275-500% Dividend Paid: These 4 Midcap Stocks Are Hot To Buy, Expect 17-23% Returns In 9-12 Months

Religare Broking is optimistic in three sectors namely IT, cement, and FMCG and hence the brokerage has selected four midcap stocks which it believes have the potential to perform and earn a return in the range of 17% to 23% from 9-12 months perspective. These stocks are Mphasis, Nuvoco Vistas Corporation, Jyothy Labs, and CCL Products India. Three of them have paid dividends in the range of 275% to 500% in the financial year 2022-23.

Here's why Religare likes these four stocks as per its research note:

IT Sector:

Although, most of the management of IT companies are cautious in the near term, however, signing and winning large deals in recent times have made their valuation attractive for investors. In the near future, companies are focusing on cloud, digitalization, Artificial Intelligence (AI), Machine learning (ML), cyber security, etc. which is expected to aid strong growth.

Hot IT Stock Buy!

Mphasis: (Target Price: Rs 2,960, BSE CMP: Rs 2,468.95, Potential Upside: 19.88%)

Giving outlook and valuation on Mphasis, Religare's note said, "Despite the macro challenges the IT sector is facing for the near term, we believe Mphasis strategy of investing in right growth areas such as new generation technology, partnering with companies for technology and adhering to customer-centric approach will aid growth for the company."

Also, it highlighted that management's optimistic view on margin range because of improving utilizations and gaining large deals would support growth.

Hence, the brokerage said, "We have estimated its revenue/EBIT to grow at a 15% & 19% CAGR over FY23-25E and have initiated a Buy rating on the stock with a target price of Rs 2,960."

Mphasis is among the high dividend-paying stocks in the IT sector. In FY23, the company paid a whopping 500% dividend amounting to Rs 50 per share to its shareholders. This was higher compared to the dividend payout of Rs 46 per share in FY22.

Cement Sector:

Religare believes that despite the monsoon, Q2FY24 may remain impacted by cement companies, however, from a medium to long-term perspective it is a win-win situation for the sector. Overall, the sector's growth is expected to be driven by the government push towards infra & housing, strong demand for real estate, potential M&A and improving capacity by the companies. Not just that, a drop in raw material costs is expected to improve margins.

Hot Cement Stock To Buy!

Nuvoco Vistas Corporation: (Target Price: Rs 455, CMP: Rs 382.85, Potential Upside: 18.85%)

According to Religare's note, Nuvoco's plan is to focus on debt reduction & improve utilization but not be aggressive in capacity addition for the next 1-2 years. Ahead, their focus will be in driving the top line & bottom line by increasing the share of premium products from 37% to 40%+ which are Concrete Uno or Duraguard Micro Fibre as well as focus on the sales of high-demand products and improving capacity utilization.

Besides, it added that Nuvoco's focus will be on getting high realization from markets in East and North as well as the idea is to improve sales in markets like Bihar, Bengal, Jharkhand, Gujarat and Rajasthan. Lastly, additional revenue will be earned from the Haryana market after its commissioning of the Haryana plant.

On the profit front, Religare's note said, "Its EBITDA/ton is likely to improve from Rs 644/ton in FY23 to Rs 826/ton by FY25E, driven by improving product mix & utilization level as well as some moderation in raw material prices. We estimate its revenue/EBITDA to grow by 11.4%/22.5% over FY23-25E and initiating coverage with a Buy rating and a target price of Rs 455, valuing at EV/EBITDA of 10x on FY25E EBITDA."

FMCG Sector:

In Religare's view, the FMCG sector has been facing a tough time as rural demand is yet to pick up pace as expected. Growth is still price-led but we are seeing improvement in volumes. Further, raw materials which impacted profits
showing some signs of easing and ahead it would translate to better profitability.

Nevertheless, going ahead, FMCG companies are expected to see volume-led growth led by capex, strong brand recall, innovative products and importantly rural catching up the pace.

2 FMCG Midcap Stocks Are Hot To Buy!

Jyothy Labs: (Target Price: Rs 428, CMP: Rs 365.70, Potential Upside: 17.03%)

Religare's note said, "We believe Jyothy Labs has come a long way by innovating products across categories, investing on advertisements & promotional activities and gaining market share. Going ahead, the management aims for volume led growth and at the same time maintain margins."

Additionally, they want to invest behind brand building initiatives, manufacturing and strengthening distribution reach in rural areas as well as grow digitally.

"We are optimistic on the growth prospect of the company and estimate its Revenue/EBITDA to grow at 15%/37% CAGR over FY23-25E. We initiate a Buy with a target price of Rs 428, valuing the company near to its 10 years average P/E of 32.7x," it added.

In FY23, Jyothy Labs rewarded its shareholders with 300% dividends aggregating to Rs 3 per share.

CCL Products India: (Target Price: Rs 776, CMP: Rs 631.55, Potential Upside: 22.87%).

The brokerage believes that over the years, CCL products have been strengthening its position in the coffee market and its focus towards premium & value-added products, strengthening the B2C segment as well as continuous capacity
expansion will drive growth for the company. Further, its market share in the domestic market and exports stands at 3% and 8% respectively in FY22, and it has plans to gain market share.

Moreover, its stable financials, brand recall value and its relationship with customers globally and in India in the B2B segment leads to repetitive business that is helping growth.

Religare added, "We remain positive on the growth prospect of the company and have estimated its revenue/EBITDA/PAT to grow at 25%/29%/31% CAGR over FY23-25E. We have initiated a Buy on the stock and have arrived at a target price of Rs 776, assigning a P/E multiple of 22x FY25EPS."

In FY23, the company paid dividends of 275% amounting to Rs 5.5 per share to its shareholders from its profitability.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor 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.