See action in midcap, smallcap spaces: Emkay Share

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See action in midcap, smallcap spaces: Emkay Share

Krishna Kumar Karwa, Director of Emkay Share & Stock Brokers believes that the mid and smallcap space has already outperformed. He takes note that the space was underperforming one year back, but adds that the midcaps were very buoyant now.

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Excerpts from Closing Bell on CNBC-TV18 Watch the full show » RELATED NEWS Mkts end strong: Are newer highs on the horizon? Mkt ends higher; midcaps will see pressure: Experts Mkts end weak; liquidity crunch to continue, say experts Mkts end flat: Remain invested, say experts Mkts end flat; may consolidate within 10-15 days ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets BSE | NSE 01/01/70 Are Mutual Funds betting on ? Other Stocks in this news Emkay Global Financial Services | HDFC Bank | Lloyd Electric and Engineering | aurionPro Solutions | Shree Ashtavinayak Cine Vision | Websol Energy System | Zenith Infotech |

Krishna Kumar Karwa , Director of Emkay Share & Stock Brokers believes that the mid and smallcap space had already outperformed. He takes note that the space was underperforming one year back, but adds that the midcaps are very buoyant now.

Further on, he notes that the promoters of various mid and smallcap companies didn't expect fear of any slowdown, or anything like that. The mood is very buoyant. All the companies in that space were very confident of their growth and expansion plans.

Excerpts from CNBC-TV18's exclusive interview with Krishna Kumar Karwa:

Q: How is the mood right now on the mid and smallcap space and is there the expectation that they might outperform by way of earnings from here on?

A: They have already outperformed as such. Around one year back, they were underperforming, but the underperformance in the last three months has certainly caught up and midcaps are very buoyant. Also, even the promoters of various midcap and smallcap companies do not expect any fear of any slowdown, or anything like that because of the interest rates hikes. The mood is very buoyant. All are very confident of their growth and expansion plans and it is very robust as such.

Q: Shree Ashtavinayak is what you picked up from the film exhibition space. What do you like about that story and how comfortable are you with valuations on these stocks now?

A: Shree Ashtavinayak is into production and exhibition of films and they are the leading distributors in the Mumbai segment, which is the largest segment as such. What they bring to the table is the professionalisation  and corporatisation of the film production. They have had a very good last year, where they had almost Rs 14 earnings. They had two successful productions - Golmaal and Bhagam Bhag. This year, they are expected to release almost five films in the second half of the year. And they themselves will be producing the films. In this quarter they have distributed two films. So they bring total corporatisation and professionalisation of film production to the table. They are not interfering in the aesthetics, etc., but are strictly going by Budget.

As far as valuations are concened, if you look at the space and the way multiplexes are coming up, you require a lot of content. With professionals entering this business, there is a very big market for content. On a historical basis, I believe that valuations are going at around 16 times earnings. Last year, they did Rs 15 earnings and stock price was at Rs 260 odd. But going forward, we believe that this stock could report earnings of almost Rs 25 crore on their Rs 10 crore equity. So, this is still going at around 10 times FY08 earnings. So, we believe that valuations are comfortable.

Q: AurionPro as well as Zenith Infotech: What is it that you like about this space and are you particularly looking at companies that  are either focusing on infrastructure or the BFSI vertical?

A: We picked up Zenith Infotech because of the unique positioning that it has. They are into the remote IT infrastructure management and have launched the product three years back. They are using channel partners in the US. They have almost 4000 channel partners and they are providing their remote IT infrastructure management services to the SMEs. They have put in all the efforts in the last 2-3 years; now, we should be seeing exponential growth in the company. We believe that this company is capable of growing more than 100% compounded for the next two years to come. But this is a niche IT infrastructure software management company and going at almost 10-11 times earnings FY08. That is the reason we picked up this company for our conference.

As far as AurionPro is concerned, it is in the BFSI space; and they too are uniquely positioned. They have been in this business for almost 10 years now with more than 500 odd employees. They are focused on the cash management part of the business. They have relationships with clients such as HDFC Bank , Citibank, etc. So, that is the reason we have picked up BFSI. It is going at around 12-13 times earnings and we believe that they are uniquely positioned to capture this space over there. They do not have any large competition from the large players in the space.

Q: What about Webel SL Energy Systems - that is another one on a forward-earnings basis. It looks a little expensive, but do you like it at this point in time?

A: Webel were to attend our conference, but unfortunately they couldn't attend. This is a unique technology company into the photovotaic cells; as you know alternative sources of energy is very much on the card. They already have a capacity of 10 megawatts and are expanding to 14 megawatts capacity. These companies are not to be looked on valuations as such. You need to look at these companies by the space they are in and the opportunity that they provide us. That is the reason we had invited them; unfortunately, they couldn't come, but they are expected to attend our conferences in the near future.

Q: Did Fedders Lloyd attend? What is the story for that one?

A: Both, Fedders Lloyd and Lloyd Electric attended. Fedders Lloyd is into the air-conditioning business. They are on the institutional side, where they have clients on the defense sector, telecom sector and the railways as such. There, the entry barriers are very high in terms of getting approved as supplier, etc. So, that is the story on Fedders Lloyd. The business itself, if you see, the railways are air-conditioning their coaches big time; so, the opportunities over there are big. In the defense sector, they have got some huge orders to air condition some tanks, etc. And they are regularly getting large orders from there. And as far as the telecom sector goes, the number of towers put across the country are big, with BSNL , etc. That is the opportunity that Fedders Lloyd sees on the segment as such.

Just for your information, air conditioning industry in the country itself is growing by 35-40%. So, they are entering the retail space also; so, in the next 1-2 years, we should see good amount of splash from them on the retailing front as well. Valuations are reasonable.