Kshitij Anand of ET has spoken to leading stock market experts, Vinod Nair of Geojit BNP Paribas and Amarjeet Maurya of Angel Broking, and collated their opinions on the best mid-cap stocks that are ripe for a buy now after Q1FY17 results.
(1) Bajaj Electricals:
Bajaj Electricals is among the top four players in the consumer durables space. An expected turnaround in its Engineering & Projects (E&P) segment and a strong order book provide earnings visibility.
(2) Blue Star:
A favourable outlook for the air-conditioning industry augurs well for Blue Star’s cooling products business which is outpacing market growth. The electro-mechanical projects and packaged air-conditioning systems (EMPPAC) division’s profitability is expected to improve once the operating environment turns conducive.
(3) Radico Khaitan:
Radico Khaitan is expected to witness an earnings boost on the back of stable material prices, favourable pricing environment, and on account of a shift in the product mix in favour of premium products which command higher margins. The stock trades at a valuation discount to its peers, which provides additional comfort.
(4) TV Today Network:
TV Today Network’s market leadership in the Hindi news genre and second highest viewership ranking in English news genre, exit from the radio business, and anticipated growth in ad spends by corporate are going to benefit the stock.
(5) Goodyear India:
Expectation of an above-average monsoon this year augurs well for Goodyear India as 50 per cent of its turnover is accounted by the farm tyre segment.
(6) KEC International:
KEC International (KEC) is a global infrastructure engineering procurement and construction (EPC) major. Order inflow from SEBs and Power Grid could be the key drivers for growth.
The company is likely to receive an order inflow of Rs 9,411 crore and Rs 11,387 crore, respectively, in FY17E and FY18E, which will drive the order book by CAGR of 9 per cent over FY16-18E.
The Ebitda margins are expected to improve from current 8.4 per cent to 8.8 per cent in FY18E due to benefit from high margin order book leading to a PAT growth by 27 per cent CAGR over FY16-18E.
(7) KNR Constructions:
KNR Constructions (KNR) is a leading EPC player largely focusing on national and state highway projects. Q1FY17 revenue grew by 77 per cent which was above estimates, aided by stunning execution of orders.
Healthy order book which is 4.8 times TTM revenue provides strong visibility to future revenue growth.
The FY17E revenue and earnings forecast have been raised by 2 per cent and 3 per cent respectively led by a ramp-up in execution.
KNR Constructions’ strong balance sheet, efficient working capital management, and low debt make it a favourable pick.
(8) Finolex Cables:
Finolex Cables is India’s largest manufacturer of electrical (85 per cent of revenue) and telecommunication cables (9 per cent). Finolex Cables has a wide distribution network with a high brand recall.
Q1FY17 PAT grew by 55 per cent YoY, led by margin expansion in both Electric & Communication cables. Ebitda margin improved by 320bps YoY to 15.2 per cent led by lower cost & better product mix.
The Ebitda margins estimates have been revised by 130bps and 160bps to 14.8 per cent and 15 per cent for FY17E and FY18E owing to a better product and lower cost and factor earnings growth of 16 per cent CAGR over FY16-FY18E.
Finolex Cables’ core business is valued at a PE of 17 times (16 times earlier) on FY18E.
(9) Bharat Forge:
Bharat Forge is now de-risking from the oil & gas segment and exploring opportunities in aerospace and defence sector. The orders from Boeing and new defence JV with AM General will provide higher revenue visibility in the non-auto sector during FY18.
The fall in commodity prices and cost rationalisation will bring improvement in margins which could also lead to 37 per cent earnings growth in FY18E.
Given Bharat Forge’s leadership position & product diversification and higher revenue visibility in FY18, it is valued at 24 times FY18E EPS and upgraded to ‘buy’ from accumulate.
(10) Exide Industries:
Exide industries is a leader in storage battery business with a market share of 60 per cent in India. The technology up-gradation (capex Rs 4.5 billion), rebound in automobile segment, and concentration on the more profitable segment will help to improve margins from 15 per cent in FY16 to 15.4 per cent by FY17E and 16.3 per cent by FY18E.
The standalone business is valued at 18 times (five-year historical average) on FY18 EPS and insurance business at its book value of Rs19 per share.