It's Time To Look At Midcap Stocks, Here Are 3 Stocks To Buy From The Space

Broking firm, Emkay Global has recommended buying the stocks of Devyani International, Sapphire Foods and HPCL in its recent research reports. At the moment, the Sensex and the Nifty are trading significantly higher and hence one also needs to be cautious. Let's take a look at why there is a buy call on these stocks.

Sapphire Foods

Emkay Global has a buy on the stock of Sapphire Foods, with a price target of Rs 1650. "Store additions at 42 remained robust, with 20/14 store additions for PH/KFC. Despite operating challenges, Sapphire added 8 stores in Sri Lanka (SL), highlighting its continued growth focus for SL. RM inflation led the 310/110bps decline in gross margin for KFC/PH formats in Q2. However, operating leverage helped restrict the comparable brand margin decline to 80bps for KFC, while PH brand margins saw a 440bps improvement on a low base. SL brand margins declined ~550bps, led by 1,060 decline in gross margins," the brokerage has said.

Devyani International: Target of Rs 225 on the stock

On Devyani international the brokerage has a buy call with a price target of Rs 225. "The company's Q2 EBITDA was largely in line with our estimates. Among brands, KFC SSG at 13% was better than expected, while PH SSG at 3% was weaker. Near-term commentary was cautious, as PH softness was attributed to weak consumer sentiment amid elevated retail inflation. However, DIL retained its outlook of 7-8% SSG for PH, underpinned by its entry into the value-pizza segment [Flavor-Fun Pizzas]. Store additions remained robust, with net additions of 88/158 stores in Q2/H1FY23 and annual guidance of 250 store-additions was retained. Inflationary pressures led the 100bps decline in brand margins," the brokeage said.

Devyani International: KFC Revenues see sharp growth

KFC revenues grew by 47%, led by 37% growth in store count and 13% SSG, while PH revenues saw 36% growth, led by 35% growth in store count and 3% SSG. Among channels, on-premise for both KFC/PH saw faster growth at 60-70% vs. ~20% growth in the off-premise channel. "With new menu launches, marketing initiatives and deeper penetration, DIL continued to expect higher normalized SSG, at 8% for PH vs. 4-5% for KFC formats. Store additions at 88 remained robust, with 30/32 store additions for PH/KFC and 19 stores for Costa Coffee," Emkay Global has said in its report.

HPCL

Emkay Global has set a target price of Rs 230 on the stock of HPCL. "The company reported Q2FY23 SA adj. (ex-subsidy) EBITDA loss/net loss of Rs65.1bn/Rs63.7bn, weaker than our estimate of a Rs 55.8/55.5 bn loss due to potential marketing inventory loss vs our gain estimates. Book GRM and marketing margins seem in-line," the brokerage has said.

We value HPCL based on SOTP methodology, with investments at 30% holdco discount. We increase our target EV/EBITDA from 5.0x to 5.5x Sep-24 earnings, matching it with IOCL's, as we have taken a 22-23% SA EPS cut in FY24/25. "We also significantly lower HMEL's value due to the weak Q2 and impact from windfall levies. We retain HOLD with revised TP of Rs230/sh. A favorable macro and potential policy support along with auto-fuel price movement are key monitorables. As HPCL is the most leveraged OMC, any material improvement it witnesses would have an outsized delta as well," the brokerage has said.