Stocks to buy: Kansai Nerolac Paints, Apcotex Industries shares may rally up to 23% in next two quarters

Sensex and Nifty have soared 14% from June lows as Foreign Institutional Investors (FII) returned to Dalal Street and inflation seemed to be cooling down. On Tuesday, Sensex and Nifty were dancing between gains and losses as bulls and bears engaged in a tug-of-war after the recent run-up. It may be prudent to stick with stock-specific action until volatility subsides on Dalal Street. HDFC Securities has picked two stocks that they believe have the potential to help investors pocket as much as 24% returns in the next 2 quarters. These include Kansai Nerolac Paints, Apcotex Industries.

Kansai Nerolac: BUYTarget price: Rs 556 – 613 per shareUpside: 23%

Kansai Nerolac Paints is the largest industrial paint and third largest decorative paint company in India. The firm not only caters to traditional markets but continues to venture into new customer need areas, such as wood coating, adhesives, and construction chemicals in decorative and floor coatings, among others. The stock is down more than 15% so far this year but has charted an up-move in recent weeks to now trade at Rs 499 per share. 

In the first quarter of the current financial year, Kansai Nerolac increased its sales by 46% on-year, driven by more than 20% volume growth in decorative paints and ~30% in industrial and automotive paints. “Despite price hikes, margins in industrial paints are 700-800 bps lower than in decorative segment. KNPL is planning to introduce technologically advanced products and make calibrated price hikes to bridge the gap in margins between the two segments,” HDFC Securities said. Analysts believe softening of raw material prices and focus on premiumisation in the decorative segment would drive the margin expansion. “We think the base case fair value of the stock is Rs 556 (39.4x FY24E EPS) and the bull case fair value is Rs 613 (43.5x FY24E EPS). Investors can buy the stock in Rs 501-511 band (36x FY24E EPS) and add more on dips in Rs 438-448 (31.5x FY24E EPS) band,” they added.

Apcotex Industries: BUY Target price: Rs 626 – 681.5Upside: 19%

Apcotex Industries Limited (AIL) is a producer of Synthetic Rubber and Synthetic Latex. Analysts noted that Apcotex has one of the broadest ranges of emulsion polymer products in India and caters to a wide range of industries. While having a presence in South East Asia, the Middle East, and Africa, the company intends to tap the other Markets as well. In the first quarter of the financial year, Apcotex reported the highest-ever quarterly revenue, growing 65.5% on-year and 10.5% sequentially to clock in Rs 306 crore. Net profit increased 48.5% on-year to Rs 33.6 crore. 

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So far this year, the stock has been an outperformer, zooming more than 50% to now trade at Rs 575 per share. Analysts believe the company will benefit from de-bottlenecking, new products, large capacity expansion, strong growth in ApcoBuild business and higher export revenue. “We remain positive on the company on the back of new business segment ApcoBuild and products launched in the past two years which are expected to drive growth in the next 2 years,” HDFC Securities said. “At CMP, the stock trades at 27.6x/20x of FY23E/FY24E EPS. We recommend buy on Apcotex Industries in the band of Rs 564-569 and add more on declines at Rs 502 for base case target of Rs 626 and bull case target of Rs 681.5 over the next two quarters,” they added.