These Mid Caps May Return Up To 50% In A Year, CLSA Says
Affordable housing and financialisation of savings remain strong structural long-term sector themes.
Even as mid-cap stocks witness a selloff, CLSA is betting on select medium-sized companies that can return between 25 percent and 50 percent in the next one year based on long-term sector outlook.
Affordable housing and financialisation of savings remain strong structural long-term sector themes, while green shoots are visible in discretionary consumption demand, the global brokerage said in a note based on feedback received from companies at its ‘India Access Day’ in London.
The NSE Nifty Midcap index has fallen over 13.3 percent so far this year compared with a 0.8 percent rise in the NSE Nifty 50 Index.
Here are the top themes and sectors that CLSA finds value in:
Discretionary Consumption
Top Pick
- Future Lifestyle Fashions Ltd.: Recommend ‘Buy’, with target price of Rs 535; an upside of 32 percent from current levels.
Consumer companies that CLSA hosted at the event see improving urban sentiment with sharper demand growth in smaller towns and rural areas. CLSA sees a turn in earnings momentum could be underway for consumption-focused companies. Future Lifestyle sees its strategy of fine tuning its brands strategy will help achieve scale and profitability. CLSA sees earnings volatility as the key risk given high operating leverage.
Affordable Housing
Top Pick
- Crompton Greaves Consumer Electricals Ltd.: Recommends ‘Buy’, with target price of Rs 305; an upside of 39 percent from current levels.
Crompton Greaves Consumer Electricals management said the company has recently launched pumps in the economy segment. CLSA notes that Crompton Consumer has margin tailwinds with an opportunity to grow not only in its existing categories but also considerably expand its addressable opportunity. Competition, slowdown in housing sector and increase in working cap cycle is key risks towards the bullish call.
Financialisation Of Savings
Top Pick
- Reliance Nippon Life Asset Management Ltd.: Recommend ‘Buy’ with target price of Rs 330; an upside of 50 percent from current levels.
Financialisation of savings remains a long-term structural theme for CLSA. Reliance Nippon Life is expanding its presence beyond the top 15 cities. The shift from bank deposits towards more tax-efficient sources like mutual funds should aid growth, the report said. Weakness in capital markets and adverse changes in regulations are the key risks for the company.
Healthcare
Top Pick
Apollo Hospitals Enterprise Ltd.: Recommend ‘Buy’, with a target price of Rs 1,500; an upside of 47 percent from current levels.
Rising per-capita income and cheaper insurance premiums are boosting demand for hospitals, and diagnostic services will benefit from a greater need for tertiary healthcare, the report said. Apollo Hospitals is likely to witness recovery in the current financial year on back of opening of new hospitals. The high capital expenditure phase of the company is over and no major capex is lined up over next 2-3 years. Cost escalation, capex delay and competition are key risks towards the bullish call.
Hotels
Top Pick
- Lemon Tree Hotels Ltd.: Recommend ‘Buy’, with target price of Rs 90; an upside of 24 percent from current levels.
Slower new supply since financial year 2015 with continuing demand growth augurs well for occupancy and room rates over the next 3- 4 years, according to Lemon Tree’s management. Supply growth is expected to trail demand growth through FY21 arising from low commitments to new projects since 2014, the report said.
Lemon Tree is well placed to leverage its existing market position as a leading mid-priced hotel chain. Competition and change in travel due to adverse general economic conditions are key risks to the bullish call.