Brokerage Prabhudas Lilladher (PL) says it prefers companies with presence in emerging segments, strong balance sheets and business moats. While the uncertain global environment and expected slowdown in US and Europe remain a concern, the broking firm believes India would successfully navigate the volatile period and emerge stronger. For Diwali, the domestic brokerage has recommended three smallcap stocks, whose price targets suggest up to 60 per cent potential upside ahead.
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Jubilant Ingrevia | CMP: Rs 538.05 | TP: Rs 860 | Upside potential: 60%
PL said Jubilant Ingrevia is well placed to capitalise on the long-term growth opportunities given its new products pipeline, traction in CDMO, import substitution, China+1 policy and commensurate capex outlay of Rs 2,050 crore over FY22-25.
The broking firm said Jubilant Ingrevia’s specialty chemicals (SPCM) segment will lead earnings growth, aided by highest capital allocation.
“It’s vertical integration across value chain drives cost and market leadership (global top 2 in pyridine-beta, vitamin B3) besides enables it to move up the value chain. Ebitda contribution from higher value segments (SPCM + NHS) is expected to increase to 67 per cent by FY25E from 53 per cent in FY22,” PL said.
The brokerage said a strong balance sheet despite nearly Rs 1,800 crore cash outflow on capex over FY23-25E; and earnings mix improvement led by higher value and structural growth segments, will drive rerating in the stock.
VIP Industries | CMP: Rs 682.70 | TP: Rs 1,020 | Upside potential: 49.40%
PL said VIP’s contribution of in-house manufacturing to overall product mix has increased from 53 per cent in FY20 to 85 per cent in FY22 and is likely to remain in the range of 75-80 per cent in FY23E.
It believes that a rising in-house production capacity is expected to structurally elevate gross margin profile, as manufacturing profit will now accrue within the company in addition to trading profit and freight cost. The currency volatility will decline amid reduced dependency on China, PL said.
“Moreover, target to increase export revenue share to 15 per cent coupled with an aim to scale handbags business by 5 times over next 3 years will act as key growth levers. We believe benefits of
owning the value chain will start reflecting soon, as input cost pressure has started stabilising. On the demand front, outlook continues to remain robust, and VIP is on track to achieve Rs20bn in top-line with an Ebitda margin of 18-19 per cent in FY23E. Amid emergence of new twin levers (handbags and exports), we expect sales CAGR of 15 per cent and PAT CAGR of 26 per cent over FY23-25E,” it said.
Westlife Development | CMP: Rs 781.25 | TP: Rs 847 | Potential upside: 8%
Thanks to a 16 per cent upside in the last one month, PL’s target on Westlife Development suggests a single digit potential upside ahead.
Westlife has accelerated its historical store expansion from 20-25 stores to 40-50 stores a year and looks to open 200-plus new stores in the next 3-4 years, PL said. This is seen taking Westlife’s store could to 500-plus.
Initiatives like fried chicken, Gourmet burgers and McCafe (present in 80 per cent restaurants, value pricing) with its premium quality are margin accretive and will boost profitability, PL said.
“We believe rising footfalls in stores and sustained traction in convenience channel sales will drive operating leverage and enable sales CAGR of 27.3 per cent over FY22-25 with an EPS of Rs 8.3 in FY23, Rs 11.5 in FY24 and 15 per cent in FY25,” PL said.
