Article

Top 5 Mid-cap Stocks for Investment

08 Dec 2017 Nikita Bhoota

Mid-cap stocks have given enormous returns in the past few years. Niftymid-cap50 outperformed the benchmark index Nifty 50 in the past 5 years. Nifty mid-cap 50 registered a 17%CAGR return in the last 5 years compared to 12% CAGR return given by Nifty50 during the same time period. In simple terms, while mid-cap stocks are more risky when compared to large-cap investment, they have immense growth outlook. Hence, mid-cap stocks are one of the most favorite picks for investors in the market. Given the fact that mid-cap stocks have rallied sharply in the last 5 years, selecting the right stock for investment is a challenge. Below mentioned are some stocks having growth potential in the long-run.

Persistent Systems Ltd

Persistent is a leading offshore product development player, which helps build software products with services across all phases of the product lifecycle. In FY17, services segment contributed 45.5% to revenue, while Alliance and Digital segments contributed 29.4% and 14.2% respectively. Its geographical revenue mix in FY17 was 85.5% from North America and 6.5% each from Europe and India. We project revenue CAGR of 9.5% over FY17-19E on account of strong traction in Alliance business backed by Persistent’s deal with its top customer IBM. Besides, new contracts in healthcare and financial services will also drive the revenues. Recent acquisition of PARX (leading sales force service provider) will help it expand Europe business, contributing 1.4% to US$ revenue in FY18. We expect EBITDA margin to improve by 120bps over FY17-19Edriven by high margin Accelerite and Digital segments. We estimate PAT CAGR of 15.8% over FY17-19E.We project an upside of 22% from CMP of Rs 649 over next 12 months.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 2,878 16.2 301 37.6 17 2.7
FY18E 3,109 16.8 351 43.9 15 2.4
FY19E 3,449 17.4 404 50.5 13 2.1

Source: 5paisa research

CESC Ltd

CESC is a flagship company of the Sanjiv Goenka RPG Group. It is the sole distributor of power(64% of sales) in Kolkata followed by real estate (21%), retail (12%) and rest comes from IT.CESC has announced demerger of CESC into four entities i.e. power, distribution, retail and IT & Mall. All the four would be listed by March 2018.CESC operates 1.1m sqft retail area across India through its subsidiary Spencer Retail. We expect revenue CAGR of 14% over FY17-19E as CESC has signed short term PPA with Maharashtra Discom to supply power from its Chandrapur plant (300 MW), which has a potential to be converted into a long term PPA agreement. Further, new distribution franchisee (3 in Rajasthan) and increasing focus on retail business will also improve the revenue. We expect EBITDA CAGR of 14% over FY17-19E, as CESC expects the new distribution franchisee in Rajasthan to be profitable in next 12-18 months and closure of loss making stores and focus on large format in the retail business. We expect PAT CAGR of 20% over FY17-19E. We project an upside of 18% from CMP of Rs 992 over next 12 months.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 13,903 22.4 810 60.9 16 1.3
FY18E 16,939 22.4 1004 75.5 13 1.1
FY19E 18,118 22.6 1183 88.9 11 1.0

Source: 5paisa research

Century Plyboard(I) Ltd

Century Plyboard (CPBI) is India’s leading plywood manufacturing company with 25% market share in the organized market. It is also the third largest manufacturer of laminates with 12% market share after Greenply and Merino. We expect revenue CAGR of 15% over FY17-19E on account of capacity expansion in laminates and foray into MDF segment. The company has recently added new MDF plant with capacity of 1,98,000 CBM and expects to generate ~Rs200cr revenue in the  current financial year. Further, Government’s focus on building smart cities, affordable housing under PMAY is beneficial for CBPI’s laminates and plywood business. In order to meet the increasing demand, CPBI has recently doubled its laminate capacity. We expect EBITDA CAGR 23% of over FY17-19E owing to entry in the high margin MDF segment and capacity expansion. GST will be a game changer for the sector/company, as it will narrow the price gap between the organized and unorganized market, resulting in consumer shift from unbranded to branded players. We expect PAT CAGR of 24% over FY17-19E.We see an upside of 20% from CMP of Rs 316 over next 12 months.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 1,962 15.9 186 8.4 38 9.8
FY18E 2,256 17.6 233 10.5 30 7.4
FY19E 2,595 18.4 289 13.0 24 5.7

