In their latest analysis, Jefferie, delved into the performance of midcap stocks in India for the third quarter of the fiscal year 2023-24 (Q3FY24). The report unveils a robust earnings growth trajectory, particularly evident when excluding UPL, with a notable momentum of +30% YoY across their coverage.
Key contributors to this impressive growth include Dixon, Kajaria Ceramics, Pidilite, and V-gaurd. Notably, the Pipes sector exhibited the highest margin rise, averaging +220bps YoY, primarily attributed to the stabilization of PVC prices YoY, particularly in FNXP and SI.
However, the report also highlights softer demand impacting the Business-to-Consumer (B2C) mix of companies such as Havells, POLYCAB, and Whirlpool of India during Q3. Conversely, the Cables & Wires (C&W) segment posted double-digit volume growth. Strong Q3 performances were reported by DIXON and Pidilite.
Among the 11 stocks covered in the report, approximately 55% either met or exceeded Jefferies’ expectations. Excluding UPL, the coverage EPS growth stood strong at +30% YoY, driven by companies like DIXON, Kajaria Ceramics, Pidilite, and V-guard. Sales growth was reported at a healthy +19% YoY, primarily influenced by volumes in C&W and Building Materials.
Jefferies notes that softening commodities played a crucial role in a margin rise of +70bps, with the exception of UPL, which experienced a setback due to prolonged destocking and pricing pressures.
The report maintains a bullish stance on the capital expenditure (capex) and housing theme, as well as the Electronics Manufacturing Services (EMS) sector. Jefferies’ top picks include SI (Supreme Industries), where an expected margin uptick from FY24 with PVC stabilizing and ~40% value-added mix is anticipated.
AMBER, where a bullish outlook on Amber’s diversification into Components is underscored, estimating FY23-26e sales/PAT CAGR at +17%/+40%; and KJC (Kajaria Ceramics), identified as a good play on home furnishing, with Morbi export focus aiding domestic demand and pricing stability.
Conversely, Jefferies advises caution ‘Hold’ on White Goods Havels, Whirlpool of India and high-PE stocks Dixon and Astral. The report provides valuable insights for investors navigating the dynamic landscape of India’s midcap stocks in Q3FY24.