scorecardresearchA look at the top midcap and small-cap picks for May by Axis Securities

A look at the top midcap and small-cap picks for May by Axis Securities

Updated: 05 May 2022, 01:48 PM IST
TL;DR.

Indian markets declined around 2 percent in the month pf April. However, the midcap and smallcap outperformed largecaps during the month. The Nifty Midcap remined in the green and rose 0.6 percent during the Month while the Nifty Smallcap index fell around 1.5 percent. Though some recovery was seen in the equity market after a major selloff on February 24, 2022, the trend is likely to be range-bound moving forward, Axis Securities said in a recent note. Going ahead, macroeconomic factors and Q4FY22 earnings commentaries will play a pivotal role in driving the market fundamentals moving forward. Let's look at Axis' top midcap and smallcap picks for May:

Federal Bank: The brokerage has a target price of  <span class='webrupee'>₹</span>125 for the midcap lender indicating an upside of 30 percent. According to the brokerage, key positives 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%/14.5% by FY23E.

Federal Bank: The brokerage has a target price of 125 for the midcap lender indicating an upside of 30 percent. According to the brokerage, key positives 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%/14.5% by FY23E.

Varun Beverages: The brokerage has a target price of  <span class='webrupee'>₹</span>1,200 for this FMCG stock, implying an upside of 11 percent. Despite challenging global cues, Axis 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 strong execution in under-serviced territories, market share gains, debt reduction and healthy cash flow generation, and expansion in new international geographies.

Varun Beverages: The brokerage has a target price of 1,200 for this FMCG stock, implying an upside of 11 percent. Despite challenging global cues, Axis 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 strong execution in under-serviced territories, market share gains, debt reduction and healthy cash flow generation, and expansion in new international geographies.

Ashok Leyland: The brokerage has a target price of  <span class='webrupee'>₹</span>160 for this auto stock, indicating an upside of 26 percent in 12 months. 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, said Axis. 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, added the brokerage.

Ashok Leyland: The brokerage has a target price of 160 for this auto stock, indicating an upside of 26 percent in 12 months. 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, said Axis. 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, added the brokerage.

NALCO: The brokerage sees 43 percent rise in this stock in the next 12 months and has a target price of  <span class='webrupee'>₹</span>150 for NALCO. Nalco is the only pure equity play on Aluminium and Alumina commodities in India. In response to a robust Aluminium prices outlook, Nalco has started optimising its Aluminium production by targeting 100% utilisation of its 460ktpa smelter, noted Axis. In Q4FY22, the company produced a record level of production of 117Kt, the highest in its history and has operationalized its entire pot room to capitalise on the high Aluminium prices, stated Axis.

NALCO: The brokerage sees 43 percent rise in this stock in the next 12 months and has a target price of 150 for NALCO. Nalco is the only pure equity play on Aluminium and Alumina commodities in India. In response to a robust Aluminium prices outlook, Nalco has started optimising its Aluminium production by targeting 100% utilisation of its 460ktpa smelter, noted Axis. In Q4FY22, the company produced a record level of production of 117Kt, the highest in its history and has operationalized its entire pot room to capitalise on the high Aluminium prices, stated Axis.

Bata India: The brokerage has a target price of  <span class='webrupee'>₹</span>2,200 for this shoe firm, indicating an upside of 13 percent. According to Axis, Bata's efforts on ensuring customer safety, consumer-relevant communication, product availability and driving channel expansion have resulted in a consistent rise in footfalls across its retail outlets. Franchise-led expansion in Tier 3-5 towns continue to drive overall volumes, added the brokerage. The company continues to focus on optimizing its retail network and cost savings across rentals and operations, manufacturing, and driving efficiencies in its value chain, stated Axis. Over the years, Bata has consistently worked on building a cash efficient business driven by healthy operating cash flows, asset turns, strong cash on the balance sheet and superior EBITDA Margins to its peers, noted Axis.

