Article

5 Midcap Stocks to Buy

03 Apr 2020 Nikita Bhoota

The Indian equity market is falling tremendously from the past one month. The benchmark index Nifty 50 has fallen 23.2% from February 28, 2020 to March 31, 2020 largely due to Covid 19 impact.  Also, midcap space has corrected sharply and is down 35% (Nifty Midcap 50) in the same period.

The Covid 19 epidemic cases are rising in India and has crossed 1,200 mark as per the recent media reports. However, the relief package of Rs.1.7lakh crore by the Government will support the stressed pockets in the economy to some extent. Other than Covid 19, the crude oil war and issues in the banking sector have adversely affected investor confidence.

Investors are liquidating their existing portfolio at loss and are not ready to make any fresh investment, especially into midcap stocks in the fear that the market will fall further. However, the investors should take advantage of such a sharp correction in the midcap stocks. They can accumulate the right midcap stocks as these stocks are trading at attractive valuations. An investor can identify good midcap stocks based on its fundamentals, management and valuations.

For investors ease, 5 paisa has selected the following 5 midcap stocks that can appreciate and give huge returns in the long run.

 Exide Industries

CMP: Rs131
Target: Rs240
Upside: 83% (1 year)            

Exide Industries, a duopoly player, stands to benefit from auto replacement demand recovery, emerging opportunities (solar and e-rickshaws), cost control & minimal capex, and softer lead prices. However, the company will face short term challenges due to the temporary shutdown of manufacturing units and slowdown in the economy due to spread of Covid19. Thus, we see revenue CAGR of 5% over FY19-21E. We expect margins to improve by 120 bps in the same period on lower lead prices and better after market OEM revenue mix. We forecast 9% PAT CAGR over FY19-21E driven by healthy top-line growth (stable replacement demand + recovery in OEM volumes). The stock is currently trading at 11.0x FY21EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY19

10,588

13.3

844

8.7

15.1

FY20E

10,427

14.0

884

10.4

12.6

FY21E

11,592

14.5

1,008

11.9

11.0

Source: 5paisa Research

Ipca Labs

CMP: Rs1,392
Target: Rs1,600
Upside: 15% (1 year)

We are positive on the stocks on account of strong volume growth in domestic, improving sales representative productivity rate and focus on non US markets. The company will continue to focus on pain management (Zerodol accounts for 26% of Ipca’s India formulation sales), derma and other therapies. It would focus on volume growth rather than its peers focus on price growth. It has 7-8 products under clinical trial for the Indian market and would explore opportunities for in-licensing of products. IPCA acquired 35-acre land at Dewas and Noble Explochem plant to expand its API facilities and reduce dependence on others for API and intermediaries. IPCA expects environmental clearance for Dewas facility and plans to commence construction by June FY21E. Thus, we expect revenue CAGR of17.9% over Fy19-21E. We expect margins to improve by 360bps over FY19-21E due to increasing focus in EU markets (high margin market) and operating leverage. We forecast PAT CAGR of 30.9% over FY19-21E. The stock is currently trading at 23.0x FY21EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY19

3,773

18.3

444

35.2

39.5

FY20E

4,541

20.5

628

49.8

27.9

FY21E

5,248

21.9

761

60.4

23.0

Source: 5paisa Research

Quess Corp

CMP: Rs.213
Target: Rs.820
Upside: 285% (1 year)

We are positive on the stock on account of strong financial position, presence of strong promoter group and attractive valuations. The company has not seen any downsizing of temporary headcount by the clients due to spread of Covid 19. Not a single FTE (full-time equivalent) has so far been de-mobilised by clients. In general staffing, clients are retaining headcount in preparation for recovery, while IT staffing is benefitting from ramp-up at captives. The housekeeping business is steady. In staffing as well as FM, tri-partite agreements imply that Quess has on obligation to retain FTEs in the event of down-sizing by clients. However, the early closure of colleges will impact F&B revenues in the short run. We consider the recent correction in the stock to accumulate the stock for the long run. The stock is currently trading at 8.1x FY21EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY19

8,527

5.4%

256

17.3

12.3

FY20E

11,015

6.2%

115

7.8

27.4

FY21E

12,867

6.4%

388

26.2

8.1

Source: 5paisa Research

Deepak Nitrite (DNL)

