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Last Updated : Nov 15, 2019 09:58 AM IST | Source:

Do you have risk appetite? These 11 midcaps can potentially double by 2024

Axis Capital is of the view that midcap valuations are now supportive, as they have corrected sharply and are closer to pre-FY14 levels.

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The Sensex has been zooming—it was at a near-record high of 40,749 on November 8—but the Midcap index is still 20 percent low from its best performance of 18,321 on January 9, 2018.

But midcap is where the action is, say experts. In October 2019, the Nifty Midcap-100 was up 4.9 percent, compared to the Nifty’s rise of 3.5 percent. The Nifty Midcap100 P/E ratio has corrected from 19.8x in Oct’18 to 17.9x currently.

Midcaps now trade at 5 percent discount to largecaps, says experts and select stocks could well turn out to be wealth creators in the next five years.


“In valuation terms, the broader market excluding Nifty (stocks) is more attractive than the Nifty universe. In any recovery of the financial cycle, while major large caps lead the rally, it is the better valued mid and smallcaps that give higher returns in the longer time horizon,” Rahul Jain, Head, Edelweiss Personal Wealth Advisory told Moneycontrol.

“Thus, big wealth creation in a horizon of 2-3 years would be created in the midcaps and small-caps,” he said.

Asutosh K Mishra, Head of the Research, Institutional Equity at Ashika Stock Broking, said large wealth could be created by investing in quality and growth-oriented mid and smallcap stocks. “But, here investors need to be patient along with more vigilant to generate sustain wealth,” he said.

Midcaps generally perform well when GDP growth surprises. The current slowdown is well-entrenched, and the corporate tax rate cut has raised the outlook on potential GDP growth in the country and the market will have to look beyond its usual horizon of one-year.

Midcaps outperformed largecaps significantly between March 2015 and August 2018 (80% return for NSE Midcap), resulting in price outpacing earnings. However, over the last 12 months, the huge gap between prices and earnings is getting reversed, with prices now more in line with earnings expectations.

Axis Capital is of the view that midcap valuations are now supportive as they have corrected sharply and are closer to pre-FY14 levels. “On P/E metric, midcap discount to largecap is now at a 7-year high. On P/B metric, midcap discount to large-cap is now at its 10-year mean (~20% discount to largecap),” it said.

The domestic brokerage picked 11 stocks  that could double by 2024.

It looked at the size (opportunity size or industry dominance) and quality (management, RoCE) and also the forecasting horizon to assess how businesses would fare when the growth likely picks up over FY20-24.

The companies selected have the potential to double over this timeframe given implied FY24 EPS and exit multiples.

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Axis capital 2024

Ashok Leyland

Domestic MHCV industry is going through a cyclical downturn, which, Axis Capital believes, will likely bottom out in FY21. With economic growth recovery, pick-up in private capex cycle and higher freight demand, it expects a strong uptick in MHCV industry volumes over FY21-24E (17% volume CAGR).

Implementation of scrappage policy could lead to upside risks as the population of over 15-year MHCVs would be around 900 k units, which is >3x FY21E industry volumes.

Despite aggression from Tata Motors, the brokerage firm expect AL to maintain its market share at around 34 percent led by product innovations and greater inroads into northern and eastern markets.

Eris Lifesciences

The stock is uniquely positioned as 100% sales are from domestic formulations, with a focus on high-margin Chronic therapies and metro cities. Growth/margin visibility on multiple levels: (1) focus on chronic/ lifestyle therapies, coupled with growth recovery in the acquired Strides’ portfolio leading to improved MR productivity and (2) new launches.

The domestic business trades at 22x-25x on superior return ratios and FCF generation ability. Sales growth has been muted. Growth recovery (execution) can lead to PE rerating from current 19x to 22x with around 15% PAT CAGR over FY19-24E leading to more than doubling of the value of the share.

Ipca Laboratories Ltd

Axis Capital expects IPCA’s EBITDA margin to expand 150-340 bps and PAT to grow 2.5x over FY19-24E, coupled with improvement in fixed asset turnover from 1.9x in FY19 to 2.9x in FY24E on multiple operating leverage drivers from widespread growth led by domestic formulation business, UK business, and higher API sales among others.

Post-USFDA issues and series of remediation, IPCA awaits re-inspection of its key Ratlam API (source for around 90% of ANDA filings) and Pithampur formulation facilities. However, resolution for Silvassa facility seems to be further delayed, given three observations from August 2019 re-inspection.

