price of Rs 165/share (1.3x FY25E ABV)."

On October 6th, this Rekha Jhunjhunwala-backed stock stood at Rs 146.50 apiece. From this level, the stock is also seen to rise over 11.21% in the near term.

Ashok Leyland:

Ashok Leyland remains well-positioned to benefit from a longish CV upcycle.

Brokerage said, "We remain positive on the long-term growth trajectory of the company with better margins led by operational efficiencies, material cost reduction program, softening of commodity costs, and pricing discipline, and expect 8% CAGR volume growth over FY23-26E; We forecast the company to post Revenue/ EBITDA/PAT growth of 11%/22%/34% CAGR over FY23-26E. We maintain our BUY rating on the stock with the TP at Rs 210/share, valuing the stock at 19x Jun'25E EPS (unchanged)."

From the current price level of Rs 171.85 apiece on BSE, the stock is seen to rise by over 18%.

Relaxo Footwear:

According to Axis Securities, the Q1FY24 result was strong and the management's FY24 outlook gives us 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 it believes is a step in the right direction from the long-term perspective.

The brokerage has set a target price of Rs 1,050 apiece on Relaxo Footwear. From the current price level of Rs 905.85 apiece on BSE, this implies an upside of nearly 14% ahead.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.