Moneycontrol
Last Updated : Sep 16, 2018 12:04 PM IST | Source: Moneycontrol.com

2 smallcaps, 1 midcap buy ideas for the medium to long term

Sumit Bilgaiyan of Equity99 believes the fortnightly high-low will act as strong support and resistance for market

Moneycontrol Contributor @moneycontrolcom
 
 
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Sumit Bilgaiyan

Equity99

After crashing nearly 1,000 points in the first two trading sessions of last week, the Sensex saw a sharp recovery in the last two trading sessions but closed Friday in the red for the second straight week.

Ease in consumer and wholesale inflation, strong industrial productivity numbers and recovery in the dollar-rupee added fuel to the market in last 2 trading sessions. Exports rose by 19.21 percent to $27.84 billion in August on account of healthy growth in petroleum products, engineering, pharmaceuticals, and gems and jewellery shipments. Trade deficit during August narrowed to $17.4 billion as against $18.2 billion in July.

On Friday, the government announced some plans to control the current account deficit and support the rupee. Movement of the dollar-rupee and crude oil prices and worries over trade war between the United States and China are still major concerns for the market in the short term.

We believe the fortnightly high-low will act as strong support and resistance for market. It will trade between these levels in the next fortnight.

There are many important events in the coming week. IRCON International's IPO will open on September 17. Redington India will announce its buyback offer on September 17. Markets regulator SEBI board will meet on September 18.

Due to holidays on Thursday on account of Muharram, Bank Nifty’s weekly expiry will be settled on September 19.

Here is the list of 3 stocks that are expected to give better returns in medium to long term:

Divis Laboratories

With a portfolio of 122 products across diverse therapeutic areas, Divis is one of the largest pharmaceutical companies in India. It has reported excellent results for Q1FY19, sales and EBITDA grew by 21.2 percent and 43.7 percent YoY, respectively, while PAT increased by 50.8 percent to Rs 266.16 crore.

EBITDA margins in Q1FY19 were at 35.4 percent versus 35.5 percent in Q4FY18 and 29.8 percent in Q1FY18. It has paid healthy 500 percent dividend for FY18.

At the CMP, the stock trades at a P/E of 36.5x. Technically stock has formed flag pattern break out on daily chart which is bullish in its nature. We are recommending a Buy for medium term.

Sonata Software

Sonata has posted a quite healthy growth in Q1FY19. Its profit zoomed 34 percent to Rs 57.6 crore against Rs 43 crore. EBITDA increased 29 percent to Rs 83.1 crore against Rs 64.5 crore while income increased by 8 percent to Rs 688.3 crore against Rs 634.5 crore.

It's EBITDA margin improves to 10.66 percent from 7.51 percent.

Stock is trading at a PE ratio of 19.8x. Company has reported 15 percent plus CAGR revenue growth and 25 percent plus CAGR PAT growth over last four years.

Company has posted return on equity (ROE) & return on capital employed (ROCE) more than 25 percent. The stock looks good on the daily and weekly chart so we are recommending a Buy for medium term.

Meghmani Organics

Meghmani Organics is amongst top 3 global Phthalocyanine based pigment players with 14 percent global market share. Its PAT increased 61 percent CAGR in last five years and EBITDA margin improves from 16.6 percent to 23.9 percent in last five years.

It has reported excellent results for Q1FY19, sales and EBITDA grew by 13.1 percent and 36 percent YoY, respectively, while PAT increased by 78 percent to Rs 77.1 crore.

At CMP, the stock is trading at PE of just 11.2x on its EPS (TTM) of Rs 7.95 per share. We believe this stock can give superb returns in a long run so we are recommending a Buy for long term investment prospective.

Disclaimer: The author is Founder of Equity99. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Sep 16, 2018 12:04 pm
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