PVR, Just Dial among UBS’ top midcap stock picks for 2022; buy for as much as 66% upside potential

Midcap stocks had a stellar 2021 in terms of returns as the Midcaps index soared 44%. Heading into 2022, some of the underperforming midcap stocks are now expected to shine.

Analysts at global brokerage and research firm UBS have picked three stocks that they believe are inexpensive in terms of valuations and could deliver strong returns with visible earning drivers and re-rating catalysts. (Image: REUTERS)

Midcap stocks had a stellar 2021 in terms of returns as the Midcaps index soared 44%. Heading into 2022, some of the underperforming midcap stocks are now expected to shine. Analysts at global brokerage and research firm UBS have picked three stocks that they believe are inexpensive in terms of valuations and could deliver strong returns with visible earning drivers and re-rating catalysts. These include Just Dial, PVR, and Aegis Logistics. The three stocks have continued to surge higher so far in 2022, zooming between 3-15% during the first 18 days of the new year.

Just Dial: Buy
Target price: Rs 1,350

So far this year, Just Dial share price has gained more than 7% to now trade at Rs 875 per share. In 2021, Just Dial stock gained just 25%, underperforming the midcap indices. Just Dial was acquired by Mukesh Ambani’s Reliance Retail in 2021. With Reliance now at the helm, UBS envisages multiple potential scenarios which include aggressive advertising around both B2C and B2B categories aimed at surpassing the current leaders; enabling B2B eCommerce on JDMart, and launching a pure-play marketplace B2C or C2C e-commerce with small businesses.

“We view JDMart as a worthy B2B platform and assessed the quality of its listings by comparing 100 sellers/listings across 100 products/industries on the ‘Leader’ platform,” UBS said. Analysts believe Just Dial is trading at 21x one-year forward PE, slightly above its long-term (five-year) average. “Just Dial trades at a meaningful discount to local and global peers. We believe this implies the market is ignoring the growth potential from JDMart. Domestic B2B platform market leader IndiaMART trades at 50x consensus FY23 PE,” said UBS. Target price implies an upside of 54%.

Aegis Logistics: Buy
Target price: Rs 380

Aegis Logistics’ deal with Vopak is on track and due to be completed by the end of this fiscal year. “We are moderately positive about this deal as we believe it will help Aegis hedge its capex risk, given the credible partner, and provide access to technical capabilities,” said analysts at UBS. The company is also staring at massive capex plans which will further aid growth.

Aegis is trading at 16x one-year forward PE, about 1.7SD below long-term (five-year) average levels, the brokerage firm said. “We believe the market is overly concerned about the total payout from the Aegis-Vopak deal given the complex nature of the deal. We believe the market is ignoring potential growth opportunities that could materialize for Aegis through Vopak’s technical capabilities,” it added. The target price suggests 66% upside potential.

PVR: Buy
Target price: Rs 2,000

Although PVR has been at risk from the repeated covid-19 waves hitting the world and reduced theatre capacities, analysts see minimum risk for the stock from OTT releases. “We believe the risk of a rise in OTT releases is minimal, given high budget movies need theatrical releases to break even and the lean period gives an opportunity for small movies to capture wider audiences in theatres,” UBS said. A number of releases have been postponed with the third wave of covid-19 hitting India in recent weeks. 

The stock is trading at a meaningful discount to its pre-covid level likely due to Omicron and risk of OTT apps. Analysts, however, said that data indicates the market is overpricing these concerns and may be positively surprised. So far this year the stock has zoomed 19% and the target price suggests a further 25% upside.

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