The road ahead for the market is bumpy and a lot will depend on the course of coronavirus pandemic. Moreover, global cues and measures of governments and central banks will remain important factors for the market.
The Indian market continues to remain volatile following global cues. The sentiment is fragile as there are concerns that rising cases of COVID-19 in India can trigger a fresh lockdown.
The road ahead for the market is bumpy and a lot will depend on the course of coronavirus pandemic. Moreover, global cues and measures of governments and central banks will remain important triggers for the market.
Sensex has seen over 500 points rise and fall quite a few times in the last few months and such volatility has started to appear normal these days.
During such uncertain times, a prudent, stock-specific approach is important to maximise the gains and minimise the risk.
While analysts advise going for bluechip stocks that are cash-rich, have brand value, bigger market share and leadership qualities, there are pockets of opportunities in the midcap space too.
"We need to be stock-specific in mid and small-caps and consider businesses available at attractive prices and stable outlook. Stocks in segments like chemical, agro, pharma, IT and exports will do better in this transition," Vinod Nair, Head of Research at Geojit Financial Services.
Here are 12 midcap stocks that analysts have suggested from various sectors with one-year horizon. Take a look:
Analyst: Siddharth Khemka, Head – Retail Research, Motilal Oswal Financial Services
Tata Group has a clear focus on leveraging its brand and participating in India’s consumption story of Rs 30 lakh crore, which resulted in the merger of Tata Chemicals’ Consumer business with Tata Global Beverages creating Tata Consumer Ltd.
The merger offers multiple synergies including higher outlet coverage, focused new product development, stronger cash flow generation, and scale efficiencies.
"We are positive on Tata Consumer given its strong balance sheet, robust FCF generation and excellent management quality. Given the resilient nature of its portfolio, we expect revenue/EBITDA/PAT CAGR at 9 percent/14 percent/19 percent, respectively, over FY20-FY22E," said the analyst.
Strong exit growth in FY20 coupled with healthy deal wins reiterates our confidence that LTI could be one of the few outliers reporting revenue/earnings growth in FY21.
The company’s twisted seasonality (better second half) should also help it dodge the peak COVID-19 impact to an extent.
LTI’s recent client addition across buckets was the strongest and broad-based against comparable prior periods. It has recently added several marquee logos (e.g. Standard Chartered). Industry-leading ‘growth’ plus prudent capital allocation should defend its rich multiples.
The analyst expects LTI to be a key beneficiary of the accelerated digital adoption in the post-COVID-19 world.
The company’s execution over the last five years has been par excellence, with the lifestyle segment being the largest branded apparel player and its acquisition of Pantaloons.
As casualization is emerging as the new trend, the company is fully prepared to increase its share. The analyst highlighted the company is also the largest mask seller in the market. The company has remained a dominant player in the apparel industry with a strong parentage, ensuring bank credit facilities would offer the company adequate support to weather the storm better than competitors.
Aditya Birla Fashion and Retail seeks to raise Rs 1,000 crore through a rights issue, with a commitment of subscription from promoters (in case not fully subscribed).
"This should save Rs 100 crore in interest cost annually and enhance the company’s liquidity position. We expect a revival in FY22E, with EBITDA of Rs 630 crore, 35 percent growth over FY20," said the analyst.
The growth in FY20 is completely attributable to Morbi, where the overnight shift to gas from dirtier fuelled to the huge demand boost.
"We believe that industrial volumes (further supported by NGT reforms in India) would be a clear winner for long-term growth. With an increasing number of CNG stations and focus on reducing vehicular pollution, penetration in the CNG segment is expected to increase," said the analyst.
Gujarat Gas has a huge advantage of volume boost from the NGT’s stringent directives, which should drive volume CAGR of nearly 10 percent over the medium-term on the highest volume base among its peers.
"We are positive due to the best RoE profile of nearly 24-26 percent and expected FCF generation of nearly Rs 2,130 crore over the next 2 years (nearly 11 percent of its current market cap)," said the analyst.
Tractor segment is witnessing decent demand on the back of normal rainfall expected this year and good Rabi harvest. Further, with the government’s stimulus package aimed towards providing support to the rural economy and MSMEs, demand for tractors and pre-owned vehicles is set to rise.