Source: 5paisa research

HUDCO

HUDCO is a wholly-owned government entity with an outstanding loan portfolio of Rs.39,661cr as on FY17, which can be divided into i.e. Housing Finance (30.6%) and Urban Infrastructure Finance (69.4%). HUDCO’s 90.9% of the loan portfolio comprises of loans to state governments and remaining to the private sector. We expect HUDCO’s housing loan portfolio to register 15.5% CAGR over FY17-19E, as the company plans to revive its retail home finance portfolio by covering Credit Linked Subsidy Scheme (CLSS) of affordable housing under Pradhan Mantri Awas Yojana. Its urban infrastructure loan book is projected to grow at 8.5% CAGR over FY17-19E led by Government’s focus on strengthening infrastructure. Net NPA would decline from 1.15% in FY17to 1.1%, as HUDCO has stopped approving loans to the private sector since FY14 in order to control rising NPAs. We estimate PAT CAGR of 15% over FY17-19E.We project an upside of 21% from CMP of Rs 79 over next 12 months.

Year NII (Rscr) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 1,523 842 4.2 19 1.7
FY18E 1,800 902 4.5 18 1.6
FY19E 2,083 1115 5.6 14 1.4

Source: 5paisa research

JK Cement Ltd

JK Cement Ltd (JKCEM), which sells ~ 75% of its volumes in North India, will benefit from the improving macro conditions in North. Stable demand outlook (led by government spending on affordable housing and infrastructure projects) and limited capacity addition in the region would boost company’s capacity utilisation and realisation. Further, demand in Karnataka & Maharashtra is expected to benefit from upcoming election and infrastructure project announcement respectively. Further, JKCEM will benefit from cost rationalisation through economies of scale, commissioning of railway siding and grid connection at the UAE plant. Thus,we expect revenue and PAT CAGR of 12.5% and 23.8% respectively over FY17-19E.We project an upside of 20% from CMP of Rs 997 over next 12 months.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) EV/EBITDA(x)
FY17 3,704 17.3 260 37.2 27 13.4
FY18E 4,315 18.1 346 49.5 20 10.8
FY19E 4,690 18.2 398 56.9 18 9.6

Source: 5paisa research

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Top 5 Mid-cap Stocks for Investment

08 Dec 2017 Nikita Bhoota

Mid-cap stocks have given enormous returns in the past few years. Niftymid-cap50 outperformed the benchmark index Nifty 50 in the past 5 years. Nifty mid-cap 50 registered a 17%CAGR return in the last 5 years compared to 12% CAGR return given by Nifty50 during the same time period. In simple terms, while mid-cap stocks are more risky when compared to large-cap investment, they have immense growth outlook. Hence, mid-cap stocks are one of the most favorite picks for investors in the market. Given the fact that mid-cap stocks have rallied sharply in the last 5 years, selecting the right stock for investment is a challenge. Below mentioned are some stocks having growth potential in the long-run.

Persistent Systems Ltd

Persistent is a leading offshore product development player, which helps build software products with services across all phases of the product lifecycle. In FY17, services segment contributed 45.5% to revenue, while Alliance and Digital segments contributed 29.4% and 14.2% respectively. Its geographical revenue mix in FY17 was 85.5% from North America and 6.5% each from Europe and India. We project revenue CAGR of 9.5% over FY17-19E on account of strong traction in Alliance business backed by Persistent’s deal with its top customer IBM. Besides, new contracts in healthcare and financial services will also drive the revenues. Recent acquisition of PARX (leading sales force service provider) will help it expand Europe business, contributing 1.4% to US$ revenue in FY18. We expect EBITDA margin to improve by 120bps over FY17-19Edriven by high margin Accelerite and Digital segments. We estimate PAT CAGR of 15.8% over FY17-19E.We project an upside of 22% from CMP of Rs 649 over next 12 months.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 2,878 16.2 301 37.6 17 2.7
FY18E 3,109 16.8 351 43.9 15 2.4
FY19E 3,449 17.4 404 50.5 13 2.1

