Stock Market

Eye on earnings: Top 10 midcap stocks which are likely to surprise D-Street in March quarter

Kshitij Anand

Chillicious News

The midcap universe, which is on cloud nine, is unlikely to disappoint investors for the quarter ended March 2017 while earnings for benchmark indices could lag.

“We expect revenues to increase in our midcap universe to 6.2 percent on a year-on-year (YoY) basis, EBITDA margin to expand 48 bps and net profit to rise 10.7 percent on a YoY basis in Q4FY17,” IDBI Capital said in a report.

“However, sequentially, we forecast EBITDA/PAT growth of over 50 percent during Q4FY17 led by higher volume growth, lower raw material costs, and better operating efficiency,” it said.

The S&P BSE Midcap index which recorded yet another record high of 14,442.59 on Wednesday gave 31 percent positive returns in the FY17, as against nearly 16 percent given by the S&P BSE Sensex and around 19 per cent by Nifty.

Midcaps have been consistently been able to outperform benchmark indices not just in last 12 month but in the last five years. But, it is time to tread with caution with respect to small and midcap stocks after a sharp rally in the last 12-24 months.

Not all midcap stocks might strike gold for investors at current levels given the frothy valuation and the idea should be to get into those stocks which can deliver growth.

We have collated a list of 10 midcap stocks where brokerage maintains buy and have the potential to deliver strong earnings:

Indo Count Industries: BUY| Target Rs 218

IDBI Capital maintains a buy rating on Indo Count Industries with a target price of Rs 218. Indo Count is likely to post muted set of results on the back of muted volume growth. The key factors to watch out for in the post-results conference call are details on any major client wins and Management’s guidance on volumes for FY18.

Nava Bharat Ventures: BUY| Target Rs 167

IDBI Capital maintains a buy rating on Nava Bharat Ventures with a target price of Rs 167. Nava Bharat Ventures is expected to post muted set of results for Q4FY17. “However, we expect the company to declare COD of the Zambian 300 MW power plants during the quarter – this could be a key catalyst to the stock price performance,” it said.

The key factors to watch would be management’s guidance on PLFs of these plants for FY18E and profitability from ferro alloys segment in Q4FY17.

Trident: BUY| Target Rs 98

IDBI Capital maintains a buy rating on Trident with a target price of Rs 98. Trident’s Q4FY17 sales and profits are likely to benefit from higher terry towel and bed sheet sales volumes. Further, the higher margin in its Paper business is likely to support margin improvement on a year-on-year (YoY) basis.

Zensar Technologies: BUY| Target Rs 1209

HDFC Securities maintains a buy rating on Zensar Technologies with a 12-month target price of Rs 1209. The midcap IT firm is likely to report a USD revenue growth at 3.2 percent on a QoQ basis (US$ 121mn) driven by Oracle and PA offset by account pruning exercise.

IMS maintenance will continue to be weak disrupted by cloud, while growth will be seen in the IMS services business. The EBITDA margin to expand 33bps QoQ basis owing to improvement in IMS business and operational efficiencies. The net profit likely to grow by 4.2 percent on a QoQ basis to Rs 84 crore.

Intellect Design Arena: BUY| Target Rs 228

HDFC Securities maintains a buy rating on Intellect Design Arena with a target price of Rs 228. The USD revenue for the quarter ended March 2017 is likely to stand at US$ 34.9mn, up 4 percent on a QoQ basis, aided by new deal wins.

EBITDA margin to get narrowed to (-5.2 percent) compared to (-8.2%) on a QoQ basis. The Non linearity will kick in with growth in top-line, said the brokerage firm. The gross margin is expected to be at 47.5 percent, up 140 bps on a QoQ basis, due to higher license fee and cost rationalisation.

Exide Industries: BUY| Target Rs 270

Motilal Oswal maintains a buy rating on Exide Industries with a target price of Rs 270. The net profit is likely to increase by 4 percent on a YoY basis and 22 percent on a QoQ basis to Rs 190 crore led by lower other income, higher depreciation, and higher tax rate.

“We expect net revenue to grow 13 percent on a YoY basis and 15 percent on a QoQ basis to Rs 1990 crore as better replacement demand recovery post demonetization and higher OEM demand too,” said the report.

The EBITDA margin is likely to remain flat on a YoY basis to 15.1 percent as replacement price has been increased by 10% from Nov 16 to March 17 due to increase in Lead prices.

Jindal Steel & Power: BUY| Target Rs 181

Motilal Oswal maintains a buy rating on Jindal Steel & Power Ltd with a target price of Rs 181. The brokerage firm expects the standalone EBITDA to increase 23 percent on a QoQ basis and 44 percent on a YoY basis to Rs 970 crore on higher steel volumes.

The standalone steel sales volumes are up 24 percent QoQ/3% YoY to 1,040kt. Overseas EBITDA is estimated to increase by 10 percent on a QoQ basis to Rs 540 crore on higher volumes at Oman and benefit of higher prices and volumes at coal mines.

Petronet LNG: BUY| Target Rs 454

Motilal Oswal maintains a buy rating on Petronet LNG with a target price of Rs 454. The brokerage firm expects the company to report a net profit of Rs 390 crore, up 66 percent on a year-on-year (YoY) basis and EBITDA of Rs 630 crore for the quarter ended March.

Dahej terminal utilization is at 98 percent and long-term growth would depend on Dahej’s ramp-up and Kochi terminal’s pipeline connectivity. As against 15mmt capacity, PLNG has ~16mmt long-term take-or-pay contracts.

Bharat Electronics: BUY| Target Rs 180

Motilal Oswal maintains a buy rating on Bharat Electronics with a target price of Rs 180.

BHEL has planned capex of Rs 2,300 crore over the next five years toward modernization and expansion of existing facilities to support the government’s “Make in India” initiative.

The majority of the capex would be spent on developing BMS test bed, TCS test bed for the missile system, etc.

Ashok Leyland: BUY| Target Price Rs 94

Motilal Oswal maintains a buy rating on Ashok Leyland with a target price of Rs 94. The Net revenue is likely to grow by 6.5 percent on a YoY basis and 43 percent on a QoQ basis, led by growth in volume and decline in realization. The EBITDA margin is likely to contract by 110bp on a YoY basis, driven by higher costs in RM, staff, and others YoY.

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