3 Midcap Stocks To Buy Next Week With Potential To Rally

Markets ended the week on a dismal note, thanks to rising bond yields in the US. Here are a few stocks that investors can buy and take advantage of, due to falling stock prices.

TVS Motors

Emkay Global has said to buy the stock of TVS Motors with a price target of Rs 770 on the stock. The stock ended trade at Rs 629 on Friday.

According to Emkay Global, 4FY22 EBITDA rose 4% yoy to Rs 5.6 billion, but was below its own estimate of Rs 6.1bn due to lower-than-expected gross margin. Revenues grew by 4% to Rs55.3bn, broadly in line with estimates.

We retain our view of a turnaround in the domestic 2W industry in FY23E, with growth of 11%, and TVSL should gain share owing to its lower exposure to entry-level motorcycles. Our channel checks indicate that Q1FY23 volumes should see support from festive/marriage season demand and a recovery in student demand.

Led by a recovery in domestic 2W volumes (14% CAGR), we expect a 13% CAGR in total volumes over FY22-24E. TVSL is aggressively focusing on the EV space, with multiple launches lined up in 2Ws/3Ws in the next two years, R&D collaboration with BMW and investment in electric bike maker Ultraviolette.

"We build in revenue/earnings CAGRs of 15%/27% for FY22-24E. Retain Buy with a target price of Rs 770 (Rs 740 earlier), based on 23x Jun'24E EPS (Mar'24E earlier) and the value of TVS credit services at Rs 27 per share," the brokerage has said.

Firstsource Solutions

This is an IT company that delivered in-line operating performance in Q4, according to Emkay Global. Revenues grew by 5.2% QoQ to USD205.5mn (5.2% CC), but organic revenue growth remained muted.

According to EMKAY Global, Firstsource Solutions guided for FY23 revenue growth of 7-10% YoY (organic 1-4%; guidance assumes 18-21% growth excluding mortgage biz and acquisitions contribution). It has guided for 10.5-11% EBITM for FY23, factoring in a sharp decline in the mortgage business, a time gap to pass on higher inflation costs and amortization costs owing to acquisitions.

Healthcare grew by 5.4% QoQ, led by continued traction in HPHS. BFS grew by 6.9% QoQ, aided by acquisitions. CMT grew by 2.2% QoQ, driven by growth in the top client and continued traction in digital media and Tech clients.

"We cut FY23E/FY24E EPS by 13%/5%, factoring in weak FY23 guidance, which will also weigh on the stock's performance in the near term. However, we expect the stock to bounce back gradually as investors gain confidence in a sustainable recovery in sequential revenue growth from Q2FY23. Retain Buy with a revised target price of Rs 170 (earlier Rs 180) at 17x Mar'24E EPS," the brokerage has said.

Equitas Small Finance Bank

According to Emkay Global, Equitas reported an in-line PAT of Rs1.2 bn in Q4FY22, aided by healthy NIMs and lower opex as the bank reversed one-time excess employee provisions. Despite higher slippages, partly flowing from the restructured pool, the GNPA ratio was down 37bps qoq to 4.2% due to higher recoveries/w-offs. Specific PCR remains uncomfortably low at 43%, and the bank now intends to increase it to 60% gradually.

"Equitas did well on the liability front while gradually diversifying its asset base away from MFI. However, it needs to focus on portfolio quality and build counter-cyclical buffers. We expect the bank's RoA/RoE to improve to 1.7%-2%/11-16% over FY23-25E from a low of 1.1%/7% in FY21, mainly led by better growth, operating leverage and lower LLP. Retain Buy with a target price of Rs 75 based on 1.8x FY24E ABV (vs. Rs 80 based on 2x Dec'23E ABV) due to high CoE and effectively lowering the target price of Rs 164 from Rs 175," Emkay Global has said.