homemarket Newsstocks NewsThe five midcap IT stocks that may give 50 100% returns according to Macquarie
The five midcap IT stocks that may give 50-100% returns according to Macquarie
Persistent Systems is Macquarie's top pick and its price target of Rs 8,330 implies that the stock may double over the next 12 months.
Brokerage firm Macquarie sees digital transformation as a multi-year growth driver for the midcap IT industry. This, despite some of their clients being under pressure.
It has an outperform rating on stocks like Persistent Systems, LTIMindtree, Coforge, Birlasoft and Mastek with a potential upside of anywhere between 55-105 percent. Among these companies, Persistent Systems is Macquarie's top pick and its price target of Rs 8,330 implies that the stock may double over the next 12 months.
In a report released last week, the brokerage said that while midcap IT firms have been rewarded with a PE re-rating in recent years, their valuations should reflect the differences in both growth rates and their risks to growth.
Macquarie prefers companies that - have a proven client mining ability, increasing offshore execution and declining concentration among top clients.
Persistent Systems is scaling up accounts by chasing larger, longer-term deals, according to Macquarie. It has also shifted to offshore execution, is improving margins and is reducing client concentration. It is Macquarie's top pick within the midcap IT space and the brokerage believes that it has potential to be the fastest growing firm within the sector.
LTIMindtree, the combined entity formed after the merger of L&T Infotech and Mindtree provides a perfect synergy and rounds off individual weakness, according to Macquarie. The firm adds that as a combined entity, its top client concentration has reduced and the company has sufficient scale across major industry verticals to compete with larger peers.
The brokerage further said that LTIMindtree offers the best prospects for long-term share-price outperformance with the least risk in its peer group.
Macquarie expects a sustainable growth trend for Coforge, courtesy its timely investments. It is poised to gain scale in the banking vertical after tapping into the US retail bank sector through its recent acquisition. Coforge ranks third in the pecking order for Macquarie within the midcap IT space.
Birlasoft has demonstrated effective capital allocation by returning excess cash to shareholders through recent buybacks and by a series of dividends since listing. Macquarie sees Birlasoft as a company with an ability to scale up giving its strong outsourcing value proportion and delivery credentials with a large deal.
Macquarie has a 55 percent potential upside on Mastek, which has been doing transformational M&A starting with Evosys. The brokerage says that Macquarie is showing signs of being able to enter large accounts and also expects it to be able to cross-sell other services. However, within the sub-$1 billion market capitalisation, Macquarie prefers Birlasoft over Mastek.
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