By Achin Goel
Indian benchmark indices have performed well over the last few months due to rising participation of retail investors, strong corporate earnings and a robust recovery in the economy. Government initiatives such as approval of PLI schemes to boost domestic manufacturing capabilities, announcement of the relief package for the telecom sector as well as allowing 100% foreign investment through the automatic route has helped stocks from these sectors to remain in the spotlight. Here are some mid cap stocks on which are bullish:
Stove KraftCMP 1027Target 1462
SKL at FY23 EPS of Rs. 43 has a potential upside of 34% from CMP. We initiate coverage with BUY. Our target price multiple implies 25% discount to TTK Prestige, SKL’s biggest competitor in terms of product portfolio given TTK’s, long history of steady performance. E-commerce platforms like Flipkart and Amazon, which contributed to 30% of revenues and is growing by 30 to 35%. Market share in E-commerce business is at 45% and company has market leadership in pressure cooker and cookware categories.
CSB BankCMP 297Target 395
We are positive on the stock given its favourable loan book mixture with high yielding rate, sustained margins, and comfortable liquidity position. Profitability of the bank should see improvement in the next few quarters driven by higher loan growth, stable margins, decline in credit costs, and lower cost to income ratio. Besides, strong liability franchise, adequate capitalization, and healthy provision buffer add to positivity, valuing the stock at a target price of Rs. 395 per share multiple of 2.7x FY22E ABV. We believe the bank’s current valuation and recent earnings provide limited downside risk.
Home First FinanceCMP 700Target 805
The company has the ability to deliver strong operating performance across all parameters, solid profitability and sustainable growth trajectory. Besides, its ability to leverage technology for better service delivery, funding availability with competitive cost of funds and investment by marque private equity players adds to positivity, Scalable business, consistency in operating performance, excess capital and liquidity buffer will increase the visibility on rating upgrade. With greater than 30 to 40% AUM growth, sustained spreads, improved cost to income and contained credit cost, we expect net revenue to grow at more than 28% over FY21-23E and earnings to compound at greater than 40% over FY21-23E. However due to excessive capitalisation (Tier-1 at 51%), despite 3.5% plus RoAs, RoEs will be modest at sub 13% thus, we have assigned a ‘Buy’ rating on Home First with a price target of Rs. 805, valuing the stock at 3.5x FY23E P/Adj BV.
Route MobileCMP 1,894Target 2520
Route Mobile is an A2P/CPaaS based company with a total addressable market size of US$7bn, in 2020 which is expected to grow at 30% till 2025.We expect revenue to grow at 23% over FY21-23E with EBITDA growing by 27.3% as we expect operating leverage to aid margin accretion by 100bps over similar term. The company’s business generates a decent amount of cash, and Route Mobile has generated robust free cash flows over the past four financial years. We have assigned a buy on the stock with Buy rating implying a P/E of 52x FY23E EPS and target price of Rs. 2520.
(Achin Goel is the Fund Manager at Bonanza Portfolio. Views expressed are the author’s own. Please consult your financial advisor before investing.)