Bata India: The brokerage has a target price of 2,200 for this shoe firm, indicating an upside of 13 percent. According to Axis, Bata's efforts on ensuring customer safety, consumer-relevant communication, product availability and driving channel expansion have resulted in a consistent rise in footfalls across its retail outlets. Franchise-led expansion in Tier 3-5 towns continue to drive overall volumes, added the brokerage. The company continues to focus on optimizing its retail network and cost savings across rentals and operations, manufacturing, and driving efficiencies in its value chain, stated Axis. Over the years, Bata has consistently worked on building a cash efficient business driven by healthy operating cash flows, asset turns, strong cash on the balance sheet and superior EBITDA Margins to its peers, noted Axis.

KIMS: The brokerage has a target price of  <span class='webrupee'>₹</span>1,600 for this stock, indicating an upside of 19 percent. High return on invested capital of 32 percent led to generating a strong cash flow of  <span class='webrupee'>₹</span>300 crore every year enabling the company to achieve net debt-free status, said Axis. It expects KIMS cashflow generation of  <span class='webrupee'>₹</span>300 crore every year plus the minimum debt required to fund incremental bed capacity in the next 36-40 months, noted the brokerage.

KIMS: The brokerage has a target price of 1,600 for this stock, indicating an upside of 19 percent. High return on invested capital of 32 percent led to generating a strong cash flow of 300 crore every year enabling the company to achieve net debt-free status, said Axis. It expects KIMS cashflow generation of 300 crore every year plus the minimum debt required to fund incremental bed capacity in the next 36-40 months, noted the brokerage.

Equitas Small Finance Bank: The brokerage has a target price of  <span class='webrupee'>₹</span>80 80 for this lender, indicating an upside of 46 percent. Axis believes the lender is eligible for re-rating given its improving profitability, asset quality, and return ratios. The bank is marching in the right direction to implement the reverse merger which is expected to be completed by Dec22/Mar’23. Upon completion of 5 years as an SFB, the lender will be eligible to apply for a universal banking license as well. If issued, it would further support our re-rating rationale, it noted.

Equitas Small Finance Bank: The brokerage has a target price of 80 80 for this lender, indicating an upside of 46 percent. Axis believes the lender is eligible for re-rating given its improving profitability, asset quality, and return ratios. The bank is marching in the right direction to implement the reverse merger which is expected to be completed by Dec22/Mar’23. Upon completion of 5 years as an SFB, the lender will be eligible to apply for a universal banking license as well. If issued, it would further support our re-rating rationale, it noted.

Praj Industries: The brokerage has a target price of  <span class='webrupee'>₹</span>477 for the stock indicating an upside of 17 percent. Axis said that Praj is witnessing strong growth in its key segment Bio Energy 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. Praj is a key beneficiary of multiple tailwinds provided by the bio-economic revolution, giving strong growth &amp; revenue visibility in coming quarters, it further added.

Praj Industries: The brokerage has a target price of 477 for the stock indicating an upside of 17 percent. Axis said that Praj is witnessing strong growth in its key segment Bio Energy 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. Praj is a key beneficiary of multiple tailwinds provided by the bio-economic revolution, giving strong growth & revenue visibility in coming quarters, it further added.

CCL Products: The brokerage has a target price of  <span class='webrupee'>₹</span>565 for the stock indicating an upside of 38 percent. Axis remains positive on CCL Products given its expertise in customized blend, cost-efficient business model, largest manufacturer and exporter of instant coffee, doubling of Vietnam capacity, capacity additions in value-added products, foray into high margin branded retail business and recent correction of 15 percent in the stock price post Russia- Ukraine war provides further comfort as the business has normalized in Russia.

CCL Products: The brokerage has a target price of 565 for the stock indicating an upside of 38 percent. Axis remains positive on CCL Products given its expertise in customized blend, cost-efficient business model, largest manufacturer and exporter of instant coffee, doubling of Vietnam capacity, capacity additions in value-added products, foray into high margin branded retail business and recent correction of 15 percent in the stock price post Russia- Ukraine war provides further comfort as the business has normalized in Russia.

First Published: 05 May 2022, 01:48 PM IST