This would benefit M&M Finance as it has a large exposure to the rural market. At the same time, liquidity and collections would remain the key focus area for the company, thus managing balance sheet stress.
"Over the next two years, MMFS would deliver an about 2 percent loan CAGR, while credit cost would rise to 4 percent in FY21 and 3.5 percent in FY22 from 2.8 percent in FY20E. Margins may improve modestly as the company would benefit from a benign interest rate environment," said the analyst.
Brokerage firm: Anand Rathi
The company's management expects demand to pick up in-line with improving utilisation level of key industries such as autos and construction.
Management is confident of a steady margin ahead, focusing on operating efficiency, cost control, launches of products in ceramics moving out of the loss-suffering Foskor Zirconia this year.
Abrasives will continue to be constrained until manufacturing picks up. Ceramics would add to healthy growth because of good demand in Australia and in metallised cylinders.
With its focus on operating efficiency, cost-control, launches of products in ceramics and quitting the loss-suffering Foskor Zirconia this year, management is confident of steady margins ahead.
"We have raised earnings estimates with a moderate increase in revenues and higher EBITDA margin for FY21/22E. We upgrade the stock to a 'buy' with a revised target price of Rs 303 (22 times FY22e)," said the brokerage.
On the product filing front, Cipla has filed 259 ANDAs (Abbreviated New Drug Application) with the USFDA cumulatively (FY20) with 175 of them already approved and 22 tentative approvals. The company currently spends 7-8 percent of revenues on R&D.
In the domestic market, Cipla remains among the top five players, due to a complete range of product offerings, which covers almost all therapies, and is built on a network of nearly 7,500 medical representatives (MRs) covering a doctor base of nearly 5,00,000.
"We believe with healthy earnings growth and core ROCE expansion over FY20-22E, valuations are likely to witness re-rating," said the brokerage.
The dominance in key APIs (paracetamol, ibuprofen, metformin) would help Granules emerge a prime beneficiary as the COVID-19 outbreak has led to a surge in demand for such drugs.
Granules is likely to retain strong traction for the next couple of years driven by formulations and the healthy contribution from new capacities.
"We expect nearly 25 percent and 23 percent revenue/PAT CAGRs over FY20-22. At the current market price, the stock trades at 9 times FY22E EPS of Rs 20," said the brokerage.
About 38 percent of promoters’ holdings have been pledged which the brokerage sees as a risk for the stock. An increase in R&D spend and adverse currency movements can also dent the growth numbers of the company.
The strong order book of Rs 3,300 crore, including Rs 730 crore of EHV and Rs 1,640 crore exports, diversified customers and healthy balance sheets are positives.
The Rs 150 crore order for 400kVA cables (EHV) now places KEI among the world’s top manufacturer. The recent fundraising (Rs 500 crore) has helped repay debt and is good for future CAPEX.
"We remain positive on KEI and retain our 'buy' rating for its leading position in cables, healthy order book, diversified customers and better balance sheet," said the brokerage.
Analyst: Amarjeet Maurya, AVP - Mid-Caps, Angel Broking
Radico Khaitan (RKL) is a leading manufacturer of Indian-made foreign liquor (IMFL). It has a strong pan-India presence with growing sales in the premium brands like Magic Moments Vodka, 8PM Premium Black Whisky, etc.
Going forward, we expect RKL to report healthy profitability mainly due to strong sales growth in premium product segment (brand extension and launches in new states) and reduction in interest cost," said the analyst.
Swaraj Engines is engaged in the business of manufacturing diesel engines and hi-tech engine components.
"Diesel engines are specifically designed for tractor applications. Going forward, we expect a recovery in tractor industry (due to robust Rabi crop production, hike in MSP and the forecast of a normal monsoon) will benefit players like Swaraj Engines," said the analyst.
Over the last two years, the company has outperformed TTK Prestige (market leader) in terms of sales growth nearly 13 percent against about 4 percent in cookers and cookware segments.
Cooking gas (LPG) penetration has increased from 56 percent in FY2014 to 80 percent currently, which would drive higher growth for cookers and cookware compared to the past.
"Going forward, we expect the company to report healthy top-line and bottom-line growth on the back of government initiatives, new product launches, strong brand name and wide distribution network," said the analyst.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.