Top Mid-Cap Stocks for Investment

Nikita Bhoota

08 Aug 2017

Nifty Midcap 50 index has given a stellar performance in the past 5 years and has attracted a lot of attention of the market participants. Nifty Midcap 50 has given returns of 18% in the last 5 years as compared to 14% return generated by Nifty50 in the same time period. In simple terms, mid-cap stocks are the one which have higher growth potential but are riskier when compared to large-cap stocks. Given the fact that midcap stocks have rallied sharply in the last 5 years, picking the right stock for investment is a great challenge. Below mentioned are some of the stocks which have good growth potential in the long run.

KEC International Ltd

KEC International is a global infrastructure Engineering, Procurement & Construction (EPC) company. It derived 80% of the revenue from transmission & distribution business (T&D), 12%- cables, 5% -railways and rest from solar and water segment in FY17. Geographically 52% of the revenue came from overseas and remaining from domestic business in FY17. We expect revenue CAGR of 14% over FY17-FY19E due to the strong order book of Rs 13,500 cr at Q1FY18 end. PGCIL capex plan of Rs 24,000 cr in FY18E augurs well for KEC T&D business as PGCIL is KEC’s largest customer (forms~50% of the domestic revenue). Additionally, pickup in T&D spending in some states like Orissa, Jharkhand and UP SEB’s is also beneficial for the company. Increasing Government focus on electrification and decongestion will also improve the railway business of KEC. We expect EBITDA CAGR of 15% on account of good geographical mix and completion of loss-making projects in the railway business. Due to improved working capital efficiency, the company is expected to bring down its D/E ratio to 1.2x vs.1.6x currently. We expect PAT CAGR of 17% over FY17-FY19E. We expect an upside of 18% from CMP of Rs 298 over next 12 months.

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Prism Cement Ltd

Prism Cement (PCL), part of R Raheja Group, is a prominent and integrated building materials manufacturer. Its revenue consisted of cement - 43%; tiles, bathroom & kitchen (TBK) - 34%, RMC-23% and Insurance-1% in FY17. Prism has a cement capacity of 7mtpa, tile capacity of 61mn sq mt and RMC capacity of 8.5mn cubic meter. We expect revenue CAGR of 7% over FY17-FY19E on account of strong prospects in cement and TBK business. The company is well positioned in the central region to benefit from demand-supply mismatch due to higher consolidation in the region. Further, increase in marketing and distribution activities in TBK business will also support the revenue growth. Good monsoon expectation and Government focus on affordable housing augurs well for the company. We expect EBITDA margins to improve by 400bps as the company is focusing on increasing the share of value added products in cement as well as TBK divisions. In addition, declining gas prices and pricing power in cement business will also improve the margins. We expect a significant growth in PAT over FY17-FY19E on account of strong operating performance. We expect an upside of 26% from CMP of Rs 119 over next 12 months.

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CESC Ltd

CESC is a flagship company of the Sanjiv Goenka RPG Group. It is the sole distributor of power in Kolkata. It serves approximately 2.9 million domestic, industrial and commercial users of Kolkata and Howrah, West Bengal. CESC’s flagship business is power generation and distribution (64% of sales) followed by real estate (21%), Retail (12%) and rest comes from IT. The company has announced demerger of CESC into four entities- power, distribution, retail and IT & Mall. All the four will be listed and the effective date will be Oct 1, 2018. CESC operates 1.1m sq ft retail area across India through its subsidiary Spencer Retail. We expect revenue CAGR of 14% over FY17-FY19E on account of pickup in power and distribution business. 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 its plans to add 0.2mn square feet retail space in next 2 years will also improve the revenue. We expect EBITDA CAGR of 14% over FY17-FY19E as CESC expects the new distribution franchisee in Rajasthan to contribute to EBITDA by FY18E and pick up in the retail business. We expect PAT CAGR of 20% over FY17-FY19E. We expect an upside of 25% from CMP of Rs 961 over next 12 months.

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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 3rd largest manufacturer of laminates with 12% market share after Greenply and Merino. Plywood & allied products (71%) and laminates & allied products (21%) are major revenue contributors. We expect revenue CAGR of 15% over FY17-FY19E on account of capacity expansion in laminates and foray into MDF segment. CPBI MDF plant of 1,80,000 CBM is likely to commence operations from Q2FY18E and is expected to contribute incremental revenue of ~Rs 250 cr in FY18E. 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 increased its laminate capacity by 50% to 4.8m (FY13-FY16) sheets and is further ramping up to 7.2 mn sheets by FY18E. We expect EBITDA CAGR 23% of over FY17-FY19E on account of 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-FY19E. We expect an upside of 27% from CMP of Rs 282 over next 12 months.

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HUDCO

HUDCO is a wholly-owned government entity with an outstanding loan portfolio of Rs 39,661 cr as on FY17, which can be divided into– 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-FY19E 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 expected to grow at 8.5% CAGR over FY17-19E led by Government’s focus on strengthening infrastructure. Net NPA is expected to decline from 1.15% in FY17 to 1.1% as HUDCO has stopped sanctioning loans to the private sector since FY14 in order to curb rising NPAs. We estimate PAT CAGR of 15% over FY17-FY19E. We expect an upside of 22% from CMP of Rs 82 over next 12 months.

