Domestic brokerage firm Religare Broking has selected four midcap stocks from the information technology (IT), cement, and fast-moving consumer goods (FMCG) sectors, which it believes, have the potential to perform and earn a return in the range of 16-21 per cent in the next 9-12 months.
On FMCG, the brokerage says that the sector has struggled on weak rural demand, however, it has seen improvements in volumes. ‘’Raw material which impacted profits is showing some sign of easing and ahead it would translate to better profitability,'' said Religare Broking. FMCG companies are expected to see volume led growth on capex, strong brand recall, and importantly rural catching up pace, according to the brokerage.
The four stock picks by the brokerage in the midcap segment are Mphasis, Jyothi Labs, CCP Products, and Nuvoco Vistas Corporation.
1.Mphasis:
At a current market price (CMP) of ₹2,442, Religare has initiated a ‘buy’ rating on the stock and sees a potential upside of 21.2 per cent at a target price of ₹2,960 in the next 9-12 months. The IT solutions provider commands a market capitalisation of ₹46,034 crore and earns strong revenue from US and banking clients.
Despite the macro challenges the IT sector is facing for the near term, we believe Mphasis strategy of investing in right growth areas such as new generation technology, partnering with companies for technology and adhering to customer centric approach will aid growth for the company,'' said Religare Broking.
‘’Also, management's optimistic view on margin range because of improving utilizations and gaining large deals would support growth. We have estimated its revenue/EBIT to grow at a 15 per cent & 19 per cent compound annual growth rate (CAGR) over FY23-25,'' added the brokerage.
Mphasis aims to drive growth by introducing products which would help in transformation and gain more clients. Their approach is to innovate products and solutions which would include newer technologies such as artificial intelligence (AI), machine learning (ML), cyber security, etc. The company recently launched Mphasis.ai and partnered with Kore.ai and Databricks.
The brokerage has seen buying interest from investors in IT stocks in the past couple of weeks as the companies had announced signing of large and mega deals because of which, the valuation seems attractive.
‘’In the near future, companies are focusing on cloud, digitalization, AI, machine learning (ML), cyber security, etc. which will be able to aid strong growth,'' said Religare Broking.
2.Nuvoco Vistas Corporation:
At a CMP of ₹381, Religare has initiated a ‘buy’ rating on the stock and sees a potential upside of 19.5 per cent at a target price of ₹455 in the next 9-12 months. India's fifth-largest cement group commands a market capitalisation of ₹13,609 crore and is one of the leading players in East India in terms of capacity.
Nuvoco Vistas has continuously added capacity in the past and now it has reached 23.8MnTPA. Going ahead as well the company plans to expand its capacity by 1.2MTPA in FY24 and take its total capacity to 25MTPA, along with other brownfield expansions in Nimbol, Bhiwani, Sonadih Siding and Jaspur Siding.
‘’On the profit front, its EBITDA/ton is likely to improve from ₹644/ton in FY23 to ₹826/ton by FY25E, driven by improving product mix and utilization level as well as some moderation in raw material prices. We estimate its revenue/EBITDA to grow by 11.4 per cent/22.5 per cent over FY23-25,'' said Religare Broking.
For the cement sector, the brokerage claims that overall growth is expected to be driven by government push towards infrastructure housing and strong demand for real-estate. Also, declining raw material cost will aid in margin improvement. ‘’We believe due to monsoon, Q2FY24 may remain impacted however from a medium to long term perspective it is a win-win situation for cement companies,'' said Religare Broking.
3.Jyothi Labs Ltd:
At a CMP of ₹367, Religare has initiated a ‘buy’ rating on the stock and sees a potential upside of 16.5 per cent at a target price of ₹428 in the next 9-12 months. India's leading FMCG company commands a market capitalisation of ₹13,485 crore and is an undisputed leader of Ujala brand with market share of around 84 per cent.
It ranks second in terms of value for Pril Liquids and Exo Dishwash and second in terms of volume for maxo mosquito repellent coil. Further, the company has also innovated product brands such as Margo, Henko, T-Shine which is gaining traction.
‘’Going ahead, the management aims for volume led growth and at the same time maintain margins. They want to invest behind brand building initiatives, manufacturing and strengthen distribution reach in rural areas as well as grow digitally. We are optimistic on the growth prospect of the company and estimate its Revenue/EBITDA to grow at 15 per cent/37 per cent CAGR over FY23-25,'' said Religare Broking.
4.CCL Products:
At a CMP of ₹644, Religare has initiated a ‘buy’ rating on the stock and sees a potential upside of 20.4 per cent at a target price of ₹776 in the next 9-12 months. It is one of the largest instant coffee makers in India and globally commands a market capitalisation of ₹8,566 crore.
CCL Products has taken a step forward for its vision to be a FMCG player and in July 2022, it ventured into the frozen foods category with launch of its plant-based brand ‘Continental Greenbird’ in India. The company launched 100 per cent vegetarian products like chicken such as nuggets, chicken like sausages, chicken like kababs and keema.
‘’Stable financials, brand recall value and its relationship with customers globally and in India in the B2B segment leads to repetitive business that is helping growth. We remain positive on the growth prospect of the company and have estimated its revenue/EBITDA/PAT to grow at 25 per cent/29 per cent/31 per cent CAGR over FY23-25,'' said Religare Broking.
This article taken by livemint.com
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