CMP: Rs.385
Target Price: Rs.570 (1-year)
Upside: 48%

We expect strong topline growth of 29.2% CAGR over FY19-21E driven by growth in the Basic Chemicals and the Fine & Specialty segments. Downstream derivatives of phenol and acetone should start contributing to growth from FY21E. The company continues to invest in R&D, and efforts are underway to launch new fine & specialty chemicals that are agrochemical and pharma intermediates. Further, Management expects DNL to benefit from the unfortunate outbreak of the novel coronavirus, which will likely accelerate the search for non-China suppliers. EBITDA margins are expected to improve 450 bps over FY19-21E due to continuous strength in basic chemicals, Fine and Specialty chemical segment and products business. We see PAT CAGR of 70.2% over FY19-21E. The stock is trades at 10.5x FY21E EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY19

2,699

15.3

173

12.7

30.4

FY20E

4,270

23.0

560

41.1

9.4

FY21E

4,505

19.8

501

36.7

10.5

Source: 5paisa Research

Kansai Nerolac (KNPL)

CMP: Rs.387
Target Price: Rs.520 (1-year)
Upside: 34%

Kansai Nerolac (KNPL), the Indian subsidiary of Kansai Japan, with a higher industrial share than peers, will see 5% revenue CAGR over FY19-21E supported by decorative paint segment. Decorative paint demand would be driven by repainting demand and rising dealer networks in tier II and tier III cities. However, we believe industrial segment performance would largely depend on recovery of automotive industry. But, a shift in focus towards other industrial categories like coil coating & functional powder coatings would help drive segment performance. We expect EBITDA CAGR of 11.6% over FY19-21E fall in raw material price. We expect PAT CAGR of 14.9% over FY19-21E. The stock trades at 34.9x FY21E EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY19

5,424

13.9

452

8.4

46.1

FY20E

5,431

15.4

536

9.9

38.9

FY21E

5,999

15.6

597

11.1

34.9

Source: 5paisa Research

 

 

 

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5 Midcap Stocks to Buy

03 Apr 2020 Nikita Bhoota

The Indian equity market is falling tremendously from the past one month. The benchmark index Nifty 50 has fallen 23.2% from February 28, 2020 to March 31, 2020 largely due to Covid 19 impact.  Also, midcap space has corrected sharply and is down 35% (Nifty Midcap 50) in the same period.

The Covid 19 epidemic cases are rising in India and has crossed 1,200 mark as per the recent media reports. However, the relief package of Rs.1.7lakh crore by the Government will support the stressed pockets in the economy to some extent. Other than Covid 19, the crude oil war and issues in the banking sector have adversely affected investor confidence.

Investors are liquidating their existing portfolio at loss and are not ready to make any fresh investment, especially into midcap stocks in the fear that the market will fall further. However, the investors should take advantage of such a sharp correction in the midcap stocks. They can accumulate the right midcap stocks as these stocks are trading at attractive valuations. An investor can identify good midcap stocks based on its fundamentals, management and valuations.

For investors ease, 5 paisa has selected the following 5 midcap stocks that can appreciate and give huge returns in the long run.

 Exide Industries

CMP: Rs131
Target: Rs240
Upside: 83% (1 year)            

Exide Industries, a duopoly player, stands to benefit from auto replacement demand recovery, emerging opportunities (solar and e-rickshaws), cost control & minimal capex, and softer lead prices. However, the company will face short term challenges due to the temporary shutdown of manufacturing units and slowdown in the economy due to spread of Covid19. Thus, we see revenue CAGR of 5% over FY19-21E. We expect margins to improve by 120 bps in the same period on lower lead prices and better after market OEM revenue mix. We forecast 9% PAT CAGR over FY19-21E driven by healthy top-line growth (stable replacement demand + recovery in OEM volumes). The stock is currently trading at 11.0x FY21EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY19

10,588

13.3

844

8.7

15.1

FY20E

10,427

14.0

884

10.4

12.6

FY21E

11,592

14.5

1,008

11.9

11.0

Source: 5paisa Research

Ipca Labs

CMP: Rs1,392
Target: Rs1,600
Upside: 15% (1 year)

