From Indian Hotels to IIFL Finance: Motilal Oswal lists 9 top midcap investment ideas for April

After two straight months of decline, the broader market index Nifty Midcap jumped 3.5 percent in April so far. Meanwhile, it fell around 0.3 percent in March as well as in February.

Presently, India finds itself amidst a favourable convergence of macro and micro factors, including subdued inflation rates, stable crude oil prices, decreasing 10-year G-sec yields, a steady currency, and robust corporate earnings. In the short term, market movements will likely be influenced by two main factors: 

• The results of the upcoming Lok Sabha elections scheduled for April/May 2024. 
• The timing and extent of interest rate adjustments, both domestically and internationally.

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Amid this backdrop, brokerage house Motilal Oswal has listed 9 midcap stock picks you can buy this month (April). Let's take a look.

Indian Hotels: MOSL noted that the company has witnessed a healthy demand in January 2024, in line with that of 3QFY24. Management expects a healthy performance in 4QFY24, and it has guided for double-digit revenue growth in FY25. New and reimagined businesses are expected to grow 30% p.a. going ahead. The company is targeting a revenue of ₹600 crore/ ₹1000 crore from Ginger/TajSATs in FY25. 

Overall macro tailwinds are strong and ARR is expected to increase going ahead. Indian Hotels is on track to achieve ₹450 crore of management fees in FY24. MOSL expects the strong momentum to continue in 4QFY24/FY25, led by: 

• An increase in ARR, sustaining higher occupancy levels, strong room addition pipeline till CY27 in both owned/leased (2,641 rooms) and management hotels (8,473). 
• Higher income from management contracts; and value unlocking by scaling up reimagined and new brands.

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Godrej Properties: MOSL believes GPL will surprise on growth, cash flows, and margins, given its strong pipeline and healthy realisations, which have been the key investor concerns. It expects the company to clock bookings of ₹19,500 crore. The company comfortably exceeds its full-year guidance of ₹14,000 crore and is also on track to deliver 12.5 msf in FY24. Over the medium term, it is confident of sustaining 15-20% YoY growth. The net debt/equity ratio stood at 0.72x, and management maintained its guidance of keeping it between 0.5x and 1x of equity in the near term, it added.

Sobha Developers: MOSL believes Sobha’s focus on sustainable growth (revenue growth, healthy profitability, and steady cash flows) will put the company on a long-term growth path. It expects the company to scale up launches to 9-10 msf by FY26, which will lead to a 25% CAGR in pre-sales to ₹100b through FY 23-26. 

Sobha is set to outperform in terms of growth given its focus on unlocking its vast land reserve and exploring external growth opportunities through its healthy balance sheet. Through its vast land reserves of ~200 msf, SOBHA aims to launch 30- 40 msf of projects over the next three to four years. With leverage now at 0.6x, the management aims to scale up its operations by launching more projects on its existing land parcels, it noted.

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Dalmia Bharat: MOSL anticipates Dalmia's cement prices in key markets have likely hit their bottom and could stabilise or rise in the future. Dalmia has restated its ambitious long-term capacity goals, aiming for 75 mtpa by FY27 and 110-130 mtpa by FY31. With a strong presence in the East and South regions and ongoing capacity expansions, the company is well-placed to enhance its market position. 

Despite significant expansion, Dalmia maintains low leverage, with a net debt-to-EBITDA ratio of 0.16x as of Dec'23. Strong volume growth, averaging around 15% CAGR from FY14 to FY24E, and improved profitability, reflected in a 20% EBITDA CAGR over the same period, support this favourable financial position. 

Additionally, divesting non-core assets has helped maintain favourable financial metrics. Dalmia's organic expansion plans remain on track, aiming to add clinker and cement capacities of 4.9mtpa each through greenfield and brownfield expansions by FY25, reaching 49.5mtpa in total.

