Krishna Kumar Karwa, Managing Director of Emkay Share & Stock Brokers, said they have picked up companies from various sectors including banking, steel, media and capital goods among others. Though midcaps have not done well in the last six months due to the rising interest rates, investor interest here now seems to be growing.
Emkay Shares is currently hosting a midcap investors conference, spread over three-days, in which they are focusing on 21 midcap companies. A number of institutional clients are also attending. Krishna Kumar Karwa , Managing Director of Emkay Share & Stock Brokers , said they have picked up companies from various sectors including banking, steel, media and capital goods among others.
Though midcaps have not done well in the last six months due to the rising interest rates, investor interest here now seems to be growing.
Excerpts from CNBC-TV18ís exclusive interview with Krishna Kumar Karwa:
Q: Just give us a flavour of the kind of companies you are showcasing and the kind of sectors you have picked them from?
A: We have picked about 21 companies from 14 sectors. They include: Yes Bank from the banking sector, Bhushan Steel from steel, BAG Films from the media and two companies from the clutch auto space. Among capital goods, we have Bharti Shipyard and Everest Kanto .
We have tried to bring in a huge bouquet of companies for investor clients and the conference has been very successful. By the end of the day, we will have more than 200 meetings with more than 55 institutional investors. The response was so good that even overseas investors came to attend the conference.
Q: What kind of foreign institutional interest have you seen and how keen are they to invest in midcaps?
A: In the last six months, midcaps have not done very well. Off late, the valuation gap between midcaps and largecaps has been very high. There was a fear that rising interest rates could bring a slowdown in earnings etc. But after our meeting with various midcap companies, the confidence level of all the promoters and managing directors grew very high. Investor interest also seems to be on the higher side.
Q: You have showcased a couple of shipping and offshore companies as well. What kind of stories are you picking up there? You have showcased Garware Offshore and Shreyas Shipping?
A: Shreyas Shipping is not one of those but we have Garware Offshore , which has a strong business horizon. They are doubling the number of offshore vehicles in the next one-year and itís quoting at around 10 times earnings. The industry scenario itself is very strong.
We had Bharti Shipyard , which is into the construction of OSVs, PSVs and oil rigs etc. The company did a turnover of almost like Rs 400 crore last year and their order book is something like Rs 3,600 crore. Thatís the kind of opportunity, which both Garware Offshore and Bharti Shipyard are themselves talking about.
Q: Whatís the story that you like in some of these smaller steel companies like Bhushan Steel and Ratnamani?
A: Ratnamani is a manufacturer of carbon steel and steel pipes. They are a direct play on the oil and gas sector, where most of their pipe manufacturing goes. With the kind of oil refineries that are being constructed across the country their order book is very strong and the companyís valuation is also very reasonable. Our estimate is around seven times 2008 earning. We believe that this is a good investment opportunity.
Bhushan Steel is once again going in for a large capex. In the next three-years, it should be moving up the value chain big time. We believe that at six times earnings, this is indeed a good investment opportunity.
Q: Why have you not profiled any midcap technology company?
A: Sometime back we had done a conference where we had a lot of midcap IT companies meeting with various investors. This time around we decided to have a bouquet of different companies. I believe that there are some concerns on the rupee etc. So, we took this opportunity for showcasing sectors other than IT companies.
Q: Media has been very hot over the last few weeks and you have showcased BAG Films. What is the story there?
A: BAG Films has got permission for uplinking four channels. The trigger point will be the four channels that will come on entertainment and news etc. Sometime back there was a large preferential issue to high profile investors. We believe the company is poised to capture this opportunity in the media space. Once these channels go on air, we should see a substantial appreciation in valuations. In fact, the stock has done well in the last two-three months.
Q: There has been some interest in midcap pharma off late as well and Indoco Remedies is the stock that you showcased yesterday. What makes you bullish on that one?
A: In the last one-and-a-half-years after their IPO, which was almost two years ago, they have invested almost Rs 100 crore on various capexs. They have put in a lot of hardwork in the last one to one-and-a-half year. In the next two years, we believe that the results should start coming in. Their valuations are around 6 to 7 times earnings. It has grown by more than 30% in the last one year. Thatís why we brought this potential multibagger to investors.
Q: You have profiled Pioneer Embroideries , which has had a tough past month or so. What is the story you like in that stock?
A: The dope dyed yarn business is scaling up very well. In the next two-years, its margins will probably be higher than those in their basic embroideries business. They have also ventured into retail stores with their 85% subsidiary Hakoba , which is scaling up very well. They also have some presence in real estate. Once they are able to utilize that, then the overall story looks interesting from a two-year perspective. Itís a small company but we feel that the opportunity is there.
Q: The management of Hemadri Chemicals was also present at the conference today. What is their presentation all about?
A: They have scaled up their capacities currently and in the next two-years there will be a capacity increase of almost five times. One of their R&D products, which is in the pipeline, that is connected to lithium batteries could be a big trigger point. Growth in the last two-years has been very good for the company. Valuations are very reasonable at around 8 times the current year. We feel the company is poise to move to the next level, which is the next opportunity. Also, the market cap is something like about Rs 1,000 crore.
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