November Top Picks: 6 Smallcap Stocks Trading Between Rs 200 To Rs 1,700 Likely To Give 8-25% Returns

As the trading sessions for November 2023 kick-started, brokerage Axis Securities has liked six smallcap stocks as top picks for the month. These are Kirloskar Brother, JTL Industries, CIE Automotive, Westlife Foodworld, CreditAccess Grameen, and PNC Infratech. These stocks are trading between Rs 200 to Rs 1,700, and are expected to give between 8% to 25% returns ahead.

In the last three months, Axis Securities note pointed out that a catch-up rally was also seen in the Smallcap Index, which has posted a robust 37% return since the Mar'23 low. Notably, the Axis Top Picks basket delivered impressive returns of 25% in the last year, beating the benchmark Nifty 50 index (6% return over the same period) by a wide margin. The basket, however, declined by 2.5% in Oct'23 on account of the volatile equity market. Nonetheless, it still managed to beat the benchmark Nifty 50 as it de-grew more at 2.8% on an MoM basis.

Here is what Axis Securities highlights about the mentioned smallcap stocks and why it has recommended them to buy:

1. Kirloskar Brothers: (TP: Rs 995, Potential Upside: 8.5%, CMP: Rs 917.45)

Axis Securities' recommendation is supported by a) Robust improvement in the company's order book, b) Increasing revenue contribution from the Services segment, c) Restructuring of business activities resulting in improving ROE and ROCE (to 19.6% and 25.1% respectively) and operating margins (by 100 bps to 11.7% by FY25). At the current CMP, the stock looks attractive at 17x 1 Yr-Fwd consensus PE.

Given the above-mentioned growth drivers, the brokerage values the company at 18x on FY25 earnings to arrive at a Target Price of Rs 995/share, implying an upside of 10% from the current levels.

2. JTL Industries: (TP: Rs 265, Potential Upside: 19%, CMP: Rs 223.2)

With the phase-wise volume expansion in progress, Axis Securities' note said, "we model Revenue/EBITDA/PAT CAGR of 46%/45%/51% over FY23/25E. We maintain our BUY rating on the stock and value JTL at 23x its FY25 EPS to arrive at our 1-year forward target price of Rs 265/share."

JTL is planning to expand its capacity from the current 0.586MT to 1MT by FY25 and it will be enhancing its VAP share from the current 31% in FY23 to 50% by FY25. JTL will add 0.2MT capacity each at Mangaon and Raipur by the end of FY25 and 14kt at Mandi (by Q1FY24) which will take its total capacity to 1MT by FY25.

3. CIE Automotive: (TP: Rs 585, Potential Upside: 21.5%, CMP: Rs 481.3)

Axis Securities continue to like the company's growth story driven by (a) Operational Performance and Focus on building an EV product portfolio, (b) Healthy order book position and steady growth in Indian operations, (c) Strong FCF generations and negligible debt on the balance sheet, (d) Capacity building to meet demand from India OEM's. The growth trajectory in EU operations is expected to gradually recover in H2CY24 by the management.

Keeping these factors in view, the brokerage said, "We forecast the company to post a Revenue/EBITDA/PAT CAGR of 9%/17%/19% over CY22-25E. We like CIEAUTO and reiterate our BUY rating on the company at a 1-year Forward PE multiple of 24x (unchanged) on Indian operations (aided by overall industry growth and demand-backed capacity expansions) and 10x (unchanged) on moderate European operational earnings for CY25 EPS (roll forward from Jun'25 EPS). Based on this, we arrive at our SOTP-based TP of Rs 585/share."

4. Westlife Foodworld: (TP: Rs 1,000, Potential Upside: 23%, CMP: Rs 815.90)

The brokerage maintains its positive outlook on WLDL. It is confidence in the company's bright prospects is supported by its strong execution track record of Revenue/EBITDA growth of 17%/51% over FY16-20, which was driven by new product launches and cost rationalization programs (100-200bps cost reduction every year). We expect the company to deliver healthy Revenue/EBITDA growth of 28%/43% CAGR over FY22-25E (Post Ind. AS) led by above growth tailwinds.

5. CreditAccess Grameen: (TP: Rs 1,875, Potential Upside: 12%, CMP: Rs 1,675.25)

The brokerage's note said, "We prefer CAGrameen amongst the microfinanciers, despite its premium valuations. We believe the company remains well poised to deliver superior performance over the medium to long term. This will be supported by (a) Strong rural presence and strong rural focus, (b) Customer-centric approach, (c) Robust technology infrastructure, (d) Strong Risk Management Framework and (e) Adequate capitalization. Post a strong show in H1FY24, the management has revised its guidance upwards on a few operational parameters."

Further, the brokerage said, "We expect CAGrameen to continue delivering strong RoA/RoE of 5.5+/24-25% over the medium term. We maintain our BUY recommendation with a revised target price of Rs 1,875/share and value CAGrameen at 3.6x FY25E BV."

6. PNC Infratech: (TP: Rs 425. Potential Upside: 25%, CMP: Rs 338.9)

The Road sector is witnessing encouraging development owing to increased government thrust on infrastructure investment. Furthermore, diversification into Railways augurs well for the company implying lower dependence on road projects. The company reported good operating performance in Q2FY24 with Revenue/EBITDA/PAT growth of 8%/10%/7% which were broadly in line with estimates. Considering strong and diversified order book position, healthy bidding pipeline, new order inflows, emerging opportunities in the construction space, the company's efficient and timely execution and strong financial credence, we expect PNCIL to report Revenue/EBITDA/APAT CAGR of 12%/11%/12% respectively over FY23-FY25E.

"Stock is currently trading at 12x and 11 x FY24E/FY25E EPS which is attractive. We recommend a BUY rating on the company and value the stock at 11x FY25 EPS and HAM portfolio at 1x book value to arrive at a target price of Rs 425/share," the brokerage added.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.