Published on October 13, 2016
1. Feel left out? Join the midcap party with these10 stocks In the past year, small- cap and mid-cap scrips have been on a roll. In the past few weeks, the BSE Mid- cap index has not just scaled new highs, but it has also outperformed the large-cap index so far in 2016, gaining 20 per cent as compared to the Sensex’s 11 per cent gain. The upcoming September quarter (Q2) results could witness the midcap party continuing. Analysts suggest that close to a dozen mid-caps currently had the ability to surprise the Dalal Street in terms of both bottomline and topline on robust consumer demand and a strong order book. Market analysts have recommended 10 such stocks whose price performances could sprint ahead on an upside. They are as follows: CITY UNION BANK: Analysts predict that City Union Bank may report a good performance as compared to numbers of other banks, which may be weak. The bank is expected to gain from improving access to the end markets and capital and physical infrastructure due to structural resets. Among small and midcap banks, City Union Bank is a top pick of the analysts and they expect strong margins and controlled asset quality to support Return on Assets (RoAs) at about 1.55 per cent.
2. KALPATARU POWER: It has been recorded that the stock is trading at a P/E of 15.5 times its earnings of FY17, at a discount to its 2-year average P/E of 19.31 times. Analysts believe firm outlook in the domestic T&D market and rising presence in high-growth areas such as railways should help the Kalpataru Power deliver close to 20 per cent earnings compound annual growth rate (CAGR) over FY16-18. The analysts expect a strong revenue growth of 26 per cent year-on-year (YoY) in the September quarter (Q2) as execution picks up in projects won over in the last 6-9 months. DCB BANK: DCB Bank’s loan growth - 28 per cent(YoY) and deposit growth 20 per cent(YoY) would be above industry average. Analysts expect non- interest income to grow by 43 per cent (YoY), on strong growth in trading gains. DCB Bank is one of the cheapest among private banks with FY17 price-to-book of ‘1.8’ times. The market analysts expect revenue growth to have similar contribution for net interest income (NII) and non-interest income. They expect PAT to grow about 22 per cent (YoY) in spite of elevated costs. MUTHOOT FINANCE: Muthoot Finance is expected to post one of its best quarters on the back of strong gold prices. Margins are expected to improve year-on-year on better auction realization, rise in lending rates and falling funding costs, analysts informed. The scrip is trading at ‘2.2’ times FY17 estimated book against ‘2.7’last year. The net interest income (NII) is expected to grow 31 per cent (YoY) in September quarter (Q2). MINDA CORP: The operating margin of Minda Corp is expected to improve in Q2 due to operating leverage benefits and enhancement in the profitability of Minda Furukawa JV (joint venture). It is trading at an alluring valuation of ‘15’ times FY17 estimated earnings. Market analysts expect consolidated revenues to grow by 24 per cent (YoY), led by strong
3. growth in the standalone business and effect of consolidation of Minda Stoneridge and Panalfa financials. RALLIS INDIA: Rallis India shares are trading at ‘23.6’ times FY17 estimated earnings which is cheaper than its peers (PI Industries, Dhanuka Agritech and Vinati Organics). The September quarter could be a strong quarter on a feeble base for it, but Rallis will have to take full losses of Metahelix, analysts said. This shall lead to profit after tax or PAT before minority interest growth of 19 per cent fall to 16 per cent on post-MI basis. The analysts expect agri-inputs to grow by 16 per cent and seeds revenues to grow at 20 per cent (YoY) with better margins. PI INDUSTRIES: Analysts expect PI Industries to report healthy numbers with a combined revenue growth of 20 per cent. Analysts say that its domestic business growth is likely to be driven by good performance of novel products like Keefun and Vibrant (both gaining traction). Analysts expect a 20 per cent EPS CAGR over FY2016-18 on the back of the consistent augmentation in its pipeline, culminating in innovator products, and the noticeable pipeline of high-margin in-licensed products. WABCO INDIA: Stock analysts estimate Wabco India’s revenues to increase by 18 per cent(YoY), led by higher content per vehicle because of mandatory ABS in MHCVs from 1stOctober, and growth in the after-market segment. Analysts expect earnings momentum to be strong at a CAGR of 35 per cent over FY16–18, on the back of steady MHCV demand, implementation of sterner safety standards driving ABS revenues, and healthy margins, albeit royalty hike would be a drag. TRIDENT: Trident posted strong volume off-take in home textiles because of strategic initiatives and efforts which were taken in the past such as
4. strengthening marketing team, widening product offerings and expanding global reach. The analysts are overweight for medium to long-term investment. The company would focus on marketing efforts and was on track to optimally utilize its global scale capacities, said an analyst. He added that this would help it create significant free cash flows. TECHNO ELECTRIC: Techno Electric is capable of serving the whole power space, which includes transmission, distribution and generation, aiding it adapt to changing trends. An analyst said that Techno Electric had all the hallmarks of a top-notch contractor. He expects revenue of 26 per cent and EPS CAGR of 34 per cent over FY16-18 in the EPC business. He added that valuations of 16 times of the EPC business FY18 expected EPS was dear or expensive, however strong FCF profile justified the multiples. Disclaimer The investment advice or guidance provided by way of recommendations, reports or other ways are solely the personal views of the research team. Users are advised to use the data for the purpose of information and rely on their own judgment while making investment decision. Dynamic Equities Pvt. Ltd - SEBI Investment Advisory Reg. No.: INA300002022 Disclosure Dynamic Equities Pvt. Ltd. is a member of NSE, BSE, MCX SX and a DP with NSDL & CDSL. It is also engaged in Investment Advisory Services and Portfolio Management Services. Dynamic Commodities Pvt. Ltd., associate company, is a member of MCX & NCDEX. We declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered. SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise letters or levied minor penalty on for certain operational deviations. Answers to the Best of our knowledge and belief of Dynamic/ its Associates/ Research Analyst: DYNAMIC/its Associates/ Research Analyst/ his Relative: Do not have any financial interest / any actual/beneficial ownership in the subject company. Do not have any other material conflict of interest at the time of publication of the research report Have not received any compensation from the subject company in the past twelve months Have not managed or co-managed public offering of securities for the subject company. Have not received any compensation for brokerage services or any products / services or any compensation or other benefits from the subject company, nor engaged in market making activity for the subject company Have not served as an officer, director or employee of the subject company Article Written by Salman Hashmi