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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Top Mid-Cap Stocks for Investment

Nikita Bhoota

08 Aug 2017

Nifty Midcap 50 index has given a stellar performance in the past 5 years and has attracted a lot of attention of the market participants. Nifty Midcap 50 has given returns of 18% in the last 5 years as compared to 14% return generated by Nifty50 in the same time period. In simple terms, mid-cap stocks are the one which have higher growth potential but are riskier when compared to large-cap stocks. Given the fact that midcap stocks have rallied sharply in the last 5 years, picking the right stock for investment is a great challenge. Below mentioned are some of the stocks which have good growth potential in the long run.

KEC International Ltd

KEC International is a global infrastructure Engineering, Procurement & Construction (EPC) company. It derived 80% of the revenue from transmission & distribution business (T&D), 12%- cables, 5% -railways and rest from solar and water segment in FY17. Geographically 52% of the revenue came from overseas and remaining from domestic business in FY17. We expect revenue CAGR of 14% over FY17-FY19E due to the strong order book of Rs 13,500 cr at Q1FY18 end. PGCIL capex plan of Rs 24,000 cr in FY18E augurs well for KEC T&D business as PGCIL is KEC’s largest customer (forms~50% of the domestic revenue). Additionally, pickup in T&D spending in some states like Orissa, Jharkhand and UP SEB’s is also beneficial for the company. Increasing Government focus on electrification and decongestion will also improve the railway business of KEC. We expect EBITDA CAGR of 15% on account of good geographical mix and completion of loss-making projects in the railway business. Due to improved working capital efficiency, the company is expected to bring down its D/E ratio to 1.2x vs.1.6x currently. We expect PAT CAGR of 17% over FY17-FY19E. We expect an upside of 18% from CMP of Rs 298 over next 12 months.

Untitled1

Prism Cement Ltd

Prism Cement (PCL), part of R Raheja Group, is a prominent and integrated building materials manufacturer. Its revenue consisted of cement - 43%; tiles, bathroom & kitchen (TBK) - 34%, RMC-23% and Insurance-1% in FY17. Prism has a cement capacity of 7mtpa, tile capacity of 61mn sq mt and RMC capacity of 8.5mn cubic meter. We expect revenue CAGR of 7% over FY17-FY19E on account of strong prospects in cement and TBK business. The company is well positioned in the central region to benefit from demand-supply mismatch due to higher consolidation in the region. Further, increase in marketing and distribution activities in TBK business will also support the revenue growth. Good monsoon expectation and Government focus on affordable housing augurs well for the company. We expect EBITDA margins to improve by 400bps as the company is focusing on increasing the share of value added products in cement as well as TBK divisions. In addition, declining gas prices and pricing power in cement business will also improve the margins. We expect a significant growth in PAT over FY17-FY19E on account of strong operating performance. We expect an upside of 26% from CMP of Rs 119 over next 12 months.

Untitled2

CESC Ltd

CESC is a flagship company of the Sanjiv Goenka RPG Group. It is the sole distributor of power in Kolkata. It serves approximately 2.9 million domestic, industrial and commercial users of Kolkata and Howrah, West Bengal. CESC’s flagship business is power generation and distribution (64% of sales) followed by real estate (21%), Retail (12%) and rest comes from IT. The company has announced demerger of CESC into four entities- power, distribution, retail and IT & Mall. All the four will be listed and the effective date will be Oct 1, 2018. CESC operates 1.1m sq ft retail area across India through its subsidiary Spencer Retail. We expect revenue CAGR of 14% over FY17-FY19E on account of pickup in power and distribution business. 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 its plans to add 0.2mn square feet retail space in next 2 years will also improve the revenue. We expect EBITDA CAGR of 14% over FY17-FY19E as CESC expects the new distribution franchisee in Rajasthan to contribute to EBITDA by FY18E and pick up in the retail business. We expect PAT CAGR of 20% over FY17-FY19E. We expect an upside of 25% from CMP of Rs 961 over next 12 months.

Untitled3

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 3rd largest manufacturer of laminates with 12% market share after Greenply and Merino. Plywood & allied products (71%) and laminates & allied products (21%) are major revenue contributors. We expect revenue CAGR of 15% over FY17-FY19E on account of capacity expansion in laminates and foray into MDF segment. CPBI MDF plant of 1,80,000 CBM is likely to commence operations from Q2FY18E and is expected to contribute incremental revenue of ~Rs 250 cr in FY18E. 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 increased its laminate capacity by 50% to 4.8m (FY13-FY16) sheets and is further ramping up to 7.2 mn sheets by FY18E. We expect EBITDA CAGR 23% of over FY17-FY19E on account of 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-FY19E. We expect an upside of 27% from CMP of Rs 282 over next 12 months.

Untitled4

HUDCO

HUDCO is a wholly-owned government entity with an outstanding loan portfolio of Rs 39,661 cr as on FY17, which can be divided into– 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-FY19E 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 expected to grow at 8.5% CAGR over FY17-19E led by Government’s focus on strengthening infrastructure. Net NPA is expected to decline from 1.15% in FY17 to 1.1% as HUDCO has stopped sanctioning loans to the private sector since FY14 in order to curb rising NPAs. We estimate PAT CAGR of 15% over FY17-FY19E. We expect an upside of 22% from CMP of Rs 82 over next 12 months.

Untitled5

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