Last one year has not been good for domestic equities, with the benchmark Sensex falling 4 per cent since Diwali 2021, thanks to high inflation, hawkish central banks and geopolitical tensions. But analysts are optimistic and see plenty of buying opportunities at the prevailing levels. JM Financial has recommended seven midcap ideas, based on fundamental and technical factors, which it feels can deliver healthy returns over the next one year.
KPIT Tech | Target Rs 830
The stock currently is trading at 40 times its estimated FY24 earnings per share (EPS) and is likely to stay elevated, given the strong growth tailwind, said JM Financial.
KPIT’s software integration capabilities with top global automobile manufacturers will provide significant value creation compared to its peers, the brokerage said, adding that KPIT’s further expansion in the field of middleware & cloud base connected service through organic and inorganic route provides significant visibility to earnings growth.
“Global OEM’s R&D expense currently stands at nearly $20 billion & is expected to rise to $60 billion over the next 5 years as global auto manufactures compete with TESLA w.r.t providing technological enhancement to vehicles & eventually move towards driverless vehicles. Companies like KPIT which provides technological support to these OEMs are likely to benefit the most,” it said.
On the technical charts, JM Financial said the stock had seen major rally from March 2020 low of Rs 35 to January 2022 high of Rs 800. The stock, which had been a correction mode, has now formed bottoming out rounding pattern, it said, as it set the target price for the scrip at Rs 830.
CAMS | Target Rs 3,300
Computer Age Management Services (CAMS) is a mutual fund transfer agency. It provides investor services, distributor services and asset management companies (AMC) services. In the last months, shares of CAMS were trading in the Rs 2,680-2,040 consolidation range. The scrip has formed a base now, JM Financial said while suggesting a target of Rs 3,300 on the stock.
JM Financial said the registrar & transfer agent (RTA) industry in India is a duopoly, with CAMS commanding 70 per cent market share and the rest with KFin Technologies (KFin).
“The domestic MF industry is expected to clock 14-15 per cent compounded annual growth in assets under management over the next decade on the back of rising financialisation of saving, expanding penetration and favorable demographic shift towards investments. We believe CAMS would continue to maintain its leadership position in RTA industry and would continue to grow both AUM based revenue as well as non-AUM based revenues,” it said.
JM Financial noted that CAMS recently launched its CRA services for National Pension scheme and felt the pension-based AUM in the country may rise steadily. “Insurance repository business is also likely to witness strong momentum with recent regulatory push to mandate the issuance of e-policies would act as a catalyst for the company,” it said.
Schaeffler India | Target Rs 4,045
This stock is in a major uptrend, forming higher top-bottom patterns on the daily chart, said JM Financial, adding that the stock has taken support at 50-day moving average.
Schaeffler India, JM Financial said, is likely to be a key beneficiary of electrification and hybridisation trend for the domestic business, as it sees India seeing a faster growth in electric and hybrid vehicles.
“With access to a robust product portfolio from parent’s basket, new order wins in automotive segment and ramp up in exports will continue to drive strong growth for the company. The company is ramping up capex under PLI scheme at its new plant, which will enable it to localise several of these new products for both exports and EV segment,” JM Financial said.
JM Financial expects new business wins in automotive segment and rising share of exports to drive Schaefflers India outperformance. It sees the company delivering 18 per cent growth in sales and 25 per cent growth in earnings, compounded annually, over 2021-24E.
Praj Industries | Rs 550
Praj Industries offers a bouquet of sustainable solutions for bioenergy, water purification, breweries, industrial waste water management treatment. The business is mainly divided into three segments: Bio-energy segment, engineering business and HiPurity business. The government expects ethanol demand to grow well over 30 per cent CAGR over period of FY22-25 to reach 10.2 billion litre to achieve 20 per cent blending from 10 per cent currently.
“This mega trend itself should lead to substantial capex addition in Ethanol Industry leading to significant jump to Praj’s order book,” JM Financial said.
With order book of nearly Rs 3,241 crore Praj is one of the best plays of global bioeconomic revolution in their view, it said. Praj commands about 10 per cent market share measured by production by ethanol plants globally installed by the company, it noted adding that the company’s strong ability and vast experience in technology, project management & operations are key moats for the business.
Deepak Nitrite | Rs 2,730
JM Financial said the recent correction in the stock was halted at 50 per cent retracement of the recent rally and at 100-week moving average. The stock has crossed falling resistance trendline and is resuming uptrend, the brokerage said.
“Deepak Nitrite, with its aggressive and bold xapex in Phenol in 2018, is a testament to company’s focus on growth and execution. Deepak Group’s Phenol-Acetone plant, in Dahej, has earned it the title of being the lowest thermal footprint facility in the world. In the time to come, Deepak will tend to significantly gain from immense opportunities unfolding in the chemical sector through ‘Make in India for the World’ initiative as well as strong recurrence of China+1 strategy,” JM Financial said.
The Rs 1,500 crore worth of projects lined up by the company across key product lines, may ensure growth and profitability in medium-to-long term, and sustained shareholder value creation, JM Financial said.
Cholamandalam Investment and Finance | Target Rs 950
Cholamandalam Investment is a mid-cap vehicle financier, expanding its presence into housing finance. JM Financial said the stock is in major uptrend, forming higher top-bottom patterns, and is taking supports at 50-week moving average.
The brokerage noted that heavy commercial vehicle (HCV) and construction equipment (CE) financing growth is primarily driven by large fleet operators while the retail segment, where Cholamandalam is active, is yet to see a material pick-up.
“Tractor financing should improve going ahead with steady Kharif acreage and healthy reservoir levels can aid Rabi Corp, loan yield in vehicle finance should recover owing to the change in the product mix. Cholamandalam’s ability to deliver industry-leading growth in the loan book – coupled with its strong asset quality and consequently healthy RoE of 19 per cent – we believe Cholamandalam would continue to command premium valuations relative to its listed peers in Vehicle Finance,” JM Financial said.
The brokerage is expecting earnings CAGR of 19 per cent over FY22-24E, driven by healthy AUM growth trends, better margins, product portfolio expansions, and improvement in asset quality.
“We continue to like the franchise because of strong execution capabilities, leading to sustainable superior returns,” it said.
Metro Brands | Target Rs 550
JM Financial said Metro is best placed within the footwear retail plays, thanks to its aggressive store expansion, operational efficiencies and successful scale up of newer and existing brands.
Metro has strongest brand equity in South & West India followed by North & East, it said, adding that consumer behaviour towards footwears have now changed, as they consider it as a fashion statement rather than value purchase few years ago. This, it said, has led to increased premiumisation of products and improved store level unit economics across the sector, leading to re-rating of the sector.
The brokerage has a target of Rs 1,070 on the stock.
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