The mid-cap stocks basket comprises of a number of trash stocks that investors must avoid at any costs. Stocks like Core Education which plunged nearly 80 per cent in the week ended 1st March, Aanjaneya Lifecare, which lost over 50%, Welspun Corp, which lost 30%, Onelife Capital, which lost 50%, Gemini Communication, which lost over 40%,Orbit Corporation, which lost 13% and Educomp, which lost 25%, enjoy the dubious reputation of being trash stocks that should be avoided like the plague.
However, a number of top quality mid-cap stocks have also suffered in the resultant carnage. The ET and Karvy Stock Broking have identified these safe midcap stocks:
1) JK Lakshmi Cements: Potential upside in the stock is over 50%; Buy with a target price Rs 200
JK Lakshmi Cements is doubling its cement capacity to 10.5 mn MT during the FY13/15E period, which should drive its industry leading volume CAGR 13% in the FY12/15E period. Strong demand and ensuing supply discipline should help the company to hit CAGR of 6.5 per cent during this period.
The stock has plunged 22 per cent so far in the year 2013 compared to a 2.6 per cent fall in the benchmark index, S&P BSE Sensex.
Karvy is pegging the stock performance to improve on the back of capacity expansion. JK Lakshmi Cements’ capacity is set to rise by 5.2 mn MT by FY15E/early FY16E.
JK Lakshmi Cements currently sells 90 per cent of its cement in the northern and western regions, where demand is expected to remain strong. Driven by strong volume and rice growths along with fuel/power cost efficiency, they expect EBITDA & PAT CAGR of 29 per cent and 39 per cent during the FY12/15E period.
2) Jyothy Laboratories Ltd: Potentail upside is over 30%; Buy with a target price of Rs 210
Jyothy Laboratories (Jyothy) has come out well from the phase marked with great pressure in terms of acquisition of Henkel India (Henkel), slow growth in core business owing to distribution restructuring and interest obligation.
On the back of distribution restructuring and its short-term adverse impact on performance, the stock has corrected by 20 per cent in the past 4-months. However, for the year 2013 the stock has corrected a little over 3 per cent.
Karvy is of the view that ensuing quarters’ better performance would drive the stock in the near to medium term. As distribution restructuring is over, Jyothy’s overall performance is expected to improve substantially from Q4FY13 onwards, with which Jyothy’s valuation discount compared to its peers would shrink further.
Jyothy Laboratories’ management expects additional 200 bps saving through better raw material sourcing and packaging. The brokerage firm expects Jyothy to initially invest a large part of this saving through higher A&P, which will boost its business.
3) Kolte Patil Developers Ltd: Potential upside is over 80%; Buy with a target price of Rs 180
Kolte Patil Developers is likely to gain momentum backed by “multiple triggers” which have led to a partial “multiple re-rating”. For FY14/15E the brokerage firm sees further expansion playing out. Despite a recent run-up, Karvy believes that the stock still offers over 80 per cent upside.
Kolte Patil Developers is witnessing strong transformation with recent talent acquisition (VP-Marketing joining from Prestige Estates, Head Business Development joining from HCC Realty), Mumbai foray and Bangalore expansion, whilst in Pune the company is consolidating its market share beyond 11-12% (3 mn sqft). Besides, Kolte Patil Developers is one of few realty companies which have a stated dividend policy of distributing 15-25% of annual profits.
Apart from the above-listed reasons, Kolte Patil Developers has a very conservative approach to debt, which reflects in strong PE partnership with ICICI Venture, IL&FS & Portman Holdings and with no guaranteed IRRs structure.
4) Karur Vysya Bank: Potential upside seen over 25%; Buy with a target price of Rs 600
Karur Vysya Bank (KVB) has reported strong growth in balance sheet with balanced profit growth of above 20 per cent during the FY10-FY12 period. Managing its asset quality watchfully, the bank has reduced its NPAs over past few years and has also maintained its profitability which is superior to most of its peers.
The business growth of Karur Vysya Bank continues to remain above industry growth rate. Its loan book grew 34 per cent in FY12, while the overall banking industry grew by 18 per cent. Karvy expects Karur Vysya Bank to continue its high growth momentum in FY12/15E as well. However, Karur Vysya Bank’s slippages are likely to increase marginally going forward as it will be difficult for it to improve the asset quality further.
Karvy also expects its gross NPAs & net NPAs to show marginal uptick from the current levels of 1.3% & 0.4%, respectively. Karur Vysya Bank is currently having a healthy provision coverage ratio of 75 per cent.
5) Page Industries Ltd: Potential upside seen over 15 per cent; Buy with a target price of Rs 3861 (12-months):
Page Industries has a strong market presence with global brand ‘Jockey’ in its portfolio which makes Page Industries (Page), the market leader in India’s branded inner-wear segment.
Its license has been extended up to 2030 by Jockey International and renewed license agreement includes the rights for the UAE, in addition to the existing markets of India, Sri Lanka, Nepal & Bangladesh. Karvy pegs its top-line and earnings growth at a CAGR of 24% & 26% over FY12/FY15E.
Karvy is of the view that the premium innerwear market is likely to grow at 28-30 per cent with a base of Rs. 37 bn, and Page Industries would lead the growth due to brand recognition, product innovation, and reach across over 1,200 cities, over 400 distributors and >23,000 retail outlets along with 100 EBOs.
Moreover, with an 18 per cent price hike across products in early FY12, Karvy expects 5-6 per cent realization hike in FY14E. Page Industries is undergoing capacity expansion with total installed capacity to reach 150 mn pieces by Dec 2013E & 155-160 mn pieces by CY15E to keep up pace with demand.