The June quarter results of over 1400 midcap companies shows that revenue growth has slowed perceptibly and earnings have eroded. Companies are facing contraction in demand and a revival of festive season might bring cheer to discretionary consumer companies.
Lets take a close look at CLSA five midcap stock picks, namely. Yes Bank, Apollo Tyres, Ipca Labs, Havells and Oberoi Realty.
Yes Bank Ltd:
Yes Bank’s margins will be supported by its’ focus on stable growth, rise in CASA ratio and moderation in wholesale deposit rate. The asset quality will be supported by high underwriting standards and higher provisioning.
Yes Bank’s valuation looks attractive at 2.1x FY13 adjusted book value. However, the loan growth will be moderate versus history and share of small business loans will rise.
Oberoi Realty Ltd:
Oberoi Realty offers an opportunity to play the Mumbai property theme with five centrally-located Mumbai properties representing 99 per cent of its GAV. Oberoi Realty has demonstrated good progress at its ongoing projects leading to strong pricing.
Oberoi Realty is expected to launch a couple of new projects in FY13 which should drive sales growth in an otherwise soft property sector. Oberoi Realty’s balance sheet is strong with net cash of Rs 13bn.
Havells India Ltd:
Havells is a leading brand in the electricals market in India and it has operations in the European and Lat-Am markets through Sylvania. Havells will see its earnings grow at a CAGR of 27 per cent over FY12-14, led primarily by strong growth in India.
Havells competitive advantages in distribution and the rising strength of its brand leave it well placed to capitalise on the growth story. The Sylvania business is healthier now and should see modest growth from new markets.
Ipca Laboratories Ltd:
IPCA’s export formulations including tender driven sales will continue to grow strongly for IPCA over the coming years, especially benefiting from rupee weakness in the near term. A rebound in most of divisions including anti-infectives is also expected.
From a low base, IPCA’s domestic formulations growth rate is set to be higher than market average in FY13.
Apollo Tyres Ltd:
Apollo Tyres has benefitted from the moderation in rubber prices alongside incremental improvements in the demand environment. The recent collapse in rubber prices adds upside to earnings of Apollo Tyres.
Apollo Tyres’ improving balance sheet and 29 per cent earnings CAGR over FY12-14 at odds with the undemanding 8x FY13 PE and create room for a re-rating. At the same time, Apollo Tyres’ margin expansion in the niche European business continues even as late season cold weather will support FY13 demand.
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