The Top 250 Mid Caps You May Find Interesting Enough
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Mid Caps have extended their longest winning streak since last three years. We at DSIJ have put an effort to analyses last three years’ performance of Mid Caps. Mid cap index has performed more than expectation and gave return of 121 per cent over last three years which are much more than the returns given by Sensex i.e. 44 per cent. Looking at strong performance retail investors continue to pour money into mid-caps. In our sense, mid-cap road top high returns.
Mid caps outperformed as many growing niche sectors have major share in midcap space. Growth sectors like finance, textile, trading, metal, realty, construction material, capital goods, chemicals, healthcare, agri, automobile and auto ancillary; and plastic products are represented only in mid-cap universe. Midcaps are surging in anticipation of positive economic & political triggers, better business potential and earnings. Midcaps are able to attract money as many growth sectors are belong to midcaps only not large cap. Companies like Indo Count Industries, Shilpi Cable Technologies, IG Petrochemicals, KEI Industries, Maithan Alloys, Gayatri Projects, Asian Granito India, Minda Industries, ITD Cementation, Nilkamal, Caplin Point Laboratories and TVS Srichakra are one of the niche players in midcap sphere who have performed tremendously and represents each of growing sector. We see that many midcap companies are growing faster than many large cap companies and hence they are valued premium as compare to their large cap peers.
The factor driving midcap stocks is enhanced in liquidity after stability in eco-political environment of the country. Generally, liquidity drives midcap stocks more easily than large caps. This is because of low market float of smaller companies. Market float is the number of shares available for trading. So liquidity driven rallies always front ended by midcaps.
Factoring the parameters, in last three years midcap stocks had given average returns of 203 per cent and in last one year, it had given average returns of 43 per cent.
We can also see top ten performer in terms of returns among Midcap universe. It always outperforms the market index performance by very big margin. Best performing funds of many fund houses have midcaps universe. The scrips trading below long term averages from midcaps, are filtered out in first step. It can be in terms of P/E and P/B ratios or assets profitability ratios. In this case P/E shows stock level relative to the company’s earnings while P/B or price to book value shows where stock stands relative to the value of assets on the company’s book. The companies having growing return on net worth; are considered healthy in terms of profitability and considered in growth phase. Such companies mostly comes under midcap with performed well in duration. For example, Jyoti Structures placed excellent in midcap section due to lower valuation which was due to high debt in high interest rate environment. On this note this midcap star shines with double returns in a one year period.
The ability to deliver good returns is purely based on selecting stocks priced lower than their value. Fund houses, who followed these strategy of selecting stocks ; have returned average 35% during last one year. The fund houses who has lower exposure to IT and Pharma sector companies considering macro factors, have worked well. Similarly, the funds holds a large number of midcap banks considering that banks are better positioned to take advantage of the turnaround in the economy. The banks trading below their average long term averages with better asset quality as compare to bigger banks are expected to do well in an improving macro environment.
How much money one should invest depends on one’s investment objective and asset allocation. Investors should have at least 10% of holding from midcaps marvels to enjoy long term fruits.
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Mid-Cap 250 Methodology
It is again that time of the year when we bring on the plate the select 250 mid-caps. We have ranked companies with market cap between Rs 1,000–Rs 5,000 crore. The ranking considers the highest market cap, sales and net profit. While arriving at the ranking, the financial performance is the first criteria and hence we consider two primary factors – sales and net profit. So, the companies with highest sales and net profit tend to be ranked higher amongst other companies. As the share price is the main market valuation factor, we have considered market capitalisation as the third factor for ranking. Along with the share price, mid-cap investors are also keen to know the dividend they can expect. Hence, we re-base the dividend on FV of Rs 10 to provide a common benchmark to measure the returns. Assigning equal weights to these parameters, we assign a cumulative rank.
Please note that we have evaluated the companies during the first week of March. Also, these are ranking of companies based on the parameters listed above and should not be considered as recommendations. We hope it provides our readers information to make sound investment decisions.
RoNW – An important factor to measure performance
We see from the graph below that 95 companies from our set were able to provide return on net worth (RoNW) of 10-19 while 62 companies have RoNW greater than 20. Within the lot of 250 companies, 114 companies were able to improve RoNW in FY16.
