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Motilal Oswal's five midcap stock ideas after Q2 earnings

Updated : 2019-11-22 12:56:32

Motilal Oswal said the second-quarter corporate earnings for the fiscal year 2019-20 was in line with its modest expectations. “While the corporate tax rate cuts helped in arresting earnings downgrades, commentaries do not suggest any imminent recovery,” the brokerage said in a November 18 report. Concerns related to demand are visible in the economy and it can raise the risk for earnings downgrades in FY21, it said. Here are Motilal Oswal’s five midcap stock ideas after Q2 earnings:

Colgate appears undervalued given its own healthy medium-term earnings prospects and on a relative basis compared to peers, said Motilal Oswal. In terms of guidance, Colgate will prioritize volume-led sales growth even if it comes at the cost of near-term EBITDA margins.
Colgate appears undervalued given its own healthy medium-term earnings prospects and on a relative basis compared to peers, said Motilal Oswal. In terms of guidance, Colgate will prioritize volume-led sales growth even if it comes at the cost of near-term EBITDA margins.
Ashok Leyland: We prefer PVs over CVs and 2Ws as (a) it is likely to be the least impacted segment from BS-VI, and (b) it has a stable competitive environment. Ashok Leyland’s system inventory reduced to 13.2k units in Oct’19 (v/s 18.2k units in Sep’19 and ~27.5k in Jun’19). The company maintained cost savings target of ~INR5b in FY20, of this, INR2-2.3b was already achieved in 1HFY20. FY20 capex of ~INR18b (v/s earlier guidance of ~INR23b).
Ashok Leyland: We prefer PVs over CVs and 2Ws as (a) it is likely to be the least impacted segment from BS-VI, and (b) it has a stable competitive environment. Ashok Leyland’s system inventory reduced to 13.2k units in Oct’19 (v/s 18.2k units in Sep’19 and ~27.5k in Jun’19). The company maintained cost savings target of ~INR5b in FY20, of this, INR2-2.3b was already achieved in 1HFY20. FY20 capex of ~INR18b (v/s earlier guidance of ~INR23b).
Jubilant FoodWorks is a significant beneficiary of the corporate tax cut compared to peers, thereby increasing its competitive advantage and freeing up over INR450-500m every year. High base of SSSG is now largely behind while the urban demand scenario seems to be not worsening anymore. Valuations at 40x FY21 (at the time of the upgrade) were well below the 5-year and 10-year average of over 60x, leading us to upgrade Jubilant to “Buy”.
Jubilant FoodWorks is a significant beneficiary of the corporate tax cut compared to peers, thereby increasing its competitive advantage and freeing up over INR450-500m every year. High base of SSSG is now largely behind while the urban demand scenario seems to be not worsening anymore. Valuations at 40x FY21 (at the time of the upgrade) were well below the 5-year and 10-year average of over 60x, leading us to upgrade Jubilant to “Buy”.
JK Cement: We remain structurally positive on the Indian cement sector due to expectations of limited new capacity addition, which should result in improving utilization, assuming a normalized demand CAGR of 5-6%. JK Cement is also expected to deliver volume growth from new capacities.
JK Cement: We remain structurally positive on the Indian cement sector due to expectations of limited new capacity addition, which should result in improving utilization, assuming a normalized demand CAGR of 5-6%. JK Cement is also expected to deliver volume growth from new capacities.
Aditya Birla Fashion and Retail Limited (ABFRL): Revenues for our retail universe companies grew 16 percent YoY in 2QFY20. ABFRL saw strong 14 percent revenue growth with healthy SSSG. ABFRL saw a 29 percent slump in PAT attributed to higher ad spends and higher store adds leading to lower EBITDA margin. ABFRL targets to open 400 Lifestyle brand stores in FY20. Aiming for mid-teens revenue growth for Lifestyle brands and Pantaloons. Margin improvement of 200-300bp in Pantaloons.
Aditya Birla Fashion and Retail Limited (ABFRL): Revenues for our retail universe companies grew 16 percent YoY in 2QFY20. ABFRL saw strong 14 percent revenue growth with healthy SSSG. ABFRL saw a 29 percent slump in PAT attributed to higher ad spends and higher store adds leading to lower EBITDA margin. ABFRL targets to open 400 Lifestyle brand stores in FY20. Aiming for mid-teens revenue growth for Lifestyle brands and Pantaloons. Margin improvement of 200-300bp in Pantaloons.
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