We are positive on the stocks on account of strong volume growth in domestic, improving sales representative productivity rate and focus on non US markets. The company will continue to focus on pain management (Zerodol accounts for 26% of Ipca’s India formulation sales), derma and other therapies. It would focus on volume growth rather than its peers focus on price growth. It has 7-8 products under clinical trial for the Indian market and would explore opportunities for in-licensing of products. IPCA acquired 35-acre land at Dewas and Noble Explochem plant to expand its API facilities and reduce dependence on others for API and intermediaries. IPCA expects environmental clearance for Dewas facility and plans to commence construction by June FY21E. Thus, we expect revenue CAGR of17.9% over Fy19-21E. We expect margins to improve by 360bps over FY19-21E due to increasing focus in EU markets (high margin market) and operating leverage. We forecast PAT CAGR of 30.9% over FY19-21E. The stock is currently trading at 23.0x FY21EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY19

3,773

18.3

444

35.2

39.5

FY20E

4,541

20.5

628

49.8

27.9

FY21E

5,248

21.9

761

60.4

23.0

Source: 5paisa Research

Quess Corp

CMP: Rs.213
Target: Rs.820
Upside: 285% (1 year)

We are positive on the stock on account of strong financial position, presence of strong promoter group and attractive valuations. The company has not seen any downsizing of temporary headcount by the clients due to spread of Covid 19. Not a single FTE (full-time equivalent) has so far been de-mobilised by clients. In general staffing, clients are retaining headcount in preparation for recovery, while IT staffing is benefitting from ramp-up at captives. The housekeeping business is steady. In staffing as well as FM, tri-partite agreements imply that Quess has on obligation to retain FTEs in the event of down-sizing by clients. However, the early closure of colleges will impact F&B revenues in the short run. We consider the recent correction in the stock to accumulate the stock for the long run. The stock is currently trading at 8.1x FY21EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY19

8,527

5.4%

256

17.3

12.3

FY20E

11,015

6.2%

115

7.8

27.4

FY21E

12,867

6.4%

388

26.2

8.1

Source: 5paisa Research

Deepak Nitrite (DNL)

CMP: Rs.385
Target Price: Rs.570 (1-year)
Upside: 48%

We expect strong topline growth of 29.2% CAGR over FY19-21E driven by growth in the Basic Chemicals and the Fine & Specialty segments. Downstream derivatives of phenol and acetone should start contributing to growth from FY21E. The company continues to invest in R&D, and efforts are underway to launch new fine & specialty chemicals that are agrochemical and pharma intermediates. Further, Management expects DNL to benefit from the unfortunate outbreak of the novel coronavirus, which will likely accelerate the search for non-China suppliers. EBITDA margins are expected to improve 450 bps over FY19-21E due to continuous strength in basic chemicals, Fine and Specialty chemical segment and products business. We see PAT CAGR of 70.2% over FY19-21E. The stock is trades at 10.5x FY21E EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY19

2,699

15.3

173

12.7

30.4

FY20E

4,270

23.0

560

41.1

9.4

FY21E

4,505

19.8

501

36.7

10.5

Source: 5paisa Research

Kansai Nerolac (KNPL)

CMP: Rs.387
Target Price: Rs.520 (1-year)
Upside: 34%

Kansai Nerolac (KNPL), the Indian subsidiary of Kansai Japan, with a higher industrial share than peers, will see 5% revenue CAGR over FY19-21E supported by decorative paint segment. Decorative paint demand would be driven by repainting demand and rising dealer networks in tier II and tier III cities. However, we believe industrial segment performance would largely depend on recovery of automotive industry. But, a shift in focus towards other industrial categories like coil coating & functional powder coatings would help drive segment performance. We expect EBITDA CAGR of 11.6% over FY19-21E fall in raw material price. We expect PAT CAGR of 14.9% over FY19-21E. The stock trades at 34.9x FY21E EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY19

5,424

13.9

452

8.4

46.1

FY20E

5,431

15.4

536

9.9

38.9

FY21E

5,999

15.6

597

11.1

34.9

Source: 5paisa Research