Historically, a phase of disruption has been followed by outperformance in Midcap and Smallcap indices (2009, 2016, 2017), says Sonali Salgaonkar, an equity analyst at JefferiesIndian share market witnessed a sharp rebound with the onset of unlocking and resumption in businesses in the country, since June 2020. The broader market indices have outperformed the equity benchmarks on the back of recovery in economic activity and COVID-19 vaccine optimism. Last week on Friday, the S&P BSE Small-cap index hit a new high of 21,411 in intra-day trade. The index surpassed its previous high of 21,389 hit on March 3, 2021. While S&P BSE Midcap index scaled a new 52-week high of 21,085.51 in intraday deals on March 4 this year. So far this month, the S&P Smallcap index has surged 3.56 per cent, as against a rise of 1.8 per cent in BSE Sensex and Nifty 50.
Historically, a phase of disruption has been followed by outperformance in Midcap and Smallcap indices (2009, 2016, 2017), says Sonali Salgaonkar, an equity analyst at Jefferies. The trend has continued with both the indices outperforming the Nifty50 index in CY20 and YTD CY21. The Nifty Midcap index has sharply rebounded by over 70 per cent since June 2020 and is now trading at 24x forward price-to-earnings (PE), which analysts noted is 29 per cent premium to its 5-year historical average. And 53 per cent premium to its 10-year historical average. Moreover, the current PE is converging to pre-Covid peak PE multiple of 26x. The best performers since unlocking and resumption (Jun’20) have been building materials, electrodes, property and Industrials.
Crompton Greaves Consumer Electricals: Crompton Consumer is one of the best plays in Indian FMEG (fast moving electrical goods), given its assorted product mix (key player in Fans, Lighting, Residential Pumps, Geysers), formidable market share (25% in Fans), sturdy product pipeline and strong brand franchise, according to Jefferies. It has ‘buy’ rating with a price target of Rs 490, a jump of nearly 20 per cent.
Blue Star: Jefferies has valued Blue Star at 35x FY23E (at a premium to 10-yr average of 32x), ascribing a target of Rs 1,000, an upside of 5.7 per cent. Blue Star is a beneficiary of increasing air conditioner penetration in India.
KEI Industries Ltd: The company’s management focus on expanding high margin retail business is positive and the company will be a beneficiary of the unorganized to organized shift and Atma Nirbhar (self-reliant India) theme in EHV cable manufacturing, Salgaonkar said. Jefferies has valued the company at 16x PE FY23E (a premium to its historical average of 9x), with a target of Rs 650. Currently, the stock is trading at 494.35 apiece.
Supreme Industries: Supreme Industries witnessed good demand from rural / Tier 3 4 cities in Q3. Demand for housing products has revived in Metros as well, led by brisk sales of ready to occupy housing units. It has a target of Rs 2,360, a rally of 14 per cent. “We value the company at 35x FY22E PE, a premium to SI’s 5-year avg multiple,” report added.
Kajaria Ceramics: Jefferies has given a price target of Rs 1,085, a gain of 8.5 per cent. The Oct-Dec 2020 quarter saw demand revival from metros and Tier 1 cities. Sales in bigger cities have resumed at 75 per cent of pre-COVID levels.
The Ramco Cements: The stock is trading lower at Rs 996 from its last traded price of Rs 1,005.65. It has a price target of Rs 1,100 apiece. It is a key beneficiary of a demand recovery in the south. After a sharp volume decline in FY21, Jefferies build-in strong double-digit volume growth for Ramco over FY 22-23.
Oberoi Realty: It will take Oberoi Realty stock to jump 20 per cent to hit the target price of Rs 668 apiece. Oberoi is Jefferies’ preferred real estate mid-cap pick. The company is benefitting from a pickup in the Mumbai property market where a stamp-duty cut has seen Oberoi capitalize on its ready inventory.
Sobha: Sobha has a target price of Rs 579 (set at 9x EV/ebitda), implying a 30 per cent upside. Sobha is benefiting from an upsurge in housing demand, driving the company’s sales to a record volume in 3QFY21.
IPCA Laboratories: An upside of 20 is required to hit a price target of Rs 2,292 apiece. Ipca is unique in generating significant clinical data to back its India branded business which has resulted in robust brands like Zerodol.
Max Healthcare Institute: Max Healthcare trades at 16x FY23E EV/EBITDA, 34 per cent discount to peer Apollo hospitals. Jefferies valued Max healthcare at 19x FY23E EV/EBITDA, a target of Rs 244.
Emami: The report noted that at 30x FY22 adj. EPS, the stock trades at over 30 per cent discount to peers, which could narrow going forward. It has a ‘buy’ rating on Emami with a target of Rs 620.
Bharat Forge: Despite a nearly 100 per cent rally since July 2020, the stock is trading at 5.5x FY22E PB vs past two peaks were 6.7x and 7.6x. The price target for Bharat Forge is Rs760.
Mahanagar Gas: Valuations are attractive at 12x FY22E P/E (Historical avg ~ 17x) while FCF yield is also robust at 6% amid a net cash balance sheet, says Jefferies. “We value MAHGL at 16x FY23E P/E for a PT of Rs 1,700 also noting upside risks to consensus earnings estimates,” it added.
Newgen Software Technologies: Newgen Software Technologies has a ‘buy’ rating with a target price of Rs 390. Over FY21-23E, Jefferies expects Newgen to deliver 16 per cent revenue growth and 12 per cent EPS growth driven by growing adoption of its platform and service.
(The stock recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)
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