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Worthy dozen? Small caps with the potential to become multibaggers

The chemical sector has been a stellar performer and continues to surprise us with interesting results. The three companies that caught our attention are still reasonably valued.

January 31, 2018 / 05:27 PM IST

Madhuchanda Dey
Moneycontrol Research

For investors snowed under an avalanche of numbers during the recent earnings season, we have spotted a dozen small cap companies (market cap less than Rs 1000 crore) that you may like to keep on your radar.

Chemical companies – the market favourite

The chemical sector has been a stellar performer and continues to surprise us with interesting results. The three companies that caught our attention are still reasonably valued.

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Bhageria Industries is a global player in the dyes & intermediates space. Nearly 70% of their production is exported worldwide to various clients including multinationals. The company has recently expanded capacity which should support earnings momentum. The Indian dyes & intermediates Industry has been witnessing an unprecedented rise in demand for its products, thanks to the closure of polluting Chinese capacities and closure of smaller facilities in India.

Diamines & Chemicals is the only producer of ethylene amines based in India. The product has use in various industry segments such as pharmaceuticals, agro-chemicals, resin and coating, water treatment chemicals, oilfield chemicals etc. The company has a lean Balance Sheet.

Coming from the house of Pidilite (shareholding 40.6%), Vinyl Chemicals India Ltd has a major presence in the field of trading of various specialty chemicals all over the world.

Alongside chemicals, the evergreen consumption sector has never failed to produce interesting ideas.

Consumption sector – the secular trend

Asian Hotels East owns the Hyatt Regency in Chennai and Kolkata. While the latest quarterly numbers got a demonetisation in the base quarter helped, the outlook on the hotel sector is looking up with improved occupancy.

Som Distilleries and Breweries is engaged in the business of manufacture and sale of Beverage Alcohol (beer and Indian-made foreign liquor (IMFL)). The company's beer is sold under the brand names of Hunter, Woodpecker, Black Fort, Power and Legend. The Company supplies draught beer to all the major hotels in Madhya Pradesh and Chhattisgarh under the brand names of Hunter and Woodpecker. It is looking to add capacity and acquisitions to boost output.

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Umang Dairies may not have a glorious past but has reported a strong quarter and is a part of a business - the dairy industry which is in a sweet spot. This JK group of company which is into milk and value added products operating in the heartland of India might be a candidate that could interest large names eyeing the lucrative Indian dairy market.

The defence opportunity

A small company that is worth a mention is Avantel Limited. While the company designs, develops and manufactures components needed by the wireless industry, it is also into RF and Microwave sub-systems for Defence labs and leading PSUs (public sector units). Avantel has been working closely with Defence labs, Defence public sector undertakings, ISRO and Defence services.

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Capex linked businesses

Arfin India is engaged in manufacturing aluminum products. The company forayed into the aluminum recycling and ferro alloys segment in the year 2001. Strong end market outlook imparted strength to its numbers. Domestically it caters to Steel, Chemical, Power & Conductor industries and globally the company focuses on large steel units.

Electric motors and transformer maker Bharat Bijlee has seen a substantial improvement in performance although valuation has partially captured the turnaround. Going forward, the numbers should reflect the nascent revival in industrial capex.

Everest Industries Ltd, while known for its roofing solutions has now stepped up efforts to increase contribution from its other two segments namely boards and panels and steel buildings. By FY20, close to 65% of the company’s profitability should come from newer building products and pre-engineered steel building. The strong brand recall, diversified product range and distribution network puts it in a vantage position. The change in the product mix, going forward, should support margin.

Ion Exchange offers a wide range of solutions across the water cycle from pre-treatment to process water treatment, waste water treatment, recycling, zero liquid discharge, sewage treatment, packaged drinking water, sea water desalination etc. The company is also engaged in manufacturing ion exchange resins, speciality chemicals for water and waste water treatment as well as non-water applications.  The company has a healthy order book. Waste water management is expected to grow at a healthy clip as the capital expenditure on water and wastewater infrastructure is set to increase in the coming years. Ion Exchange should be a beneficiary of this trend.

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Keltech Energies Ltd, manufacturing Cartridge Explosives, Bulk Emulsion Explosives, Mono Methyl Amine Nitrate (MMAN) solutions, Accessories for Explosives, Expanded Perlite Products & Perlite Filter Aid is a part of the diversified Chowgule Group.

The revival in capex cycle especially in areas like mining and cement stands to benefit this entity.

Madhuchanda Dey
Madhuchanda Dey
first published: Jan 31, 2018 04:17 pm