With the benchmark Nifty50 going past the 18,700 mark for the first time in 2023, the buoyancy is visible in broader markets as well. On June 8 morning, the Nifty Midcap 100 hit a fresh record high of 34,534.
In the quarter gone by, most midcap companies saw significant margin expansion sequentially as high-cost raw material inventory was liquidated and commodity prices softened. Analysts expect the trend to sustain.
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"The coverage of Jefferies' midcap companies (excluding UPL) experienced a strong quarter-on-quarter rebound, with a 120 basis points increase in margins leading to a 35 percent QoQ growth in profit after tax," the foreign broking firm said in June 7 report.
One basis point is one-hundredth of a percentage point.
The report said the key performers in Q4 were Amber Enterprises, Kajaria Ceramics and Supreme Industries.
Amber Enterprises' net profit grew 82 percent year-on-year to Rs 108 crore on the back of a strong components business. Kajaria Ceramics switched a part of its production to biofuel, the cost of which is half that of natural gas. This has helped the company's operating performance, it said. Supreme Industries' pipes volume growth came in at 37 percent YoY in FY23.
Polycab, too, outperformed peers with all-time high operating margins at 14 percent.
"Companies related to housing and capex revival such as Polycab, Supreme Industries, Finolex Cables and Pidilite posted healthy volume growth," the report said.
Key misses in Q4 were reported by UPL, HEG and Graphite India. While UPL was impacted by declining product prices, idle capacity costs and an unfavourable regional mix, soft graphite electrode demand hit Graphite India and HEG.
Consumer demand softness brought in a weak quarter for companies like Crompton, Vanguard, and Dixon Technologies.
After Q4 numbers, Jefferies has made key earnings per share (EPS) upgrades for Polycab on back of sustained volume growth and margin expansion, and Astral due to revenue accrual from new product categories.
In terms of key picks, Jefferies sees healthy volume traction from the revival in capex and housing. Its picks include Polycab, Supreme Industries and Kajaria Ceramics.
The brokerage is cautious about white-good companies such as Havells and Whirlpool and high-PE stocks like Pidilite and Astral.
Pidilite is trading at a trailing price-to-earnings ratio of 106x and Astral at 116x.
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