Jefferies’ Top India Mid-Cap Bets For 2021

Global research firm Jefferies recommended a ‘buy’ on select Indian mid caps in the new year as the gauge for such stocks rebounded twofold from its lowest in March 2020 to hit a record high.“Despite Covid-19 disruption, most coverage mid caps recovered in the second half of the calendar year 2020, led by better profitability. In 2021, we foresee sharp growth rebound driven by [product] optimising mix, premium launches, B2C traction, government initiatives, rural penetration and strong balance sheet,” Jefferies said in a note.Dixon Technologies (India) Ltd., Crompton Greaves Consumer Electricals Ltd., Supreme Industries Ltd., Kajaria Ceramics Ltd., Havells India Ltd., V-Guard Industries Ltd., Finolex Cables Ltd., Finolex Industries Ltd., UPL Ltd., Graphite India Ltd., and HEG Ltd. are the top bets, it said.There, however, are some risks.“Re-lockdowns if any, could impact business resumption. Commodity volatility is a key monitorable for electricals and pipes as a sudden sharp dip could result in inventory losses,” Jefferies India analyst Sonali Salgaonkar said in the note..Jefferies’ rationale for the stock picks:.Crompton Greaves Consumer ElectricalsExpects earnings to grow at 20% CAGRNew launches, product mix optimisation, improved scale and cost rationalisation initiatives can drive 100 basis points upside in operating margins over FY21-23Sees overall top line growth CAGR of 13%Strong balance sheet and good return ratios to aid navigating current disruptionStrengthening of reach with go-to-market strategyUtilisation of sizeable cash pile for tapping growth opportunities.Dixon TechnologiesEstimates sales and profit after tax to register 38% and 46% CAGR, respectively, over FY20-23Sturdy industry opportunity, upside from the government’s production-linked incentive scheme, new launches and client expansionExpects consumer electronic sales to grow at 14% CAGR over FY20-23Initiatives to boost local production in India and curb on imports on LED TVsStrong balance sheet.Finolex CablesFaster traction in new productsCapitalising on established dealer networkRevival in volumes from auto cables & wiresSees revenue from new products to grow higher than 14%Expects overall revenue/earnings CAGR of 4% and 5%, respectively, over FY20-23Thrust on housing and rural electrificationUtilisation of existing cash pile for tapping growth opportunities.Finolex IndustriesExpects overall revenue and EPS CAGR of 9% and 14%, respectively, over FY20-23Assumed operating margin expansion to 17% by FY23, led by optimising product mixHigher traction in volumes, realisation in pipes and fittings, along with PVC resin an upside scenarioBackward integration into PVR resin alleviates dependence on importsImprovement in capacity utilisation to result in better operating leverage.Havells IndiaBullish on the diversified slate, improving mix, premium launches, work from home tailwind in appliances, market share gains and multiple initiatives to improve reachMix optimisation, in-house manufacturing in Lloyd and new launches to drive about 170 basis points upside in operating margins over FY21-23Strong balance sheet and good return ratiosEntrenched reach and strong brandAt an inflexion point with Lloyd set to drive the next leg of growth.Graphite IndiaShare of EAF (electric arc furnace) route of steel production to rise, benefiting electrode industry over the medium termUndemanding valuationsStrong balance sheet marked by minimal debt and sizeable cash balance and investmentsElectrode realisations, needle coke prices and utilisation rates remain a key monitorable.HEGExpanding current capacity by 20,000 MT, set to commission by first quarter of 2022Inexpensive valuationsStrong balance sheet with minimal debtNeedle coke prices and utilisation rates remain a key monitorable.Kajaria CeramicsSees consolidated revenue CAGR of 6-7% over FY20-23EPS estimated to register 12% CAGR over FY20-23Strong play for housing revival themeExports by Morbi players can help sustain pricing stability in domestic tiles marketMarket leader in organised tiles can help gain traction ahead of peersHigher traction in new products — sanitaryware and faucets.Supreme IndustriesRemains bullish due to sturdy industry opportunity, enhanced value-added mix, new launches, higher operating leverage with volume tractionRevival in volumes from construction and infrastructure augurs well for pipes, packaging and industrial segmentsDiversified product slate assuages concentration riskExpansive distribution acts as a strong moatImproving capacity utilisation to aid operating leverageSee sales and EPS CAGR of 10% and 18%, respectively, over FY20-23.UPLFull impact of Arysta acquisition from FY20Expects Ebitda margin improving by about 140 basis points over FY20-23, led by optimising product mix and synergies from ArystaLong-term revenue growth ambition of 7-10%Diversified across products and regions alleviates risksProduct registrations a strong moat given high-entry barriersRegaining high volume growth and pricing power globally a key catalyst.V-Guard IndustriesThe long-term business outlook remains robustConfident of 15% sales growth in long-term driven by expansion into non-South markets and introduction of new product categoriesSuccessful geographical diversification to open new markets as well as de-risk business concentrationThe asset-light model enables the company to optimise capex and working capital

Jefferies’ Top India Mid-Cap Bets For 2021

Jefferies suggests a ‘buy’ for these 11 Indian mid-cap stocks in 2021.

Choose a plan