Stocks to buy: Axis Securities lists 9 top mid, small-cap picks for April with up to 61% potential upside

Dalmia Bharat: The brokerage has a target price of ₹2,260 for this midcap cement stock, indicating a 15% upside. The company reported encouraging numbers in the December quarter and the brokerage expects the company to register evenue and EBITDA CAGR of 14% and 16%, respectively, driven by volume CAGR of 11% and consistent realization improvement of 2% each year over the same period. Axis believes the company is well-positioned to grow its revenue and profitability moving forward, supported by a) Increasing 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. Lower demand and contraction in cement prices impacting realization, and a further rise in input prices hampering margin profile are key risks, it added.

Polycab India: The brokerage sees an 18% upside in this midcap cables & wires (C&W) stock. Polycab continues to maintain its leadership position in the organized C&W segment with a market share of over 24%, said Axis. With a strong distribution network and a strong brand recall, the company continues to gain market share in wires & cables and FMEG segments. Furthermore, the entry into the EHV cables segment will aid revenues in the medium to long term, it noted. The management has set a revenue target of ₹20,000 cr by FY26, led by faster and more profitable growth in the B2C segments and industry-leading growth in the B2C business, Axis pointed out. The management is confident of maintaining the margins at 13% in the medium term, it added.

Federal Bank: Axis Sec has a target of ₹170 for this midcap private sector lender, implying an upside of 28%. As per the brokerage, FB is cautiously building a loan mix toward high-rated corporate and retail loans. The bank’s liability franchise remains strong and has one of the highest Liquidity Coverage Ratios (LCR) among banks, it noted. The management has revised its FY23E return on assets (RoA) guidance upwards to over 1.25 percent and another 10 bps improvement in FY24E, driven by lower slippages, benign credit costs and a well-managed cost structure. They also remain confident of doubling this book over the next 2 years and this should support overall credit growth, noted Axis Securities. Key positives are increasing retail focus, strong fee income, adequate capitalization, and prudent provisioning. FB remains well-poised to deliver a strong RoA/RoE of 1.2%/14-15% over FY24-25E, it predicted.

Varun Beverages: The brokerage expects this midcap bottle manufacturer to rise 12 percent to ₹1,550 in 1 year. The brokerage believes VBL is well placed under the current market situation as the early onset of the summer season is expected to drive overall beverage sales across regions. Further, the initial report on possible El-Nino (deficit rainfall) could delay the rural recovery which would lead the entire FMCG pack under wait-and-watch mode. Hence, in this current volatile market situation, it expects VBL to provide better earning visibility than other FMCG peers in the near term. It further stated that VBL is in its ‘top picks’ portfolio for a long time and Axis continues to remain positive on the stock on a mid to long-term basis. It estimates revenue/EBITDA/PAT CAGR of 17%/21%/25% over CY22-24E.

Ashok Leyland: The brokerage sees this midcap auto stock rising 26% to ₹175. As per the brokerage, AL's broad strategy is focusing not only on the medium and heavy commercial vehicle (MHCV) segment but also expanding its market share/revenue in light commercial vehicles (LCV), buses, tractor-trailer, EVs, defence equipment/vehicles, exports, spares and aftermarket; thereby hedging its dependence on the cyclical truck business. AL is targeting market share gains in its LCV and intermediate commercial vehicles (ICV) business with the launch of superior products and the expected foray into the electric LCV segment by June 2023. With improved profitability (RM softening), market share gains (increased demand), new and superior product offerings in the pipeline to cater to growing Internal Combustion Engines (IC) and electric vehicle (EV) demand, and a focus on better services, AL remains well-positioned to benefit from the CV upcycle, explained Axis. Higher interest rates, competitive pressures, and higher discounting are key risks, it added.

HCG Enterprises: Axis Sec has a target price of ₹330 for this smallcap healthcare stock, indicating a potential upside of 26%. HCG is expected to turn around its operating profitability with Operating EBITDA Margins improving by 680bps over FY21-FY24E, majorly driven by a) Operating leverage driven by the increase in Average Occupancy Rates (53%-58%) b) an Increase in Average Revenue Per Occupied Bed (ARPOB) led by the increase in international patients and high-end works, and c) Operating leverage in new centers that have already achieved breakeven, explained Axis. Given variable and fixed costs comprise 35% and 65% of hospitals respectively, the brokerage believes strong operating leverage in new centers may improve margins to 12%-15% over FY21-FY24E.

Praj Industries: The brokerage expects this smallcap stock to jump 61% to ₹550 in one year. Incorporated in 1985 and headquartered in Pune, supplier/constructor of ethanol plants, Praj is a global company providing various engineering solutions with a focus on the environment, energy, and agri-process industry. The brokerage noted that bioenergy in domestic business, the overall demand-supply gap of ethanol, increased interest in grain-based distilleries and decarbonization impetus is auguring well for the firm along with development in other key verticals such as CPS, ZLD and High Purity gaining traction. Praj is a key beneficiary of multiple tailwinds provided by the bio-economic revolution, giving strong growth & revenue visibility for the next 3-5 years, it further added. The company's key growth levers remain strong & therefore, Axis maintains its bullish view on the stock. 

CCL Products: This instant coffee smallcap stock is likely to advance 15% in 1 year to ₹650. The brokerage remains positive on CCL Products given 1) Strong footing in the international markets as it continues to gain market share and access new business, 2) a cost-efficient business model; 3) Doubling of Vietnam's capacity from the current 13,500 MT to 30,000 MT and new capacity expansion in India leading to strong volume growth visibility for the next 2-3 years; 4) Capacity addition in the value-added products, and 5) Foray into high-margin branded retail business (continental coffee, plant-based meat protein). 

PNC Infratech: Axis sec has a target price of ₹390 for this smallcap construction stock, indicating an upside of 35%. The road sector is witnessing good development owing to increased government thrust on infrastructure investment, furthermore, the tightening of norms in bidding on road projects by the NHAI augurs well for an organised player like PNC Infra, noted Axis. Considering the strong and diversified order book position, healthy bidding pipeline, new order inflows, emerging opportunities in the construction space, the company’s efficient and timely execution, and strong financial credence, it expects PNC Infra to report revenue/EBITDA/APAT CAGR of 18%/22%/29% respectively over FY22-FY25E. The stock is currently trading at 11x and 10x FY24E/FY25E EPS which is attractive, added Axis.