Motilal Oswal Sees 23% Return Potential In These 2 Mid-Cap Scrips

Leading brokerage firm Motilal Oswal has given a 'Buy' rating on Coromandel International Limited and Tube Investments of India as it sees a potential return of around 23%. Both companies are mid-cap companies that show strong growth going ahead.

1. Coromandel International

The company was incorporated in 1961 by IMC & Chevron Companies and EID Parry, headquartered in Hyderabad. This mid-cap company manufactures fertiliser, pesticides and specialty nutrients for plants and crops in the agriculture sector.

As per Motilal Oswal's research note, Coromandel reported a revenue of Rs 54.8 billion, which was slightly higher than the estimate of Rs 54.3 billion in 4QFY23. It has grown by 29.5% YoY, led by higher MRP and subsidy realisation in the nutrients business.

The company also reported 7% YoY EBIT growth, led by a strong EBIT growth of 26% in the crop protection segment (EBIT contribution of 21%), while the nutrients and other allied segment (EBIT contribution of 79%) registered a growth of only 4% YoY.

Valuation & Rating

The brokerage firm feels the key growth levers include the management's focus on increasing penetration in its existing markets, debottlenecking to raise capacity and strengthening its back-end supply chain as well as its efforts to lower the cost of raw materials while maintaining the same level of quality, establishing an alternative sourcing destination (which will aid cost savings), inorganic growth, and further capacity expansion plans in crop protection (Rs 10 billion) for CDMO, specialty and industrial chemicals.

Motilal Oswal suggests, "We maintain our earnings estimates for FY24/FY25 and value the stock at 16x FY25 EPS to arrive at our price target of Rs 1,180 per share. We reiterate our BUY rating on the stock."

Dividend Details

The Board of Directors of the company has recommended a final dividend of Rs 6 per equity share of face value Re 1 each (600%) for the financial year 2022-23. It is subject to the approval of shareholders at the ensuing annual general meeting (AGM), scheduled to be held on July 27, 2023.

Once approved, the final dividend will be paid on or after August 16, 2023, but within 30 days from the date of the AGM. The record date for payment of the final dividend will be July 14, 2023.

Scrip Movement

The latest market price of Coromandel International stock is Rs 970.65 per share, which has marginally increased by 0.87% on an intraday basis, at the time of writing this piece. In the last one year, the share price has moved up just 2.71%, but over the last three years, it has surged by 56.49%.

2. Tube Investments of India

Tube Investments is a mid-cap, engineering and manufacturing company that specialises in bicycles, metal-formed products and chains. It is based in Chennai and is a part of the Murugappa Group. It was incorporated as TI Cycles of India Limited in 1949, as a joint venture company.

According to Motilal Oswal's research note, the company's 4QFY23 performance was impacted negatively by low revenues across all businesses. It was partially due to the pass-through of deflationary raw material costs and a decrease in operating deleverage, which harmed margins.

S/A business revenues declined 4% YoY to Rs 16.6 billion but EBITDA and adjusted PAT grew 21% and 100% YoY to Rs 2.1 billion and Rs 2.7 billion respectively. However, FY23 revenues, EBITDA and PAT grew 14%, 24% and 47% YoY respectively.

Besides, there was a slight gross margin improvement of 340bp YoY (up 20bp QoQ) to 37.1%. EBITDA rose 21% YoY to Rs 2.1 billion but below the expected value of Rs 2.4 billion. EBITDA margin for the full year improved by 260bp YoY to 12.7%, close to the projection of 13%.

Valuation & Rating

Motilal Oswal believes that Tube Investments offers diversified revenue streams, with strong growth in the core business (~31% S/A PAT CAGR over FY23E-25E). The ramp-up in CG Power, and optionality of new businesses incubated under the TI-2 strategy will be beneficial.

"The stock trades at 34x/27.7x FY24E/FY25E consolidated EPS. We reiterate a BUY rating and target price of roughly Rs 3,300 per share," the stock broking firm added.

Dividend Details

The company directors, in a board meeting, have recommended a final dividend of Rs 1.50 per equity share of Rupee 1 each for the financial year ending 31st March 2023. Along with the previous interim dividend of Rs 2 per share, paid on 27th February 2023, the total dividend for the financial year 2022-23 is Rs 3.50 per share.

The said final dividend, if approved by members at the ensuing AGM, will be paid within 30 days from the date of the AGM, or on or before September 1, 2023. The company has set a book closure period.

The share transfer books of the company will remain closed from 27th July 2023 to 3rd August 2023 (both days inclusive) to determine the members eligible to receive the final dividend.

Scrip Movement

The current market price of Tube Investments stock is Rs 970.65 per share, which has marginally increased by 0.87% on an intraday basis at the time of writing this note. In the last one year, the share price has surged by 62.31%, and in the last three years, it has skyrocketed by 751.64%.

Disclaimer

The stocks have been picked up from the brokerage report of Motilal Oswal. Greynium Information Technologies, the author and the brokerage firm are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.