Top Midcap Stocks To Buy In December 2023: Lupin, Federal Bank, Relaxo Footwear In List; Here's Why!

Midap indices are at lifetime high levels on the back of a broad-based bullish tone in the market. Sensex and Nifty also rallied to new lifetime highs. However, since last year, midcaps have outperformed benchmarks by 34% year-on-year growth. With 2023 just a few days away from ending, brokerage Axis Securities has recommended buying in three midcap stocks which have the potential to rise in the range of 11% to 20%.

Here's what Axis Securities said for these three midcaps: {image-
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1. Lupin: (TP: Rs 1,470, CMP: Rs 1,238.20, Upside: 19%)

According to the brokerage, Lupin has a strong pipeline of niche products for the US markets with limited competition. In a few of these products, LUPIN has a first-mover advantage. The brokerage believes these products would increase the company's gross margins by 150bps in the next two years.

It added, "Further developments in the business could add value in its business such as 1) New launches such as Xyrem, gTolvaptan, Cynocobalamin, Diazepem Gel, Vereniciline, Bromfenac, etc. in the US market 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%."

Therefore, the brokerage foresees a significant scope for margin improvement in the upcoming quarters. Also, it expects 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.

2. Federal Bank: (TP: Rs 180, CMP: Rs 154.55, Upside: 16.5%)

While FB's margins have bottomed out, the expected increase in the CoD (though at a decelerating pace) over the next couple of quarters is likely to delay a sharper NIM expansion. However, FB's margins will find some support from the improving mix of higher-yielding products.

Further, the brokerage expects NIM to settle at ~3.2% in FY24E vs. 3.16% currently. Some of the new businesses (partner-led) are RoA accretive but incur higher costs (the C-I Ratio of ~65-70%). Thus, driven by strong business volumes and branch expansion (100 branches in H2FY24), cost ratios are expected to remain elevated before moderating to ~50% by the end of FY25. The fee income trajectory continues to remain strong and is expected to sustain momentum, thereby supporting superior RoAs.

Notably, the bank eyes a RoA of 1.4%+ by FY25E and key levers for this RoA expansion would be (a) Improving margins,(b) Expanding Fee income, and (c) Moderating cost ratios.

3. Relaxo Footwear: (TP: Rs 1,020, CMP: Rs 916.05, Upside: 11%)

The Q2FY24 result was strong and the management's FY24 outlook gives us confidence that the worst is behind the company as - a) 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).

Taking into these considerations, the brokerage believes is a step in the right direction from the long-term perspective.

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.