Source: 5paisa research

CESC Ltd

CESC is a flagship company of the Sanjiv Goenka RPG Group. It is the sole distributor of power(64% of sales) in Kolkata followed by real estate (21%), retail (12%) and rest comes from IT.CESC has announced demerger of CESC into four entities i.e. power, distribution, retail and IT & Mall. All the four would be listed by March 2018.CESC operates 1.1m sqft retail area across India through its subsidiary Spencer Retail. We expect revenue CAGR of 14% over FY17-19E as CESC has signed short term PPA with Maharashtra Discom to supply power from its Chandrapur plant (300 MW), which has a potential to be converted into a long term PPA agreement. Further, new distribution franchisee (3 in Rajasthan) and increasing focus on retail business will also improve the revenue. We expect EBITDA CAGR of 14% over FY17-19E, as CESC expects the new distribution franchisee in Rajasthan to be profitable in next 12-18 months and closure of loss making stores and focus on large format in the retail business. We expect PAT CAGR of 20% over FY17-19E. We project an upside of 18% from CMP of Rs 992 over next 12 months.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 13,903 22.4 810 60.9 16 1.3
FY18E 16,939 22.4 1004 75.5 13 1.1
FY19E 18,118 22.6 1183 88.9 11 1.0

Source: 5paisa research

Century Plyboard(I) Ltd

Century Plyboard (CPBI) is India’s leading plywood manufacturing company with 25% market share in the organized market. It is also the third largest manufacturer of laminates with 12% market share after Greenply and Merino. We expect revenue CAGR of 15% over FY17-19E on account of capacity expansion in laminates and foray into MDF segment. The company has recently added new MDF plant with capacity of 1,98,000 CBM and expects to generate ~Rs200cr revenue in the  current financial year. Further, Government’s focus on building smart cities, affordable housing under PMAY is beneficial for CBPI’s laminates and plywood business. In order to meet the increasing demand, CPBI has recently doubled its laminate capacity. We expect EBITDA CAGR 23% of over FY17-19E owing to entry in the high margin MDF segment and capacity expansion. GST will be a game changer for the sector/company, as it will narrow the price gap between the organized and unorganized market, resulting in consumer shift from unbranded to branded players. We expect PAT CAGR of 24% over FY17-19E.We see an upside of 20% from CMP of Rs 316 over next 12 months.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 1,962 15.9 186 8.4 38 9.8
FY18E 2,256 17.6 233 10.5 30 7.4
FY19E 2,595 18.4 289 13.0 24 5.7

Source: 5paisa research

HUDCO

HUDCO is a wholly-owned government entity with an outstanding loan portfolio of Rs.39,661cr as on FY17, which can be divided into i.e. Housing Finance (30.6%) and Urban Infrastructure Finance (69.4%). HUDCO’s 90.9% of the loan portfolio comprises of loans to state governments and remaining to the private sector. We expect HUDCO’s housing loan portfolio to register 15.5% CAGR over FY17-19E, as the company plans to revive its retail home finance portfolio by covering Credit Linked Subsidy Scheme (CLSS) of affordable housing under Pradhan Mantri Awas Yojana. Its urban infrastructure loan book is projected to grow at 8.5% CAGR over FY17-19E led by Government’s focus on strengthening infrastructure. Net NPA would decline from 1.15% in FY17to 1.1%, as HUDCO has stopped approving loans to the private sector since FY14 in order to control rising NPAs. We estimate PAT CAGR of 15% over FY17-19E.We project an upside of 21% from CMP of Rs 79 over next 12 months.

Year NII (Rscr) Net Profit (Rscr) EPS (Rs) PE (x) P/BV (x)
FY17 1,523 842 4.2 19 1.7
FY18E 1,800 902 4.5 18 1.6
FY19E 2,083 1115 5.6 14 1.4

Source: 5paisa research

JK Cement Ltd

JK Cement Ltd (JKCEM), which sells ~ 75% of its volumes in North India, will benefit from the improving macro conditions in North. Stable demand outlook (led by government spending on affordable housing and infrastructure projects) and limited capacity addition in the region would boost company’s capacity utilisation and realisation. Further, demand in Karnataka & Maharashtra is expected to benefit from upcoming election and infrastructure project announcement respectively. Further, JKCEM will benefit from cost rationalisation through economies of scale, commissioning of railway siding and grid connection at the UAE plant. Thus,we expect revenue and PAT CAGR of 12.5% and 23.8% respectively over FY17-19E.We project an upside of 20% from CMP of Rs 997 over next 12 months.

Year Net Sales (Rscr) OPM (%) Net Profit (Rscr) EPS (Rs) PE (x) EV/EBITDA(x)
FY17 3,704 17.3 260 37.2 27 13.4
FY18E 4,315 18.1 346 49.5 20 10.8
FY19E 4,690 18.2 398 56.9 18 9.6

Source: 5paisa research

Research Disclaimer