IIFL Finance: According to MOSL, IIFL has evolved into a franchise boasting a robust distribution network, a prominent presence in co-lending, and advanced digital loan origination and underwriting capabilities. The company anticipates a stable Net Interest Margin (NIM) trajectory, supported by an anticipated decline in Cost of Funds (CoF) across its three entities and a shift in the product mix towards higher-yielding products. It expects credit costs to remain around 2%. 

Moreover, management foresees an uptick in demand for urban affordable housing in Metro and Tier 1 cities in the coming quarters. Leveraging fintech partnerships, the company aims to achieve approximately 25% Asset Under Management (AUM) CAGR from FY23 to FY26E. IIFL can see further re-rating as investors get more confidence in its core retail business and MOsL expects a 27% PAT CAGR over FY23-26E and RoE of over 20% in the medium term.

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Cello World: Cello, renowned for its strong pan-India brand recognition, boasts a diverse product portfolio comprising 15,841 SKUs and a robust distribution network encompassing over 3,300 distributors and 1.26 lakh retailers. This extensive network facilitates both the expansion of existing product categories and the rapid scaling up of new ones, said MOSL. The company prioritises meeting evolving consumer needs by capitalising on its experience and fostering innovation. 

With a commitment to innovation evident in the introduction of new product ranges across various categories, Cello continually strives to adapt to changing market demands, it added. In response to escalating demand and to reduce dependence on glassware imports, Cello is investing in a new glassware plant capable of producing 20,000 MTPA in Rajasthan. The overall total addressable market (TAM) of Cello is expected to record 13% CAGR over FY23-27 to ₹1,22,900 crore, predicted the brokerage.

PNB Housing Finance: MOSL highlights PNB Housing Finance's strategic shift towards the retail segment, evident in the significant reduction of corporate loans in its overall loan mix from around 21% in March 2020 to approximately 4% in December 2023. Projections suggest a robust retail loan CAGR of about 17% from FY24 to FY26. Additionally, PNBHF has received credit rating upgrades from all major agencies (CRAs) - India Ratings, ICRA, and CARE - to AA+ within the last three months. 

The company's focus on affordable housing and emerging verticals is expected to enhance its product mix, thereby offsetting any adverse impact on its Net Interest Margin (NIM). MOSL anticipates PNBHF to achieve a healthy 18% CAGR in Assets Under Management (AUM) and 26% CAGR in Profit After Tax (PAT) over FY 24-26, with a Return on Assets (RoA) and Return on Equity (RoE) of 2.4% and 13.0%, respectively, by FY26.

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Lemon Tree: Lemon Tree has a strong pipeline of 3,354 managed rooms, which are expected to become operational by FY27, taking the share of managed rooms to 55%. Aurika Sky City Mumbai, which is positioned as an upper upscale hotel, will be a key beneficiary of the trickling down of demand from the luxury segment. The hotel is expected to contribute to 21%/23% of consolidated revenue/EBITDA by FY26. 

The company is expected to benefit from the changing dynamics in its key markets such as NCR and Mumbai due to rising demand in these cities and slower supply. MOSL believes the company is set to benefit significantly from the sectoral tailwinds and emerge as a larger and stronger player. It expects revenue/EBITDA/Adj. PAT CAGR of 21%/22%/38% over FY23-26 and improve RoE to 22% by FY26 from 14% in FY23

Global Health: Medanta remains well poised to deliver consistent growth in earnings, aided by the addition of beds at existing hospitals, commissioning of new hospitals, and addition of medical talent, said the brokerage. It expects a 14% sales CAGR in healthcare services to ₹4,360 crore over FY 24-26.

"The company is focusing on increasing its capacity in north and central India through organic/inorganic opportunities as it wants to deepen its presence in the underpenetrated markets. It aims to enhance profitability by augmenting patient volume by adding new medical indications, expanding capacity, and leveraging technological advancements. The company plans to add 100 beds at Gurgaon, 300-350 beds at Lucknow, 150-300 beds at Patna, and 300-550 beds at Noida over FY 24-25," said the brokerage.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.