Mahindra Logistics

Mahindra Logistics (MAHLOG) is a leading player in Indian 3PL/ supply chain management. Unlike most of its peers, who dominate in the automotive sector, it has a diversified pan-India presence across high-growth non-automotive verticals like e-commerce, FMCG, pharma and  engineering.

The brokerage firm expects the stock to more than double over FY20-24E as (a) SCM growth revives FY21 onwards – to be led by 26 percent CAGR in non-M&M SCM (16% overall) and (b) gradual margin expansion on better business mix and warehousing/ distribution logistics focus, aiding 25 percent earnings CAGR.

Security and Intelligence Services India Ltd

SIS has achieved its first milestone of being the number 1 security player in India. It now aims to be the number 1 player in facility management and cash logistics.

Plugging portfolio gaps in key geographies, it has made five acquisitions— Rare Hospitality (FM), SLV (India sec-north), UNIQ (India security– Bengaluru ) Henderson (Singapore security) and P4G (New Zealand security). It maintains the guidance of 18-20 percent organic revenue growth (India security + facility).

The brokerage firms expect earnings to post 30 percent CAGR over FY19-24, cash conversion of more than 50 percent and RoCE improving to 23 percent by FY24 (17% in FY19).


Sharply focused on rural opportunity, Spandana is one of the most profitable (7.2% RoA, 19% RoE) and only MFI to get a rating upgrade after the recent liquidity crisis (A- from ICRA).

The brokerage firm expects Spandana to post over 32 percent AUM CAGR over FY19-23E, with improved RoA of over 8 percent and RoE of 20 percent by FY23 without raising any fresh capital (CAR high at around 37%). At CMP, the stock trades at 2.8x FY20 P/ABV and 18x PE.

Based on estimates, the EPS will show 28 percent CAGR over FY19-23E and the stock has the potential to double over the same period without any need for fresh capital infusion.

Sudarshan Chemical

Sudarshan Chemicals (SCHI) is India’s largest (around 35% market share) and world’s fourth-largest pigment manufacturer, with more than 400 products across organic, inorganic and effect pigments. It addresses requirements across high-growth segments like coatings, plastics and cosmetics apart from relatively matured inks.

The company plans for 40-50 percent capacity expansion (led by HPP and Azo) over the next three to four years (current utilization at around 72%), which will help it scale-up new product launches and few other high-potential molecules, aiding growth. Planned capex (Rs ~5 bn over FY20-22E) can double its revenue over the next three to five years.


Thermax (TMX) plans to double its turnover to Rs 110 billion by 2023 (Axis estimate: Rs 100 billion by FY24). It has consciously shifted its focus on international business (targets 50% of revenue) since the domestic market share of 25-30% has been captured in key product areas (except water where the market share is around 5%).

Focus on exports and international geographies has de-risked Thermax from cyclical risks. The share of exports has increased to 28 percent and international revenue has doubled to 35 percent.

Torrent Power

A turnaround in stranded gas plants will double PAT by FY23E. Cheaper gas prices—near six-year low—and increasing share of renewables warrant grid balancing by gas power projects, with the possibility of government incentives /pooling schemes to re-start some of these projects will aid upside.

Free cash flows are likely to turn positive by FY21E. Major incremental capex incurred by the company, and RE and discom are key areas of growth that investors should watch out for.

Varun Beverages

Varun Beverages (VBL) is a proxy play on the long-term growth story of the complete soft-drinks category in India, with end-to-end execution capabilities and presence across the entire beverage value chain.

The overall opportunity size for VBL stands at Rs 1.2 trillion and is likely to grow at 9.4 percent CAGR over FY19-24. VBL is PepsiCo’s second-largest CSD/NCB franchisee (outside the US) and operates around 80 percent of the Indian market and several international markets.

Tube Investments (TI)

The company aims to achieve revenue growth at 15-17%, which implies a revenue of Rs 100 billion over the next four years. Increase PBT margin to 10 percent (4.7% /7% in FY18/19), with further improvement possibly up to 12 percent will be positive.

Over the years, TI had invested around Rs 10 billion to incubate financial services business and Rs 5 billion to acquire Shanti Gears, increasing its debt level to around Rs 13 billion .

The management unlocked value from TI’s general insurance business by selling 14 percent stake of its 74 percent holding in the business to its JV partner, Mitsui Sumitomo, for Rs 9 billion. The proceeds (Rs 6-7 billion) were used to pay down debt.

Disclaimer: The views and investment tips expressed by investment experts on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

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First Published on Nov 15, 2019 09:58 am
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