2 Midcap Stocks to Watch out as the Unlocking Plot Thickens

  • Stock Market Analysis

The number of new Covid-19 cases has come down over the last 30 days. From 54,069 cases on June 23, 2021, the country reported 35,342 new cases on July 22. With vaccinations catching up the pace and earlier hotbeds showing fewer cases over the last couple of weeks, the economic activity is slated to go up in the coming days. Companies whose products are directly consumed by the masses are poised to do better going ahead. We have shortlisted two companies with a possibility of medium-term stock price appreciation.       

1. Lux Industries Ltd (NS: LUXI )

Lux Industries Limited manufactures and distributes apparel that mainly consists of innerwear. The Kolkata headquartered company sells trunks, slips, slacks and bloomers, and cold wear for men, women, and kids. It markets its products across the globe. Lux Industries is the numero uno innerwear garment company in volume terms in India. The company has around 15% market share in Men’s innerwear segment. It is undertaking expansions to drive growth and capture market share in the women and kids segment. Athleisure and inner garments businesses are poised for higher consumption from the public as the unlock theme gains momentum. Lux Industries will merge the business of Genx and Lyra into Lux to have a broader product offering along with its premium innerwear under the brand ONN and ONE8. The company has also increased its online sales, which have more than doubled in recent quarters. The shift from non-branded garments to branded garments, population increase, higher disposable income, supply chain ease, and opening up of local markets should drive the company’s revenue going ahead.

On the financials front, Lux Industries reported a year-on-year 17% revenue growth and a whopping 52% profit after tax growth in FY2021. The company has also successfully reduced its working capital cycle from 160 days in FY2020 to 122 days in fiscal 2021. It has reduced its debt to become a net cash company. What is noteworthy is the steady rise in promoters’ share in the company. They have increased their holding from 69.5% in September 2020 to 74.4% in June 2021. Although the stock increased two and a half fold in a year, it is poised to move northwards further in the coming months. 

2. Relaxo Footwears Ltd (NS: RLXO )

Relaxo Footwears is a prominent footwear company in India established in 1984. The company is among the top companies in the country operating in the leather sector. Relaxo has eight state-of-the-art manufacturing plants spread over north India to manufacture 7.5 lakh units per day. The company started manufacturing Hawaii slippers and successfully diversified into manufacturing joggers, school and leather shoes, and casuals. Relaxo sells 18.4 crore pairs per annum through its vast distribution network of 50,000 retailers and 370 exclusive brand outlets (or EBOs). It manufactures a broad array of footwear under nine brands, including Relaxo, Schoolmate, Flite, Bahamas, and Sparx. Relaxo is banking on e-commerce platforms to put its top-line growth on a fast track. The company is also putting a significant thrust on social media marketing through digital campaigns. 50% of the current Rs 55,000 – Rs 60,000 crore Indian footwear market is captured by unbranded footwear. It provides vast scope for the company to further increase its market share. As supply chain obstacles fade out and local markets start opening up, we should see expediting revenue growth.      

In Q4FY2021, Relaxo posted superb results with year-on-year revenue and net profit growth of 38.3% and 97.2%, respectively. Its EBITDA margin expanded to 21.8% from 17.8% despite raw material cost escalation during the same period. Notably, DII and MFs have increased their stake in the company steadily over a period. The scrip skyrocketed 87% in a year and 41.6% in six months, confirming momentum.  

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