• by Stocktry Expert
• 16th Mar 2021

Jefferies Top Stock Picks: Smallcap, Midcap Shares to Buy

Since June 2020, Indian share market has witnessed a sharp rebound after COVID-19 vaccine optimism. Last week on Friday, the S&P BSE Small-cap index hit a new high of 21,411 in intra-day trade. S&P BSE Midcap index scaled a new 52-week high of 21,085.51 in intraday deals on March 4, 2021. So far this month, the S&P Smallcap index has surged 3.56 per cent, as against a rise of 1.8 per cent in BSE Sensex and Nifty 50.

Historically, a phase of disruption has been followed by outperformance in Midcap and Smallcap indices (2009, 2016, 2017), says Sonali Salgaonkar, an equity analyst at Jefferies.

The Nifty Midcap index has sharply rebounded by over 70 per cent since June 2020 and is now trading at 24x forward price-to-earnings (PE), which analysts noted is 29 per cent premium to its 5-year historical average.

The best performers since unlocking and resumption (Jun’20) have been building materials, electrodes, property and Industrials.

Here’s a list of Jefferies top picks:

• Crompton Greaves Consumer Electricals: Crompton Consumer has a ‘buy’ rating with a price target of Rs 490, a jump of nearly 20 per cent.
• Blue Star: Jefferies has valued Blue Star at 35x FY23E (at a premium to 10-yr average of 32x), ascribing a target of Rs 1,000, an upside of 5.7 per cent. Blue Star is a beneficiary of increasing air conditioner penetration in India.
• KEI Industries Ltd: Jefferies has valued the company at 16x PE FY23E (a premium to its historical average of 9x), with a target of Rs 650. Currently, the stock is trading at 494.35 apiece.
• Supreme Industries: The company has a target of Rs 2,360, a rally of 14 per cent. “We value the company at 35x FY22E PE, a premium to SI’s 5-year avg multiple,” report added.
• Kajaria Ceramics: Jefferies has given a price target of Rs 1,085, a gain of 8.5 percent. The Oct-Dec 2020 quarter saw demand revival from metros and Tier 1 cities.
• The Ramco Cements: The company has a price target of Rs 1,100 apiece. After a sharp volume decline in FY21, Jefferies built strong double-digit volume growth for Ramco over FY 22-23.
• Oberoi Realty: It will take Oberoi Realty stock to jump 20 percent to hit the target price of Rs 668 apiece. Oberoi is Jefferies’ preferred real estate mid-cap pick.
• IPCA Laboratories: An upside of 20 is required to hit a price target of Rs 2,292 apiece.
• Emami: The report noted that at 30x FY22 adj. EPS, the stock trades at over 30 per cent discount to peers, which could narrow going forward. It has a ‘buy’ rating on Emami with a target of Rs 620.
• Bharat Forge: The stock is trading at 5.5x FY22E PB vs past two peaks were 6.7x and 7.6x. The price target for Bharat Forge is Rs760.
• Mahanagar Gas: Valuations are attractive at 12x FY22E P/E (Historical avg ~ 17x) while FCF yield is also robust at 6% amid a net cash balance sheet, says Jefferies. “We value MAHGL at 16x FY23E P/E for a PT of Rs 1,700 also noting upside risks to consensus earnings estimates,” it added.
• Newgen Software Technologies: Newgen Software Technologies has a ‘buy’ rating with a target price of Rs 390. Over FY21-23E, Jefferies expects Newgen to deliver 16 per cent revenue growth and 12 per cent EPS growth driven by growing adoption of its platform and service.