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10 midcaps & smallcaps where top brokerages see potential at current price levels

As traders and investors on Dalal Street scour for opportunities to generate alpha, options are emerging in midcaps and smallcaps, as many of these stocks trade at a discount to their largecap peers.

While BSE Sensex is up 13 per cent year to date, BSE Midcap and Smallcap indices are down 4 per cent and 9 per cent, respectively. However, these broader market indices have started picking up pace recently.

With September quarter GDP print coming in at 4.5 per cent, many analysts say the growth rate may have bottomed out and economic conditions should improve from here on. If that happens, then midcap and smallcap stocks could be major beneficiaries in an improving economy, market experts said.

“There is a bit of divergence between largecap and midcap valuations. As and when the economy recovers, these midcaps would have the potential to do much better than what they have done in the past few quarters. But again, one has to be stock-specific and sector-specific till the time the real green shoots of the economy show up,” said Vinay Sharma, Fund Manager at Nippon India Mutual Fund.

We have picked hereunder 10 midcap and smallcap stocks on which many brokerages have come out with buy recommendations in November.

Affle India | Nomura | Price Target Rs 1,900

Initiating coverage on mobile ad services provider Affle India, the Japanese brokerage said the underlying macros are attractive in Affle’s key markets (India & SEA), where a large internet user base, rising smartphone sales, improving data connectivity and young demographics augur well for a shift to digital. It expects revenue to growth at 34 per cent CAGR and EPS at 39 per cent over FY19-22. The brokerage sees 28 per cent potential upside for the stock from its current level.

Balkrishna Industries | SBICap Securities | Price Target Rs 1,050

SBICap Securities has initiated coverage of this midcap off-highway tyre manufacturer with a ‘buy’ rating and sees 14 per cent upside from current level. It expects the company to register 9 per cent CAGR volume growth over FY20-22, which will drive EPS at 21 per cent CAGR in the same period. However, SBICap Securities said a downturn in the global commodity cycle and a sharp hike in raw material cost remain key risks.

PNC Infratech | Sharekhan | Price target Rs 229-233

PNC is Sharekhan’s “one of the best stock picks in the road development sector” on account of its strong execution capabilities, healthy balance sheet, robust order book and prudent capital management. PNC is on a strong earnings growth trajectory and is expected to increase its execution capabilities further, Sharekhan said.

VIP Industries | IDBI Capital | Price target Rs 574

IDBI Capital has initiated coverage on this luggage maker, saying it is a proxy play on rising spends towards travel and tourism in India. VIP has 46 per cent market share in the luggage industry and has established brands, strong distribution network, skilled management and strong product portfolio. The brokerage rationalises its premium valuation given significant growth prospects, strong balance sheet, high return ratios and leadership position.

Sundram Fasteners | JM Financial | Price target Rs 550

The TVS Group company would continue to command premium multiples because of its strong management and promoter pedigree, constant focus to improve return on capital employed and high free cash flow generation of Rs 1,000 crore over FY20E-22E, said JM Financial. The brokerage has initiated coverage of the stock with a ‘buy’ rating. It believes the company is among one of the most consistent growth companies in India and sees 17 per cent potential upside for the stock.

VRL Logistics | BOB Capital | Price target Rs 330

Moats of the company—a wide network, vast scale of operations and cost and capital efficiency—are intact despite external headwinds, BOB Capital highlights. The brokerage estimates a moderate 6 per cent topline CAGR over FY19-22 given adverse macro conditions, though earnings may log at 14 per cent CAGR due to a lower tax rate. It sees 18 per cent upside in the scrip.

Varun Beverages | Stewart & Mackertich | Price target Rs 888

Stewart & Mackertich has initiated coverage of Pepsi bottler Varun Beverages with a “strong buy” rating, as its core markets present huge opportunity with high growth potential. As rural electrification brings in more refrigerators to villages, Varun can grow to new heights, said the brokerage. It values the stock at a P/E multiple of 30 times CY2021 EPS of Rs 29.60 and sees 21 per cent upside from current level.

Tata Global Beverages | Motilal Oswal | Price target Rs 347

Motilal Oswal has initiated coverage of this stock with a ‘buy’ rating and sees a potential upside of 10 per cent from current level. The brokerage is building its bullish projections on Tata Global’s increased focus on India beverage business and merger of Tata Chemicals’ consumer business. It also sees Tata Global’s strategic initiatives in overseas tea business protecting margins for the company.

Page Industries | Anand Rathi | Price target Rs 27,288

Anand Rathi, initiating coverage on Page Industries, said the headroom for growth in a brand such as Jockey is huge. It is confident of the company’s long-term growth prospects, given the high consumer loyalty and brand acceptance. However, it sees some short-term issues due to weakness in the trade channel because of poor liquidity, a general consumption slowdown and keener competition with newer brands. It pegs a potential upside for the stock at 23 per cent.

Suven Life Sciences | Kotak Securities| Price target Rs 445

Re-initiating coverage on Suven, Kotak Securities said the company’s core CRAMS business may report CAGR of 15 per cent over FY19-22 on the back of scaling up of projects and supplies of molecules in phase-II and -III trials. Kotak expects earnings to grow at a CAGR of over 40 per cent over next three years. It sees a potential upside of 68 per cent for the stock.

Source: Economic Times