We now look at sales and net profit which were important factors in ranking. To provide additional flavour on these we looked at the growth rates of sales and net profit.
Sales and Net Profit: We see that 176 companies were able to grow their revenues, of which 51 companies were able to grow revenues by greater than 15% in FY16. However, for 44% of the companies, sales growth was below 5%.
Looking at the net profit, we see that 48% of the companies were able to grow their net profit by more than 15%. This points to companies either improving their operational efficiencies or repaying their debts. A substantial chunk of companies witnessed net profit growth of less than 6% which can be attributed to pressure on margins or higher interest outgo.
It is our endeavour to constantly provide you with analysis and information that can help you make informed investment decision.
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Dilip Buildcon | BSE Code:540047 | FV:10 | CMP:343 | Market Cap:1034.62 Cr
Dilip Buildcon is one of the leading private sector road-focused EPC contractors in India. The company boasts of having one of the largest fleets of construction equipment in India and other construction equipment from some of the world's leading suppliers.
The stock is attractive as the twelfth Five-year Plan is likely to accelerate the pace of investment in infrastructure, this being critical for sustaining and accelerating growth. The significant increase in pre-qualifications has helped the company increase the target market size and maintain the momentum of the order book growth.
On the financial front, the total income increased by a whopping 57% YoY for Q3FY17. The YoY growth in profit for the company was 170%. The operating profit grew by almost 54% YoY, thus reflecting strong growth.
On the valuation front, the stock is trading at a trailing PE of 24.66, in line with the industry PE of 25, however, the stock is trading at a discount to its peers such as NBCC and Prestige Estate Projects, which are trading at 48.73 and 31.35 multiples on a trailing basis.
The focus on profitable de-risked, sustainable growth with a robust order book, providing high revenue visibility, makes the stock an interesting investment.
GHCL | BSE Code:500171 | FV:10 | CMP:263 | Market Cap:2160.71 Cr
GHCL Limited is a leading Indian producer of soda ash, which is well poised to tap opportunities in both the Detergents & the Glass industries. The total soda ash business contributes to about 60 % of total Indian standalone revenue. In India, the company has a significant advantage in maintaining tight control on cost of soda ash due to being a major captive source on some of the raw materials – Salt, Limestone & Lignite.
The Indian market for soda ash has the greatest potential to expand in the near term with positive outlook of country’s relatively robust economy, gap in housing, and its rapidly expanding liquor and automotive industries – all of which are expected to support glass demand. Indian soda ash consumption currently stands at around 2.5 kg per capita, compared to around 20 Kg per capita in the US, indicative of ample room for growth.
On the financial front, the total income for the company was down by 6% YoY; whereas, the net profits increased by almost 21% over the similar period. The operating profits for GHCL grew by 3% YOY.
On the valuation front, the trailing PE stands at 10.23, and the stock is trading at a discount to Aarti Industries and Solar Industries, which are trading at 25.4 and 36.78 PE respectively, on a trailing basis. The industry's average trailing PE stands at 24.51.
The textile business of GHCL has also shown impressive growth and with a more stable outlook for the soda ash business, GHCL becomes a story to focus on.
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JM Financials | BSE Code:523405 | FV:1 | CMP:80.70 | Market Cap:1986.95 Cr
JM Financials, the only listed company of the JM Financial Group, is one of India’s leading financial services company. Various businesses in the group are divided in four reportable segments. These are: investment banking and securities business comprising investment banking, institutional and non-institutional equity sales, trading, research, broking and distribution, private and corporate wealth management, commodity broking, portfolio management, depository participant; fund based activities comprising non-banking financial activities (NBFC) and, asset reconstruction; alternative asset management comprising private equity and real estate fund management; and asset management comprising mutual fund management business.
In medium to long-term the fund based activities and the fund management activities can help company deliver growth. Focus on better NPA management by banks augurs well for the asset reconstruction business of JM Financials. The advisory business will see some growth opportunities as there is visible demand for customised solutions from growing mid-size segment of corporate India.
On the financial front, the total income grew 39% YoY; whereas, the net profits increased by 40% YoY for the quarter ended December 31, 2016. The operating profits increased 42% YoY.
