June Stock Picks: These top mid and smallcap picks by Axis Securities can give up to 58% upside

Federal Bank: The brokerage has a target price of ₹115 for the lender, indicating an upside of 29 percent. As per Axis, key positives for the bank are increasing retail focus, strong fee income, adequate capitalization, and prudent provisioning. It expects steady provision requirements along with healthy growth in the balance sheet and NIMs to deliver RoA/RoE of 1.1%/13.5% by FY24E. However, asset quality trends in the upcoming quarters and loan growth moderation are key risks.

Varun Beverages: Axis has an upside of 14 percent for the stock with a target price of ₹1,200. Despite challenging global cues, the brokerage remains positive on the firm’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 1) Strong execution in under-serviced territories South, West and East markets, 2) Market share gains, 3) Debt reduction and healthy cash flow generation, and 4) Expansion in new international geographies.

Ashok Leyland: The brokerage sees a 16 percent upside in the stock and has a target price of ₹160 per share. The firm 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, noted the brokerage, adding that 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. However, key risks are a) Protracted pick-up in demand, b) Commodity pressures, and c) Higher discounting.

Astral: The brokerage has a target price of ₹1,900 for the stock, implying an upside of 10 percent. 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, said the brokerage. 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.

Bata India: The brokerage has a target price of ₹2,200 for the stock, indicating an upside of 17 percent. Bata has maintained healthy operating cash flows and EBITDA Margins over the years, making it a capital-efficient business, stated Axis. It added that in Q4FY22, the company’s operations witnessed a healthy revival along with higher throughput per store and efficient capital allocation. Axis believes a strong balance sheet with efficient working capital should help Bata to sail through the current situation smoothly. It expects the company to be a beneficiary of market share gains given store expansion in lower-tier cities where the unorganized segment is dominant and who would face pressure on passing on raw material inflation through price hikes. It remains positive on the stock from a long-term perspective given its immense growth potential.

APL Apollo Tubes: The brokerage has a target price of ₹1,100 for the stock, indicating an upside of 17 percent. Given strong volume-led guidance and likely improvement in the margins aided by improved mix, the brokerage is bullish on the stock. It added 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 to maintain its ROCE to the north of 30% (FY22 at 34.5% vs 26.5% in FY21) across the steel cycle. 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, noted Axis.

Healthcare Global Ent: Axis sees the stock rising 18 percent and has a target price of ₹330 for the stock. HCG is the largest provider of cancer care in India under the HCG brand. It owns and operates comprehensive cancer diagnosis and treatment services. As per Axis, HCG is expected to turn around its operating profitability with Operating EBITDA Margins improving by 680 bps over FY21-FY24E, majorly driven by a) Operating leverage driven by the increase in Average Occupancy rates (53%-58%) and b) Operating leverage in new centers that have already achieved breakeven. Given variable and fixed costs comprise 35% and 65% in hospitals respectively, it believes strong operating leverage in HCG is expected to turn around its operating leverage in new centers may improve margins to 12%-15% over FY21-FY24E.

Praj Ind: Axis sees an upside of 39 percent in the stock and has a target of ₹477 on Praj. 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 gaining traction, stated Axis. 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, it added. The company's key growth levers remain strong & therefore Axis is bullish on the stock. Raw material cost pressure in steel, volatile raw material weighing on operating profitability in the near term and the Russia-Ukraine crisis dampening business in the Euro region are key risks.

CCL Products: The brokerage sees an upside of 58 percent in the stock, target price of ₹560. Axis is positive on CCL Products given 1) Expertise in customized blends; 2) Cost-efficient business model; 3) Largest manufacturer and exporter of instant coffee; 4) Doubling of Vietnam capacity leading to volume growth visibility for the next 2 years; 5) Capacity additions in value-added products, and 6) Foray into high margin branded retail business (Continental Coffee). It expects the firm's Sales and PAT to grow at 17% and 21% CAGR over FY21-24E. In the staples space, CCL Products is one of its high conviction BUY, said Axis.