BackLupin, Federal Bank, Westlife FoodWorld among Axis Securities' top 7 mid, small-cap picks for March; check full list
Mid and smallcaps have continued their bull run in 2024 YTD, following the surge in 2023. Axis Securities believes that with the recent rise, valuations in these segments have become less favorable compared to largecaps. It has come out with 7 mid and small-cap picks for March.
PremiumMid and smallcaps have continued their bull run in 2024 YTD, following the surge in 2023. Brokerage house Axis Securities believes that with midcaps and smallcaps rebounding strongly recently, valuations in these segments have become less favorable compared to largecaps. This could lead to some short-term corrections in broader markets, with a potential shift in flows towards largecaps. However, the long-term outlook for the broader market remains appealing, indicating ongoing attractiveness despite temporary fluctuations, it added. The brokerage has come out with 7 mid and small-cap picks for March. Let's take a look:
Lupin | Target: ₹1,785 | Upside: 10%
Lupin possesses a robust pipeline of niche products for the US market, many of which face limited competition, providing the company with a first-mover advantage. This is expected to boost Lupin's gross margins by 150 basis points over the next two years. Additionally, the company anticipates further value addition through various avenues such as new product launches like Xyrem, gTolvaptan, Cynocobalamin, Diazepam Gel, Vereniciline, and Bromfenac in the US market. In India, Lupin's business is poised for double-digit growth, supported by an increase in medical representative numbers to 1,000.
Furthermore, there is potential for margin improvement as Lupin's margins currently stand at 13%, below the industry average of 22%. With the API industry experiencing a demand resurgence, Lupin's API business is also expected to witness an uptick. Moreover, the macroeconomic environment is conducive to the industry, marked by falling raw material prices and low logistics and fuel costs, which bodes well for Lupin's future prospects.
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Federal Bank | Target: ₹180 | Upside 20%
Despite the rise in the proportion of new, higher-yielding products, the bank continues to face margin pressures due to increasing Cost of Funds (CoF). In the near term, these pressures are expected to persist, while yield enhancement is anticipated to be gradual. However, the bank aims to improve Return on Assets (ROA) by focusing on delayed Net Interest Margin (NIM) recovery, bolstering core fee income, enhancing efficiency, and maintaining steady credit quality. Over the next 18-24 months, the bank targets an ROA of 1.5%.
While cost ratios are projected to remain elevated due to pension provisions, the bank is striving to achieve an ROA of approximately 1.4% by augmenting fee income and managing credit costs efficiently in the absence of NIM recovery. Overall, we anticipate the bank to sustain an ROA/RoE at 1.3-1.4%/14-15% from FY24-26E, leveraging its strengths including sustained credit growth, a robust liability franchise, improving fee income, gradually declining cost ratios, and stable credit costs supported by healthy asset quality metrics.
CreditAccess Grameen | Target: ₹1,970 | Upside: 34%
Despite its premium valuations, Axis favors CAGrameen among microfinanciers due to its consistent outperformance relative to peers across various parameters. The company's strong performance justifies its premium valuation compared to its industry counterparts. With ample capitalisation, improving operational efficiency, a resilient margin profile despite offering the lowest rates in the industry, and robust asset quality, CAGrameen is well-positioned to sustain its growth momentum. It anticipates the company to maintain a healthy Return on Assets (ROA) and Return on Equity (RoE) of 5.5%+ and 24-25%, respectively, over the medium term. Consequently, Axis has revised its earnings estimates upward by 3-5% for FY24-26E.
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JTL Industries | Target: ₹300 | Upside: 16%
Following robust sales volumes in Q3FY24, it is anticipated that FY24 sales volume will reach approximately 3.5 lakh tonnes, marking a 45% year-on-year increase, surpassing the earlier growth guidance of 30% YoY, said the brokerage. In Q4FY23, the share of Value-Added Products (VAP) is expected to rebound to 40% (from approximately 20% in Q3FY24), reaching around 35% for FY24, as maintenance of the galvanizing pot concludes, it added. The expansion from 0.56 MT to 1 MT remains on schedule and is slated for completion before FY25. Additionally, Directly Formed Tubes (DFT) facilities, contributing 2 lakh tonnes out of the total incremental capacity of 4 lakh tonnes, are set to commence operations from Q1FY25. Axis maintains a BUY rating on the stock and values JTL at 25x of our FY26 EPS to establish its target price of ₹300/share by Mar’25, suggesting an upside potential of 16% from the current market price.
CIE Automotive | Target: ₹565 | Upside: 28%
Axis is bullish on the company's growth narrative, which is underpinned by several factors: (a) A focus on operational excellence and the development of an electric vehicle (EV) Product portfolio, (b) A robust order book with a tilt toward EVs in Europe alongside consistent growth in Indian and Mexican operations, (c) Strong capabilities in generating free cash flow (FCF), and (d) Capacity enhancements to meet the rising demand from Indian Original Equipment Manufacturers (OEMs). Management anticipates a gradual recovery in the growth trajectory of European operations from the second half of CY24.
With these factors in consideration, it projects a consolidated Revenue/EBITDA/PAT Compound Annual Growth Rate (CAGR) of 8.2%/10.6%/15.8% over CY23-26E. Axis' positive outlook on CIEAUTO stems from its robust execution capabilities, leading it to maintain a BUY rating on the company. It evaluates the Indian operations at a forward PE multiple of 24x for CY25 EPS, supported by overall industry growth and demand-driven capacity expansions, while the European operations are valued at 10x on moderate earnings.
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Westlife FoodWorld | Target: ₹930 | Upside: 24%
Axis continues to hold a favorable view on WLDL. Its confidence in the company's promising future is bolstered by its impressive track record of executing Revenue/EBITDA growth, which stood at 17%/51% over FY16-20. This growth was primarily fueled by new product introductions and cost optimisation initiatives, resulting in annual cost reductions of 100-200 basis points. Looking ahead, it anticipates WLDL to sustain robust Revenue/EBITDA growth, with a projected CAGR of 28%/43% over FY22-25E (Post Ind. AS), driven by the aforementioned growth drivers.
PNC Infratech | Target: ₹510 | Upside: 19%
The road sector is experiencing promising growth, driven by increased government emphasis on infrastructure investment. Additionally, the company's expansion into railways presents favorable prospects, reducing reliance on road projects. Q3FY24 showcased solid operational performance for the company, with Revenue/EBITDA/PAT growth of 11%/15%/17%, aligning closely with expectations. With a robust and diversified order book, a healthy pipeline for bidding, new project inflows, and emerging opportunities in construction, coupled with the company's efficient execution and strong financial standing, it anticipates PNCIL to achieve a Revenue/EBITDA/APAT CAGR of 11%/11%/12% respectively over FY23-FY26E.
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.
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