Kshitij Anand of ET has spoken to leading stock market experts such as Rahul Jain of Edelweiss, Ashish Maheshwari of Blue Ocean Strategic Advisors, Systematix and AnandRathi and collated a list of ten mid-cap stocks which have the potential to give multibagger gains in the near future:
(1) Dalmia Bharat:
Dalmia Bharat is India’s 3rd largest cement group, with a capacity of 25 MT spread across South, East and North East regions. Dalmia Bharat is currently operating at 60% utilization on effective capacity of 22.7 MT, with enough headroom for operating leverage to kick in.
Dalmia Bharat is expected to witness a substantial boost in profitability due to the incremental clinker capacity addition in the North East. 48% of Dalmia Bharat’s capacity is concentrated in the South, where cement demand is expected to revive gradually on the back of infrastructure development and incremental demand from the split of states.
(2) Jamna Auto Industries:
Jamna Auto Industries is a market leader in the CV suspension leaf spring segment (90% of sales), including products like the conventional leaf spring and parabolic leaf spring. Jamna Auto currently has a 64% market share in the conventional leaf springs segment and a market leader in the parabolic leaf spring segment.
As Jamna Auto is the industry leader, it will be a key beneficiary of the ongoing domestic MHCV cycle recovery. Jamna Auto is focused on capturing the rising content-per-vehicle trend and hence it has forayed into the Air Suspension and Lift Axle segments (10% of consolidated sales) where its main client is Ashok Leyland for the heavy tonnage trucks.
(3) Natco Pharma:
Natco Pharma is a focused R&D play in Oncology, CNS and other niche therapies with a 30% market share in Indian generic Oncology market. Natco Pharma identifies difficult to replicate molecules. It also has a track record of winning complex patent challenges (Nexavar (CL)/ Copaxone/Sovaldi/Tamiflu).
Natco Pharma has a strong revenue visibility due to Copaxone launch on the anvil (3 Bn USD) and other lucrative filings in the US (Revlimid USD 4 Bn, Tracleer USD 1.5 Bn, Tamiflu USD 600 Mn , Vidaza USD 300 Mn).
Natco’s foray into hepatitis C (generic Sovaldi) in 91 developing countries is expected to boost its topline substantially.
(4) Siyaram Silk Mills Ltd:
Siyaram Silk Mills is an integrated textile manufacturer with a domestic focus. It has strategically transformed itself from a textile manufacturer to a major garmenting and brand house. Siyaram’s biggest brands include Siyaram, J. Hampstead, Mistair and Oxemberg.
Siyaram Silk Mills has a pan-India distribution network comprising 500 agents, 1,500 dealers and 365,000 retailers and over 200 franchise stores. The changing product mix to premium products and increasing share of the high-margin RMG segment has helped improve EBITDA margin and ROCEs from 8% and 6% in FY09 to 11.7% and 18%, respectively in FY15.
Siyaram Silk Mills’ RMG segment’s share in revenues and EBIT will increase from 16% and 18% currently to 20% and 31% of revenues in next 3 years.
(5) United Spirits:
United Spirits will benefit as it will become the sole and exclusive manufacturer and distributor of Diageo’s brands in India resulting in USL products being available across the price range, right from low to premium, providing it a wider reach to divergent consumers.
United Spirits’s market share in premium IMFL is expected to jump from 36% currently to 40% on the back of tie-up with Diageo.
(6) Ganesh Benzoplast Ltd:
Ganesh Benzoplast Ltd, a smallcap company with a promising future. Ganesh Benzoplast is India’s number three liquid storage company with a capacity of almost 2.4 lakh tonne. Ganesh Benzoplast has recently undertaken a big expansion. They are expanding their oil tanks and 16 more will be added in the next quarter. Ganesh Benzoplast is expected to show a decent upside in top line and bottom line.
Ganesh Benzoplast is already working at 90-95 per cent capacity expansion. Once the expansion is over, Ganesh Benzoplast will go for expansion in LPG storage that they are planning to set up in Goa. This will be also operational within a year’s time.
Ganesh Benzoplast has a market capitalisation of Rs 120-crore market cap and is earning an EBITDA of almost Rs 35-40 crore for the last few years. There is not much downside from current levels.
(7) Fineotex Chemicals:
Chemical stocks are doing pretty well and Fineotex Chemicals has also given very good returns of late. Due to a recent selloff in smallcap and midcaps, Fineotex Chemicals has corrected by almost 30 per cent in last one month.
Fineotex Chemicals is now available at quite an attractive valuation. It manufactures almost 500 plus speciality chemicals which find application in textiles, construction, waste treatment and adhesives. The company is debt-free.
The promoters of Fineotex Chemicals have increased their stake from 63 per cent to 72 per cent, showing confidence in business. In the last four-years performance, Fineotex Chemicals is showing CAGR growth in EBITDA and PAT by almost 30 per cent. The stock is expected to give almost 40 per cent upside from current valuation.
NCC witnessed a strong expansion in EBITDA margin for 3Q and 9MFY16 to 9%, up 160bps YoY and 140bps YoY respectively, led to execution of orders won in FY14 and FY15 with better margins, lower commodity prices and efficient operations. It is expected to earn 6% revenue CAGR and 35% PAT CAGR over FY15-18e. The management of NCC has guided for EBITDA margin of 9-9.5% for FY17 and interest expense of below Rs4bn for FY17, depending on further upgradation of credit rating.
NCC has signed a definitive agreement to sell the Western UP tollway BOT project at an EV of Rs5.7bn, translating into a loss of Rs150-180mn based on NCC’s investment of Rs1.1bn. In addition, the management expects monetisation of the Bangalore Elevated tollway and receipt of Rs2.1bn on its stake sale in NCC Power project in FY16.
(9) Techno Electric:
Powered by the healthy pace of execution, Techno Electric recorded its best ever quarterly revenue (up 94% YoY to Rs 3.1bn). The healthy operating performance was partially contained by lower margins on account of a 2% rise in the service tax rate.
Techno Electric is available at PBV of 2.9x FY18e standalone book value of Rs 168. It has a price target of Rs 575 with EPC contributing 419 (18x FY18e EPS), 16 for two BOOT/BOOM projects (DCF) and wind assets at Rs 139 (at last transaction value).
(10) Aurobindo Pharma:
Aurobindo reported 9% growth in sales (Rs34.3bn) and 39% growth in PAT (Rs5.3bn) in Q3FY16 while earnings were in line, sales fell below estimates as Nexium sales and depreciated Euro impacted revenues in Q3FY16.
As Aurobindo has a large portfolio of injectables overdue (TAD of 27 ANDAs by August 2016) for approvals, its sales are expected to increase at 16% CAGR in FY16E-18E once approvals in key generics are received.
Aurobindo’s management has guided for EBITDA margin in the range of 21-22% while there is peak potential of EBITDA margin at 25% in FY16E-18E. Net debt decreased by US$52m to US$610m in Q3FY16. With an increase in approvals and TADs in key drugs, there is strong visibility in earnings in FY16E and FY17E.