5 Midcap Stocks to BUY

Best Midcap Stocks to Buy

Most of the investors feared investing in equity markets as it started falling and entered a bear phase on account of covid-19 outbreak across the world. However, the Sensex and Nifty jumped ~47% and ~48% respectively from March 2020 lows to September 09, 2020 led by the huge global liquidity and efforts taken by countries all over the globe to fight the coronavirus (Covid-19) pandemic.

However, some of the investors may plan to liquidate their portfolio to take the advantage of rise in the markets. Additionally, investors may also fear that the increase of covid cases and delay in finding out the vaccine to cure covid-19 disease will drag the market sooner or later. However, investors can consider investing in mid cap stocks with the right fundamentals and attractive valuations. 

Thus, based on financial performance, management, business outlook and valuations, 5paisa has selected the following 5 mid cap stocks that can appreciate and give huge returns in the long run.

Exide Industries

CMP: Rs.156
Target: Rs.205 (1 year)
Upside:31.4% 

Exide Industries, a duopoly player, stands to benefit from auto replacement demand recovery as it is less discretionary in nature (difficult to postpone). Similarly, the OE segment should also normalise soon, emerging opportunities (solar and e-rickshaws), cost control & minimal capex, and softer lead prices should benefit the company. However, the company will face short term challenges due to slowdown in the economy due to spread of Covid19. Thus, we see marginal revenue CAGR of 3.3% over FY20-22E. We expect Ebitda margin to normalise in upcoming quarters, as volumes revert to pre-Covid levels and production ramps up in sync with sales. The stock is currently trading at 22.2x FY21EPS.
 

Source: 5paisa Research

Ashok Leyland (AL)

CMP: Rs.67 
Target: Rs.75 (1 year)
Upside: 11.9% 

FY21E volumes would be 60% off peak (FY19) and 15% lower than FY09. We expect a sharp rebound in volumes in FY22E, as the economy recovers and after two years of sharp down-cycle.  AL is the only investible pure play on recovery in MHCVs. In addition, AL has gained substantial traction in LCV scaling from near-zero levels to 10% market-share in recent years. AL is planning to widen its LCV offering, which may bring in further market share gains.  AL’s EBITDA margin has been in the 2-12% range through cycles; FY21 would be at the low-end of the range. As volumes improve from lows, we expect margins to inch up, driving a multi-fold jump in earnings.  We expect EBITDA CAGR of 29.6%over FY20-22E. We also expect revenue and PAT CAGR of 12.9% and 48.8% over FY20-22E respectively.

Source: 5paisa Research

Gujarat Gas (GGA’S)

CMP: Rs.292
Target: Rs.360 (1 year)
Upside: 23.3% 

GGAS is a key beneficiary of NGT/Gujarat HC order, to ban usage of coal gasification in the Morbi region – resultantly, sales of gas have more than doubled in Morbi in FY20. Further, GGAS is an inverse play on LNG prices and an outlook of weak LNG prices augurs well for the company’s volume growth.   GGAS is well placed within the CGD space, given the scope for geographical expansion, as it owns licences to distribute gas in 40 cities. This gives long term earnings growth visibility.  We expect PAT CAGR of 5% over FY20-22E driven by volume growth and margin expansion. Stock trades at 22.6x FY21E (at a discount to IGL).

Source: 5paisa Research

Persistent Systems Ltd

CMP: Rs.982 
Target Price: Rs.1050 (1-year)
Upside: 6.9%

We believe a combination of large deal wins in the past few quarters, being a beneficiary of some vendor consolidation trends and increased focus on client mining, led by a restructured sales-force and driven senior management, could ensure double-digit revenue Cagr for PSYS’ services business (70% of revenue) over the next three years. While Alliance may still struggle to grow, focus there could be on cost optimization. The BFSI vertical and its Salesforce practice are likely to be key revenue drivers. We see revenue CAGR of 12% over FY20-22E. After years of underperformance, PSYS’ turnaround is firmly in place, driven by the new management whose services-focused and large deal-driven strategy is bearing fruit in the form of improved revenue visibility, even in these uncertain times. We see PAT CAGR of 22.7% over FY20-22E. The stock trades at 18.1 FY21EPS.