Investors mostly focus on big largecap names which are tracked by most analysts’ on D-Street, but there is a lot of value in small and midcap space which can’t be ignored.
There are a lot of companies which started their journey as a small player in the market, but over the period of time, they become a midcap player and then larecaps.
However, not every small or a midcap stock is a value buy and requires a deeper understanding of the business model, growth prospects, as well as pedigree of management. Hence, investors should be careful when putting their money in lesser known companies.
In FY17, midcaps have delivered 35 percent positive returns, as against nearly 19 percent by the Nifty. Midcaps have been consistently been able to outperform benchmark indices not just in last 12 month but in the last five years.
“The action is shifting from large caps to small caps. Large indexes are consolidating in line with the global market while mid and small caps continue to rally,” Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.
A decisive move will depend upon the outcome of Q4 results and stability in the global market. A normal monsoon forecast has not been taken positively by the market given more clarity needed on the El Nino effect.
Most analysts’ continue to remain constructive on market, but see short term correction amid geopolitical concerns, muted earnings for the quarter ended March amid high expectations. The overall impact on the market will be limited given the improvement in global economy and prospects of GST in listed entities.
But, the long-term trend still remains intact; hence, investors should not shy away from buying stocks on declines. Analysts see nearly 20 percent upside from current levels on Nifty towards 11,000 in the next 12-18 months.
“We believe that the broader market is going to remain fairly steady above 9000, with only some significant global geopolitical issues derailing the markets. We expect markets to be scale 10500-11000 levels over the next 18 months,” Nikhil Khandelwal, MD, Systematix shares told Moneycontrol.com.
“With consistent improvement in operating leverage of companies, better consumer demand, improving infrastructure spend, and improving export growth - we are seeing almost all major growth drivers being in place for Indian companies,” he said.
Going by the buzz on D-Street we have collated a list of six little-known companies from different analysts which could make it big in next 2-3 years:
Analyst: Hitesh Agrawal, EVP & Head – Retail Research, Religare Securities Ltd.
Mayur Uniquoters (MUL) is the largest manufacturer of PVC leather. The company has a capacity of 3.05mn meters leather per month, through its 6 state of the art Italian coating lines.
The company is a leading synthetic leather supplier to branded footwear, automotive and leather goods and garments companies in India and abroad. MUL enjoys 50% market share of organised industry, which mirrors its strong positioning and growth opportunities, in line with industry growth.
MUL's diversified clientele base, increasing exports sales, PU and PVC leather capacity addition augur well for company's future growth prospects. Competition from unorganised players weighed on FY17 earnings; however, we expect earnings to improve gradually over FY18E onwards.
Implementation of GST leading to market shifting from unorganized to organized players will benefit players like Mayur Uniquoters considerably over the next 2-3 years. Religare has a BUY recommendation on the stock with a price target of Rs 478.
Sutlej Textiles (STIL) is India’s largest spun dyed yarn manufacturer and a leading textile player with presence across the value chain from Yarn to Home Textile. With a total installed capacity of 3.78 lacs spindles of Yarn and 8.4 mn meters of Home Textiles, STIL’s manufacturing facilities are located in Rajasthan, J&K, HP, and Gujarat.
Led by capacity expansion and demand uptick, we expect Sutlej to deliver a healthy revenue growth over the next two years. With leadership, diversified offerings and strong clientele, STIL is well placed to exploit the available opportunities in the Textile industry.
The company is aggressively scaling up its Home Textiles business and is targeting higher share from value-added cotton melange yarn, which should improve its margin trajectory. Religare has a buy recommendation on the stock with a price target of Rs 1,032.
Analyst: Vinod Nair, Head of Research at Geojit Financial Services
Banco Products Ltd (BPIL) is a manufacturer of radiators and gaskets that have applications in automobiles, oil engines, compressors & locomotives. 80% of the consolidated revenue comes from the commercial vehicles (CV) Industry in which 60% of the revenue comes from the overseas subsidiary.
The slowdown in international radiator sales has been impacting the business and has started witnessing recovery. Revenue from overseas business has delivered a growth of 7% in 9MFY17. “We believe that higher road infra spending and impending scrappage policy will bring increase volume sales in the domestic CV segment,” said Nair.
BANCO brand is the well-accepted product brand in the aftermarket as well as has attained a reputation of being able to develop and deliver complex cooling solutions amongst OEM customers in various. “We expect subdued demand has come to its bottom and will start witnessing recovery and factor 12%/18% CAGR in consolidated revenue/PAT over FY17E-19E,” said Nair.
Astra-microwave products Ltd (AMPL) is one among few leading designers and manufacturer of sub-systems for radars and missile electronic systems. The GoI’s thrust on indigenous procurement and modernization of defence infrastructure has opened significant opportunities for domestic defence manufacturers.
The order book has marginally improved on a year-on-year (YoY) basis, which currently stands at Rs640cr as on December 2016. The order intake guidance for FY18E is at Rs650cr which is encouraging.
Going forward, the future outlook has significantly improved given better visibility on order pipeline. “With the improvement in sales mix towards higher domestic order execution, we anticipate better earnings growth & margins. We are factoring earnings growth of 20% CAGR over FY17E-19E and we maintain BUY rating on the stock,” said Nair.
Analyst: Vaibhav Agrawal, Head of Research and ARQ, Angel Broking Pvt Ltd.
The company has high-value generic product pipeline which is expected to be monetised over next three to four years. Lots of products from this pipeline are niche products with low competition which mean that company will enjoy good market share and will also see less erosion in its prices even if competition increases.
Even in the domestic space, company continues to show healthy growth rates. “We believe that Natco is most likely to get an approval to gCopaxone ANDA as an innovator of Copaxone has lost several patents on this drug already,” said Agrawal.
This will help the company to increase its revenue and net profit at a very fast pace; hence, Angel Broking is bullish on this stock and believe that it can make it big in next few years.
KEI has a healthy order book and a strong revenue visibility. The company is currently strengthening its distribution network with a focus on B2C business. This is likely to result in an increase in retail business' contribution from 30% to about 45% in the next two to three years.
It is also participating in international projects which will help in increasing export revenues. “Overall, we believe that the business is expected to show strong growth over next few years. Considering this and healthy margins, one can expect good returns from this stock over next few years,” said Agrawal.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.