02 Mar , 2022 By : Kanchan Joshi
Recent market correction could pose a good opportunity to evaluate quality small and midcap stocks, as per Jefferies. Recommending it as its top stock picks, the global brokerage said it likes EMS plays Dixon and Amber led by structural indigenization opportunity and PLI upside.
It also likes market leaders Supreme Industries (SI), Kajaria Ceramics (KJC) and Crompton given their strong brand franchises (ease of hiking prices), cost control (Project Unnati in Crompton), premium mix (40% value-added in SI), and pan-India reach.
“Three key catalysts which primarily helped sustain Crompton's OPM resilience are cost control, price hikes and premiumization. The company achieved cost saving of Rs460mn in Q3 via the 'Unnati' Project (Rs480mn in Q2). In past 12M, Crompton has taken 4-5 rounds of tranched price hikes, cumulative at 17-18%; latest price hikes was in Q3, and full benefit could be seen in Q4," the note stated.
For Kajaria, price hikes in Faucet-ware have been higher at a total 15% over past 9M, owing to a sharp YoY hike in brass prices (key RM). Whereas, Sanitary-ware saw a price hike of around 8%. Jefferies believes strong price hikes across segments alludes to KJC's strong brand salience
Though, a spike in input costs (rising crude) and supply-chain issues could pose a key risk. Yet in view of current global geopolitical tensions - volatility in commodities, freight and energy costs could also pose a key risk to FY23 margins, the brokerage believes.
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