On the valuation front, the stock is trading at a multiple of 74.54 on a trailing basis, which is above the industry average of 64.50. JM Financials is trading at a discount to its peer IIFL Holding, which is trading at a multiple of 166.95 levels.
KEI Industries | BSE Code:517569 | FV:2 | CMP:175 | Market Cap:694.34 Cr
KEI Industries is a player in the power cable segment, and is one of the largest cable manufacturing companies in India.With domain experience and expertise in the EHV cables segment, the Company has also successfully forayed into the next step of Engineering, Procurement and Construction (EPC) services for power transmission projects.
A strong presence both in domestic and international markets has further diversified and de-risked KEI’s business model. The total income increased by 29% on a YoY basis even as the net profit for the company increased by 83% for the quarter ended December 31, 2016. The operating profits increased by 26% YoY for the Company.
On the valuation front, the trailing PE for the stock is 15.48, which is lower than the Industry PE multiple of 23. KEI Industries' peer, Finolex Cables is trading at 21.9 multiple, and Shilpi Cables is trading at 38.38 multiple.
The strong order book with high growth visibility and ever improving distribution network are comforting for investors in the Company. The fact that the market for household wires as well as LT and HT cables, which together comprise the retail division for KEI, is expanding, suggests continued growth opportunities.
KEI industry’s reputation as a leading EPC player in power transmission and distribution, positions the company to benefit from the infrastructure projects slated to be executed nationally.
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Gulf Oil Lubricants Limited | BSE Code:538567 | FV:2 | CMP:710 | Market Cap:1229.66 Cr
Gulf Oil Lubricants Ltd (GOL) is functional in the third largest lubricant market in the world- India, which is also one of the fastest growing lubricants market globally. GOL operates mainly in the Automotive and Industrial segments with a leading presence as one of the top players in the open market (Bazaar channel).
GOL is well placed to capitalise on the growth opportunities in autos, and revival in GDP/IIP cycle in India. A well-balanced and improving portfolio of lubricant brands gives GOL an advantage. Faster than market volume growth, aided by a steadily expanding distribution network, is one of the impressive aspect of the Company, that cannot be ignored. Sustained brand building, wherein the Company spends 6-7% of the sales, is helping it grow. The margin expansion driven by brand building, improved sales mix and operating leverage augurs well for the stock.
The total income for the company increased by 5% YoY for Q3FY17. YoY the total income stood at Rs 273.63 crore versus Rs 260.23 crore in Q3FY17. The net profit increased by 5% to Rs 27.59 YoY from Rs 26.17 crore for the quarter ended December 31, 2016.
On the valuation front, the stock is trading at a multiple of 28.62 on a trailing basis, in line with the industry average of 28.82. The stock is trading at a marginal discount to its peer, Castrol India, which is trading at 30.69 multiple.
Tata Metaliks | BSE Code:513434 | FV:10 | CMP:527 | Market Cap:665.90 Cr
Tata Metaliks is engaged in the manufacture of foundry grade pig iron. The Company manufactures and sells products, such as scrap pig iron and granulated slag. It offers a range of end-to-end technical services, which include charge mix and melting, molding and core making, spheroidal graphite (SG) iron production and development, project based consultancy, pollution control, customised training and testing facility.
On the financial front, Tata Metaliks’ revenue declined 1.55 per cent to Rs 323 crore in Q3FY17 as compared to same period in previous financial year. The company’s EBITDA also decreased 2.38 per cent to Rs 45.59 crore in Q3FY17 on a yearly basis. However, its net profit increased 7.41 per cent to Rs 21.73 crore in Q3FY17 as compared to same period in previous fiscal.
Tata Metaliks has been successful in cutting down its total debt to equity ratio at 1.61x in FY16 from 3.21x in FY15. The Company’s interest coverage ratio stood at 4.8x in FY16.
According to Tata Metaliks' management, spike in coal and coke prices that make up for about 55 per cent of the company's total costs, and due to demonetisation which impacted Q3FY17 results, the company is expected to maintain EBITDA around 15 per cent going forward.
On the valuation front, the stock price of Tata Metaliks is trading at a PE of 10.02x as compared to peers such as Tata Sponge Iron (20.74x). At the same time, its share price is trading at an attractive valuation against industry PE of 28.09x.