Up to 29% upside: From Dalmia Bharat to Varun Beverages; Axis Securities lists 6 top midcap picks; See full list

Dalmia Bharat: The brokerage has a target price of ₹2,070 for the stock implying a potential upside of 17%. Established in 1939, the firm has emerged as one of the fastest-growing players in the Indian cement sector. 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. It expects the company to register Revenue and EBITDA CAGR of 16% and 18%, respectively over FY22-FY24E, driven by volume CAGR of 13% and consistent realization improvement of 2% each year over the same period. Lower demand and contraction in Cement prices impacting realization and a  further rise in input prices hampering margin profile are key risks, it said.

Polycab India: The brokerage sees the stock rising 10% to ₹3,300 in the next 1 year. Polycab India is a leading manufacturer of Cables & Wires with a market share of 22-24% in the organised market. As per the brokerage, Polycab continues to maintain its leadership position in the organized cables & wires segment with a market share of over 24%. With a strong distribution network and a strong brand recall, the companycontinues to gain market share in Wires & Cables and FMEG segments, it noted. Furthermore, the entry into the EHV Cables segment will aid revenues in the medium to long term, said Axis. The management has set a revenue target of ₹20,000 crore by FY26, led by faster and more profitable growth in the B2C segments and industry-leading growth in the B2C business.  

Federal Bank: Axis Securities has a target of ₹170 for the stock, implying an upside of 29%. Federal Bank (FB) is a Kerala-based private sector bank with a pan-India presence. As per the brokerage, key positives for the lender 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, predicts Axis. The bank’s liability franchise remains strong with CASA plus Retail TD of over 90% and one of the highest Liquidity Coverage Ratios (LCR) among banks, noted the brokerage, adding that restructuring levels are also under control. With the high-yielding book at over ₹5000 crore, the management remains confident of doubling this book over the next 2 years and this should support overall credit growth, said Axis. Asset quality trends in the upcoming quarters and loan growth moderation are key risks, added the brokerage. 

Varun Beverages: The brokerage sees a 24% potential upside for the midcap stocks, target price at ₹1,450. VBL is the 2nd largest franchisee of PepsiCo in the world (outside the USA). Axis believes the near-term challenges like RM inflation, and top-line growth are behind the company and VBL is expected to perform well moving forward. As per the brokerage, newly acquired territories will see normalcy of operations and market share gains post-COVID-19 disruptions. Further, the management’s continued focus on the efficient go-to-market execution in acquired and underpenetrated territories as can be seen from its recently commissioned Bihar plant operations is another key positive. Expansion in its distribution reach by 8-10%, robust growth in the International geographies, focus on expanding high-margin Sting energy drink across outlets, and sustenance of healthy double-digit volume growth in the medium to long term will also aid the firm.

Ashok Leyland: The brokerage has a target price of ₹175 for the auto stock, indicating a potential upside of 18%. Ashok Leyland (AL) – a flagship company of Hinduja Group, is the third-largest commercial vehicle manufacturer in India. As per the brokerage, AL's broad strategy is focusing not only on the MHCV segment but also expanding its market share/revenue in LCV, Buses, TractorTrailer, EVs, Defence Equipment/Vehicles, Exports, Spares and Aftermarket, thereby hedging its dependence on the cyclical truck business. AL is targeting market share gains with the launch of superior products and an expected foray into the electric LCV segment by Jun’23. With improved profitability, market share gains, new and superior product offerings in the pipeline to cater to growing IC and EV demand; and a focus on better services, AL remains well-positioned to benefit from the CV upcycle, noted the brokerage. On the back of these growth drivers, it forecasts Revenue/EBITDA/PAT CAGR of 23%/28%/71% over FY22-25E.  

APL Apollo Tubes: Axis sees the stock rising 17% to ₹1,345 in the next 1 year. APL Apollo Tubes (APAT) is a leading structural steel tube brand, operating with 14 brands in 4 product categories. It has 55% market share in structural steel tubes in India with 2.6 MTPA structural steel tube capacity, stated Axis. Further, the firm has a strong distribution network with 800+ distributors across India, it added. In H1FY23 EBITDA/t stood at ₹4,154/t, in H2FY23 Company is targeting ₹4,500- ₹5,000/t, so for FY23 blended EBITDA/t guidance is ₹4,500/t, noted Axis. Going forward, as steel prices stabilize the brokerage expects EBITDA/t should improve as the discounts to distributors decrease and the Raipur plant ramp-up provides richer EBITDA/t in the product mix. Fall in demand for the company’s products,  delay in Raipur plant ramp up and lower offtake for the value-added products are key risks, it added.