Axis Securities picks top mid and smallcap stocks for July; Take a look

Federal Bank: The brokerage has a target price of ₹115 on the stock, indicating an upside of 27 percent. Key positives are increasing retail focus, strong fee income, adequate capitalization, and prudent provisioning, said Axis. It expects steady provision requirements along with healthy growth in the balance sheet for the lender. Overall credit growth guidance remains at 15% and the bank will look to accelerate growth where appropriate opportunities are available, added the brokerage. Asset quality trends in the upcoming quarters and loan growth moderation are key risks.

Ashok Leyland: The brokerage expects the auto stock to rise 11 percent in the next 1 year. It has a target price of ₹164 for the stock. According to Axis, Ashok Leyland 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, it added. Key risks include protracted pick-up in demand, competitive pressures, and higher discounts.

Bata India: Axis expects the stock to rise 32 percent in the next 1 year and has a target of ₹2,200 for the footwear stock. Bata has maintained healthy operating cash flows and EBITDA Margins over the years, making it a capital-efficient business, stated the brokerage. In Q4FY22, the company’s operations witnessed a healthy revival along with higher throughput per store and efficient capital allocation, it added. Axis believes a strong balance sheet with efficient working capital should help Bata to sail through the current situation smoothly. It also expects the company to be a beneficiary of market share gains given store expansion in lower-tier cities where the unorganized segment is dominant.

APL Apollo Tubes: The stock can rise 20 percent in the next 12 months, according to Axis, which has a target of ₹1,100 for the stock. The brokerage is bullish on the stock given strong volume-led guidance and likely improvement in the margins aided by an improved mix. It noted that the capex from internal cash accruals targeting capacity addition, value addition at other low-margin plants and cost savings augurs well for the company. Further, to protect its margins in the steel downcycle, the company has maintained capex discipline and lean working capital with efficient inventory management leading to robust free cash flows, it added. A sharp fall in HRC prices and demand for the company’s products are key risks.

Varun Beverages: Axis has a target of ₹680 for the stock, implying a potential upside of 11 percent. Despite challenging global cues, the brokerage remains positive on the company's performance in the coming months owing to peak summer season demand and operating leverage coming into play due to volume offtake in CY22E/CY23E. Other key growth drivers are strong execution in under-serviced territories, market share gains, debt reduction, healthy cash flow generation, and expansion in new international geographies, it said.

Astal: The brokerage sees a 15 percent upside on the stock and has a target of ₹1,900. Axis noted that Astral has reported volume growth of 10% in the piping segment which is the highest among peers in the last 4 years, reflecting that Astral is gaining market share. It added that the firm is maintaining EBITDA margins of 17.8% despite taking a hike in realizations as commodity inflation is denting the profitability of the industry. Furthermore, Astral's foray into Valves, Resins, Sanitary ware, and Tanks would add revenue growth in the upcoming years, noted Axis. Increase in crude prices from current levels, and fall in demand for new housing due to increase in interest rates are key risks.

CCL Products: The brokerage has a target price of ₹560 for the stock, indicating an upside of 46 percent. Axis remains positive on CCL Products given its expertise in customized blends, cost-efficient business mode, largest manufacturer and exporter of instant coffee, doubling of Vietnam capacity leading to volume growth visibility for the next 2 years, capacity additions in value-added products, and foray into high margin branded retail business. It expects CCL's Sales and profit to grow at 17 percent and 21 percent CAGR over FY21-24E.

Praj Industries: Axis sees the stock rising 31 percent and has a target of ₹477. Praj is witnessing strong growth in its key segment Bioenergy in Domestic business, the overall demand-supply gap of Ethanol, increased interest in grain-based distilleries and decarbonization impetus is auguring well for Praj along with development in other key verticals, noted the brokerage. The firm is a key beneficiary of multiple tailwinds provided by the bio-economic revolution, giving strong growth and revenue visibility for the next 3-5 years, Axis pointed out. The company's key growth levers remain strong, it added. Volatile raw materials weighing on operating profitability in the near term and the Russia-Ukraine crisis dampening business in the Euro region are key risks.

Healthcare Global: The smallcap stock can see up to 19 percent upside in 1 year. Axis has a target of ₹330 for the stock. The firm has been outpacing the industry growth with a revenue CAGR of 19% and new patients’ registration CAGR of 24.6% over FY16-FY19, noted the brokerage. It has set up a strong network of 25 centers across the country which stands 2x the capacity of the immediate competitor, Axis added. It believes HCG is well-placed to grow new patient registrations backed by its competitive strengths such as high-end works, strong brand recall, easy access to centers, and reasonable prices. Axis also believes strong operating leverage in new centers may improve margins to 12%-15% over FY21-FY24E.