Markets have extended losses and are at new intra-day low after nose diving over 800 points on the back of Omicron worries and expectations around earlier Fed tapering plan. Broader market have also tumbled a great deal with Nifty Midcap down by over 1 percent. Meanwhile, Axis Securities in its December top picks report has listed out 5 mid cap stocks for potential upside of up to 46 percent
The brokerage in its report mentions that mid caps seem to be more attractive in comparison to large caps from a valuation stand even as they trade at a 15% premium to the Large Caps. "During the bull phase in 2017, Mid Caps traded at a 45% premium to Large Caps. Moreover, the recent spate of IPOs and their successes clearly indicate the market's appetite for Mid and Small Cap stocks. The stellar listing of Zomato IPO also signifies the euphoria among the investors and their strong risk appetite for novel and next-generation business models. Since Nov'20, Small and Mid Caps are picking up steam and are expected to deliver robust returns in 2021 as the economic uncertainties and volatility decline", adds the report.
So, here are the top picks for December 2021 by Axis Securities from the mid-cap space:
1. Federal Bank: Buy for a target of Rs. 125
For the private sector bank, brokerage is of the view that operational improvement is on track. The 42% upside in the scrip for a target price of Rs. 125 is given out considering the positives such as increasing retail focus, strong fee income, adequate capitalization, and prudent provisioning. Given strong underwriting standards, changing loan mix, and strong retail deposit franchise, we expect the bank's valuation to improve from current levels if asset quality trends are maintained and ROA improvement keeps on track. "We maintain a BUY with a target price of Rs 125/share (1.3x FY23E ABV)".
Key risks however highlighted for the bank as per the brokerage are a)Asset quality trends in coming quarters, b)Loan growth outlook.
On Federal Bank, Axis Securities further states that it is cautiously building a loan mix toward high-rated corporate and retail loans. The bank's liability franchise remains strong with CASA plus Retail TD of +90% and one of the highest LCR amongst banks. Restructuring levels are also in control.
2. Dalmia Bharat: Buy for potential gains of 40%
For the cement major entity, Axis has given a 40% upside target. The company reported encouraging Q2FY22 results with Revenue/Volume growth of 7%/6% YoY respectively. It reported healthy EBITDA Margins of 24% and EBITDA/Tonne of Rs 1,218 despite severe cost headwinds. The brokerage believes the company is well-positioned to grow its revenue and profitability moving forward, supported by a) A revival of cement demand in its key markets in both trade and non-trade segments, b) Cost optimization measures, and c) Increasing premium cement sales aided by capacity expansions.
Valuation: The stock is currently trading at 12x FY22E and 10x FY23E EV/EBITDA respectively. We recommend a BUY rating on the company and value the stock at 13.5x FY23E EV/EBITDA to arrive at a target price of Rs 2,520/share, implying an upside potential of 35%.
Key risks: a) Decrease in Cement prices lowering realization; b) Further rise in input prices hampering margin profile.
3: Buy Varun Beverages for a target of Rs. 1050
Varun Beverages is the second leading franchisee of PepsiCo globally (outside the US). For the consumer staples firm, Axis has provided for a target price of Rs. 1050, which from the current levels implies an upside of 19 percent.
For the Q3 period of Cy 21, the company exhibited healthy growth even though it is an off-season for it. Health volume growth in India as well as International businesses primarily fuelled growth.
"With Covid-19 cases declining, the likelihood of a normal season in CY22, and economic re-opening driving out-of-home consumption, we expect the company to gain further in-roads in the acquired territories of South and West India. This shall aid in market share gains on the back of aggressive placement of visi-coolers in these territories and the addition of new distributors as well as scaling up of recent product launches (energy drink) across the territories", adds the report.
"We revise our CY20-23E estimates and now expect VBL to register Revenues/EBITDA/PAT CAGR of 21%/27%/57% respectively. This growth will be driven by 1) Strong execution in under-serviced South and West territories (penetrating in semi-urban/rural areas with better refrigeration infra and VC placements), 2) Distribution (aggressive primary distributor addition) led market share gains, 3) Debt reduction, 4) Greenfield Capex and expansion in new international geographies, and 5) Positive cash flow generation. We raise our TP to Rs 1,050/share valuing it at 18x EV/EBITDA multiple its CY23 estimate", notes the brokerage.
4. Buy Navin Fluorine for a target of Rs. 4100
For the chemical space, the brokerage has maintained an equal weight industry view. The company gives the following rationale for a 'Buy' on the scrip including increasing share of high value business, expansion of refrigerant gas business, multi-year contract with a large MNC and entry into new verticals.
"Given the fair visibility on earnings growth and other attributes such as the healthy order book, new customer addition across segments, rising contribution from margin accretive High-Value Business, and strong product pipeline, the growth momenum is expected to continue over the medium term prospects for NFIL. Factoring in the sharp correction in prices and a fair earnings visibility, we maintain our BUY recommendation and upgrade the TP to Rs 4100/share given the fair earning visibility", adds the brokerage.
5. Buy Ashok Leyland for Rs. 175 target price
As per the brokerage, the commercial vehicles company is in a sweet spot to ride the economic recovery.
The company is venturing into new African markets other than the markets of the Middle East, SAARC, Bangladesh, and Sri Lanka. Besides as part of its increasing focus on electric vehicles (EVs), the company has created a dedicated EV-only entity called SWITCH Mobility, headquartered in the UK.
"The company continues to focus on reducing its dependence on the cyclical truck business by increasing the revenue share of Exports, Defence, Power Solutions, LCV, and after-sales spare parts business. It remains well-positioned to benefit from a strong recovery in the CV cycle on the back of new product launches and a well-diversified product portfolio. We maintain our BUY rating on the stock and value it at 18x FY24E EPS to arrive at a TP of Rs 175", says the report.
Ashok Leyland - a flagship company of Hinduja Group, is the third-largest commercial vehicle manufacturer in India. The company's key products comprise buses, trucks, engines, defence, and special vehicles.
So, here are all the top picks from the mid cap space as listed out by the brokerage:
|Mid-cap stocks||Sector||Current price||Target price||Upside|
|Varun Beverages||Consumer Staples||881||1050||19.00%|
The stock ideas mentioned above above are taken from the report of Axis Securities.Investing in equities is risky and investors are advised caution. Please be informed neither Greynium Information Technologies Pvt Ltd nor the author are liable for any losses caused as a result of decisions based on the article.