Indian Hotels, Cello World, Sobha and more: MOSL picks 10 midcap stocks to buy ahead of general election outcome

In May, the Indian market turned negative after three consecutive months of gains. This decline is attributed to rising US bond yields, ongoing foreign investor outflows, and investor nervousness due to global uncertainties amid the Lok Sabha elections. Despite this, brokerage firm Motilal Oswal maintains a positive outlook on the market, suggesting that any dip presents a buying opportunity for long-term investors. 

The firm has identified 10 mid-cap stocks for investors to consider buying before the election results. Let's take a look:

Indian Hotels: The brokerage has a target price of ₹680 for the stock, indicating a 19 percent potential upside. MOSL expects the strong momentum to continue in FY25, led by 1)an increase in ARR; 2) sustaining higher occupancy levels led by favourable demand-supply dynamics; 3) strong room addition pipeline till FY28 in both owned/leased (2,779 rooms) and management hotels (10,174); 4) higher income from management contracts; and 5) value unlocking by scaling up reimagined and new brands. In FY25, Indian Hotel (IH) expects to sustain double-digit revenue growth, with new businesses expected to grow 30%. It targets to open ~25 hotels in FY25, added the brokerage.

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Godrej Properties: The brokerage has a target price of ₹3,000 for the stock, indicating a 5 percent potential upside. GPL delivered an exceptional performance with 84% YoY growth in bookings, aided by the strong positive reception of new launches in both the NCR and Mumbai. Management remains confident of sustaining consistent growth of 20% over the medium term. The company is targeting to launch new projects worth ₹30,000 crore with new launches continuing to drive sales in FY25, said MOSL. It believes GPL will continue to surprise on growth, cash flows, and margins, given its strong pipeline and healthy realisations, which have been the key investor concerns.

Sobha: 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, said MOSL. The company has outlined 15msf of launches (period), of which 3-4 msf was launched in 3QFY24 and the remaining will be launched over the next one and a half years. Through its vast land reserves of 200msf, 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 added. MOSL believes Sobha’s focus on sustainable growth 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 INR100b through FY 23-26.

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JK Cement: JK Cement has surprised through its exceptional project executions and marketing strategies. It expanded its dealership network and through robust marketing campaigns tapped into newer markets in the central region, stated the brokerage. It has demonstrated superior execution capabilities by achieving a capacity utilisation of 90% within one year of commissioning its new plant at Panna, which helped the company deliver higher-than-industry volume growth. Considering JKCE’s long-term and well-planned growth strategy, higher capacity utilisation, as well as improving regional mix. It estimates its RoE/RoCE to improve to 19%/12% in FY26 from 9.5%/8.0% in FY23, supported by higher margins and a higher asset turnover ratio.

KEI Industries: The brokerage has a target price of ₹5,000 for the stock, indicating a 17.6 percent upside potential. As per the brokerage, the cable and wires market size is ₹75,000 crore and is likely to report a 15% CAGR over the next few years. KEI recently added EV charging cables to its portfolio & plans to add new geographies/products going forward. The company will target 20% growth for dealers and distributors’ network and the focus will be on growing higher in South and East markets, it noted. MOSL expects EBITDA and EPS to post a CAGR of 27% and 25% over FY24-26E, respectively. It estimates an FCF outflow of ₹180 crore given the company’s aggressive expansion plan.

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Cello World: The brokerage has a target price of ₹1,100 for the stock, indicating a 19 percent upside potential. CELLO has been one of the leading players across its product categories, boasting a strong brand reputation and distribution reach. With its strong manufacturing background and brand equity, it has been able to scale up its new businesses and compete with the market leaders, said MOSL. The consumer glassware segment will be a key growth segment for the company and it believes CELLO will be able to surpass the market leader in the segment on the back of operationalization of its new glassware capacity. CELLO aims to improve margins to 26% by FY26. MOSL estimates CELLO to deliver a CAGR of 18%/23%/25% in revenue/EBITDA/adj. PAT over FY 23-26.

PNB Housing Finance: The brokerage has a target price of ₹1,015 for the stock, indicating a 36.5 percent upside potential. PNBHF has levers for NIM improvement through a potential decline in borrowing costs. Asset quality improvement has made it eligible for NHB borrowings, and the credit rating upgrade to AA+ will provide it with even better access to primary debt markets, stated the brokerage. MOSL continues to believe that the management’s ability to deliver an improvement in the RoA profile is predicated on the back of a) visibility of healthy retail loan CAGR trajectory of 17%+ from FY25 onward, b) NIM improvement through levers on CoB, and c) normalisation to steady-state credit costs of 25 bps. It expects PNBHF to deliver a CAGR of 17%/23% in AUM/PAT over FY24- FY26 and 2.4%/13% RoA/RoE in FY26.

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Lemon Tree: The brokerage has a target price of ₹170 for the stock, indicating a 19.5 percent upside potential. 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. 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: 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, noted MOSL. Medanta has entered into a JV with DLF to develop a 400-bed super specialty hospital in Delhi. After the commercialization of the facility, the bed count would increase to 2,400 in NCR. 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 ₹4360 crore over FY 24-26.

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Kirloskar Oil Engines: The brokerage has a target price of ₹1,220 for the stock, indicating a 1.2 percent upside. MOSL expects KOEL also to continue to benefit from strong demand across segments. We expect a revenue/PAT CAGR of 18%/33% over FY24-26 and 230 bps improvement in margins to build in operating leverage benefits. It is positive about the company on the back of improved product mix, higher export sales, improving margins in B2C operations, and the promising performance of Arka Fincap, which presents ample opportunities for monetization.

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 taking any investment decisions.