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Midcap stocks to buy: Apollo Tyres, JB Chemicals, Cummins and APL Apollo are IIFL's 4 picks for 2023

Midcap stocks to buy: Apollo Tyres, JB Chemicals, Cummins and APL Apollo are IIFL's 4 picks for 2023

Apollo Tyres may report strong margin and free cash flow (FCF) performance, with upside potential to Street estimates, IIFL said. For JB Chemicals, it believes market share gains through geographic expansion

APL Apollo and Cummins are plays on construction, IIFL said. These stocks are not cheap, it noted, but added that one can see earnings growth visibility APL Apollo and Cummins are plays on construction, IIFL said. These stocks are not cheap, it noted, but added that one can see earnings growth visibility

Apollo Tyres, JB Chemicals, Cummins and APL Apollo are IIFL Securities' top four midcap picks for 2023.

IIFL said it likes APL Apollo and Cummins as plays on construction. These stocks are not cheap, it noted, but added that one can see earnings growth visibility as strong  government finances enable a period of relatively benign interest rates where housing, building material and construction-linked companies can thrive. For Apollo Tyres, IIFL expects a strong margin and free cash flow (FCF) performance, with upside potential to Street estimates. For JB Chemicals, it believes market share gains through geographic expansion, prescriber overlap and  launch of liquid probiotics will the company enhance Sanzyme’s productivity.

IIFL said JB Chemicals' continued outperformance in domestic India  formulations market, scale-up of the acquired Sanzyme  portfolio, and higher CMO business on the back of healthy  order book will help deliver 14 per cent  revenue CAGR over FY23-25. A strong ramp-up in high-margin (35 per cent) Sanzyme portfolio, improvement in Azmarda gross margins led by in[1]sourcing post patent expiry in early-2023, organic mid[1]teens growth in the base India/CMO business, and PCPM  expansion in India will drive 27 per cent EPS CAGR (ex-ESOP) over  FY23-25.

Cummins India, IIFL said  is the leading player in power-gen  solutions in India, with over  60 per cent share in HHP segment. It derives growth from all legs  of the economy — Manufacturing, Services (IT, Telecom, DC), Infra and Construction — through its short-cycle  portfolio. Consolidation in global ICE supply-chain, portfolio  of new cleaner fuel solutions, strong B/S and customer  franchise, competitive cost structure and new-age  technology access from the Parent — bode well for long[1]term sustainability of the company, it said.

Apollo Tyres

Tyre, IIFL said, is a heterogeneous sector, and the one where  stocks delivered OP almost across the board. Incrementally, it expects volumes to moderate. The company said it looked for pockets where idiosyncratic earnings  spurts can happen – Apollo Tyres, a sharp beneficiary from likely input  cost fall and FY23 onwards becoming FCF positive , besides being attractively  priced — is IIFL's top pick, it said.

IIFL expecs APL Apollo Tubes to deliver 27 per cent EPS CAGR over FY22-25 as large diameter tubes gain acceptance for building construction and drive ramp-up of volumes from the new  Raipur facility.  This, it said, will also increase share of value-added  products to 75 per cent by FY25 and aid margin expansion. "While  29 times FY24 PE is rich, volume delivery should steer further rerating," it said.

 

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Published on: Jan 03, 2023, 12:15 PM IST
Posted by: Priya Raghuvanshi, Jan 03, 2023, 12:11 PM IST