Malini Bhupta & Vishal Chhabria of Business Standard have spoken to experts from Edelweiss Securities, Prabhudas Lilladher, Kotak Institutional Equities and Prabhudas Lilladher on the stocks to buy.
The experts have advised that while picking mid-caps, the key focus should be on the sustainability of earnings and cash flows, as such companies tend to require capital to grow. The experts have used strong filters such as earnings predictability through the next five years, financials (revenue growth in the past, return on equity and cash flow analysis) and leadership position.
Based on the research, the experts have identified the following mid-cap stocks:
| TOP MID-CAP PICKS BY EDELWEISS | |
| Company | Investment Rationale |
| Canfin Homes | Company has maintained NIMs of 2.9% over five years. Loan book has grown 19% CAGR over 10 years |
| Cholamandalam Finance | Net interest income has grown 33% CAGR over five years with stable margins |
| Mayur Uniquoters | Among top two Asian suppliers of artificial leather, its sales have grown at 33% CAGR over 5 years. Company likely to generate RoE of 30% |
| Natco Pharma | Company has grown at 21% CAGR over 7 years. Dominant position in the generic oncology space in India and niche player in US |
| Ratnamani Metals | A leader in industrial project pipes, sales have grown 27% CAGR and PAT by 43% over 10 years. Company expected to sustain growth levels |
| Suprajit Engineering | Leader in automotive control cables for 2-wheelers, its earnings have grown by 20% CAGR over 10 years aided by increased market share |
| Indo Count Industries | Third largest exporter of bed linen from India and fourth largest bed-sheet exporter to the US. Company moving towards value-added products |
The experts have also given valuable advice that investors must buy stocks bearing in mind (i) the growth potential, (ii) the track record of the company and its promoters, (iii) manageable or low debt, (iv) robust financial track record and growth potential, (v) a clear niche or a high competitive edge in business, (vi) strong corporate governance practices with professional managements, (viii) businesses should be relatively easier to understand, (ix) have the wherewithal to adjust to technological changes, (x) business should be least determined by regulations such as pricing limits and subsidies, which weigh heavy on growth.
| TOP MID-CAP PICKS BY PRABHUDAS LILLADHER | |
| Company | Investment Rationale |
| Cummins | The stock is trading at 23.2x FY17E earnings. Outlook continues to be positive, given the strong ramp-up in exports |
| Ashok Leyland | Demand recovery in M&HCV to aid company. Volume growth of 23.5% CAGR over FY15-17 likely |
| Federal Bank | Analysts betting on management’s ability to drive business, which will improve return ratios and keep a tab on the level of slippages |
| Mindtree | Earnings downgrade unlikely despite currency woes. Revenue growth to be aided by Discoverture acquisition |
| Hexaware Technologies | Strong growth from top clients, high dividend pay-outs to continue to support return on equity |
| JK Lakshmi Cement | Entry into profitable eastern region and consolidation in Gujarat a big driver |
| KPIT Technologies | Strong deal closures and better than expected revenue growth drives earnings upgrades |
| Ashoka Buildcon | Well-funded infra player expected to be key beneficiary of revival in economy and pick-up in toll revenues |
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