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1 Small Cap Pharma And 1 Mid Cap IT Stock To Buy After Decent Q4Fy22 Earnings
Markets in trade today logged losses for the sixth consecutive session dropping close to 4% in a week's time on the Nifty. Broader markets however showed resilience with Nifty Midcap 100 ending on a positive note with gains of over 1 percent. Now as the Indian equity indices have tumbled more than 15% from peak, there lies an opportunity to lap up good quality stocks based on their fundamentals and recent quarterly numbers. Here are given few stocks to buy with potential to generate good returns for its investors.
Caplin Point Laboratories:
ICICI Direct has placed a 'buy' call on the stock of Caplin i.e. a small cap pharma company with product segments comprising Antibiotics, Non-steroidal anti-inflammatory drugs (NSAIDS), Ophthalmics, Pain Management and Anti-ulcers.
The brokerage mentions that the pharma entity entirely derives its revenues via exports with major portion i.e. 90% coming from EMs (LatAm + RoW) where it maintains an end-to-end business model through last mile logistical solutions for its exclusive distributors. The company in the US on its own and through partners has filed 21 ANDAs and received 18 approvals from the FDA.
Q4FY22 Results: Sales at the company registered an increase by 22% YoY to Rs. 339 crore. EBITDA climbed 17% YoY to Rs. 100 crore, with margins at 29.5%. Thus PAT was at Rs. 79 crore (up 19% YoY). As per the brokerage, core geographies of the company as well as better offtake in the US markets drove the company's earnings.
Buy Caplin Point for Rs. 895 target price for 12 months:
Brokerage asserts that the company's share price has gained almost 2 times in a period of 5 years from Rs. 335 in May 2018 to Rs. 680 in May 2022. Further a 'Buy' has been maintained given the 1) steady growth from legacy LatAm markets, 2) traction from US injectable, 3) calculated capex decisions to expand
capacity, widen portfolio and backward integration.
ICICI Direct values Caplin at Rs. 895 i.e. 18x P/E on FY24E EPS of Rs. 49.6.
Coforge:
The mid-cap IT major is another pick of the brokerage firm ICICI Direct post its Q4 Results. The brokerage bets on the counter and recommends a 'Buy' on it for a target price of Rs. 4370 in 12 months. Given the current share price of Rs. 3743, investors will be able to generate a good upside of 16.75%.
The company caters to healthcare, BFSI and travel industry and offers system integration, apps & BPO services. As per the brokerage, revenues at the IT firm grew at 18.1% CAGR in the past five years. Also, the firm commands Healthy OCF, EBITDA (~75%) and robust return ratios (RoCE > 20%).
Q4Fy22 Earnings: Healthy performance on the revenue front. The company's dollar revenues gained 4.9% QoQ. EBITDA margin also improved QoQ to 18.9%. Also, the firm guided for 20% revenue growth in Fy23.
Brokerage's take on the Coforge stock:
ICICI Direct iterates that the stock price of Coforge over a 5 year period has zoomed by about 7.6 times from around Rs. 476 in May 2017 to around Rs. 3656 levels in May 2022. The brokerage has revised its rating from Hold to Buy and value it at Rs. 4370 25x P/E on FY24E EPS.
Key triggers to drive future price performance:
Increase in deal size; signed a US$105 mn BFS deal (for four years),insurance US$20 million (three years) & healthy order book to drive growth
Bottoming out of travel vertical (in US), preferred partnership with Fortune 500 insurance & Tier 1 banking companies, recent acquisition and aggressive hiring to drive 19.1% revenue CAGR over FY22-24E
A 40 bps improvement in margins over FY22-24E due to offshoring, higher margins in acquired company, reversal of travel discount and growth.
