The mid-cap segment has underperformed the large-cap in the running year. But, the government’s push for infra is likely to provide thrust to the earnings of a few companies that are operating in the sector.
In this article, I will discuss the stocks an investor may consider investing in as India gears up to be a $5 trillion economy.
I believe after some of the announcements in the budget presented by India’s first woman finance Minister, Mrs. Nirmala Sitharama in July 2019, the midcap stocks have started to gain momentum.
Even though the segment has suffered underperformance in comparison to the large-cap names in 2019, the push for infra and also the cashless economy is likely to provide the much-needed boost.
Thus, I believe some attractive names can be filtered from the universe and based on the attractive valuation and tremendous growth potential, good corporate governance practices, and strong fundamentals.
Following are some of the names, which I believe are likely to witness healthy growth over the long-term period going forward –
Amber Enterprises India Ltd
Amber Enterprises India Ltd (AEIL) is one of the leading solution providers for Air conditioner Original Equipment Manufacturer industry in India.
The company enjoys a dominant position in the RACs complete unit, and it also deals in major RAC components. The company has ten manufacturing facilities across India, focusing on different product segments.
In the budget speech, the finance minister has raised import duty on the indoor units of split AC. The move is likely to drive OEM brands to shift to procurement to Indian contract manufacturers.
Also, there has been a delay in the monsoon this year, which has been positive for the room AC industry. Amidst this, AEIL being a premium manufacturer should gain traction. Thus, the stock looks attractive from its current price.
Aegis Logistics Ltd
Aegis Logistics Ltd (ALL) is a company offering logistics services to Oil, Gas & Chemical Industry and is present in Mumbai Port, Kochi Port, and Pipapav Port.
The company is one of the principal beneficiaries of the government’s thrust on increasing LPG penetration in India.
The volume is likely to improve significantly, thereby resulting in improvement in utilization in the new and existing terminals.
This improvement is likely to result in improving returns ratios due to improving efficiency. Thus, the stock looks good from a long-term horizon.
Kajaria Ceramics Ltd
Kajaria Ceramics Ltd (KCL) is one of the largest tile manufacturers in India (with over 21% market share in fiscal 2017) with an annual capacity of 68 MSM (29.47 MSM Ceramic tiles, 22.4 MSM PVT and 16.5 MSM GVT). The company has eight plants with four in Morbi, Gujarat and one each in Sikandrabad – UP, Vijayawada – AP, Malutana – Rajasthan, and Gailpur – Rajasthan.
The firm enjoys a strong distribution network with over 1400 dealers and over 5000 sales point. The company is the only tile manufacturer in India to awarded ‘Superbrand’ status – a title that the company has retained for six consecutive years.
After the NGT ban on the use of coal gasifiers, unorganized players are witnessing increased power and fuel cost due to shift towards gas, and hence the price differential between organized and unorganized players is reducing.
Along with this, with improved compliance towards e-way bill implementation post elections, organized players like Kajaria Ceramics are likely to benefit.
We are positive on the long-term growth prospects of the company given its execution capabilities and favorable drivers such as PMAY, E-way bill pan, GST rate reduction, and the likes. Thus, an investor may look to invest in the scrip with a long-term view.
LIC Housing Finance
LIC Housing Finance Ltd (LICHF) is the second-largest housing finance company with a 10% mortgage market share in India. The company is promoted by the government-owned largest insurance company, the Life Insurance Company of India. LICHF provides housing loans, loans against property, and loans to developers as project finance. The company operates through 249 marketing offices and a large number of DSAs and Home Loan Agents.
The government has proposed setting up 1.95 crore houses under Pradhan Mantri Awas Yojna (Rural). Also, it has offered an additional tax deduction of Rs 1.50 lakh on interest paid on home loans taken up to March 2020. Thus, the company is well-positioned to cash the opportunity. Therefore, an investor could look to invest in the scrip with a long-term horizon.
SBI Life Insurance Ltd
SBI Life Insurance (SLI) is a joint venture between the State Bank of India and BNP Paribas Cardiff. SLI has been increasing its market share to nearly 20% owing to a strong distribution franchise.
SBI Life has a significant advantage due to its tie-up with SBI, which has a network of ~22,000 branches.
The company has reported healthy growth in profit after tax primarily on account of higher income from investments. Also, the Value of New Business (VNB) grew strong on the rising share of the protection business.
Besides, the share of high-margin protection NBP (individual and group) has been consistently increasing.
The growth of insurance and its penetration has remained on the crucial agenda for the government. Thus, the company is best placed to capitalize on India’s low insurance penetration.
Apollo Tyres Ltd (ATL) is the largest Indian tire manufacturer with strong brand recall. The company is well diversified with presence in India and Europe. The Indian operations account for 70% revenue with the remainder coming from European business. The company has a presence across automotive segments – passenger vehicles, commercial vehicles, and two-wheelers.
The Government of India has imposed a countervailing duty (CVD) on the truck and bus radial tyres that originate from China. The tax results in 9.1-17.57% of the tyre’s CIF value.
The imposition of the tax is aimed at protecting Indian tyre manufacturers from Chinese players, which are subsidized by the Chinese Government to promote exports.
Also, the company has a notable share in the truck and bus segment and is likely to benefit from the rising penetration of radial tyre in the segment.
Ipca Laboratories Ltd (ILL) is an international pharmaceutical company based in Mumbai, India. The company manufactures Theobromine, Acetylthiophene, and P-Bromo Toluene as Active Pharmaceutical Ingredients (API).
The domestic formulations are likely to witness healthy mid-double-digit revenue growth in fiscal 2020. Also, the challenges in anti-malaria segment company are expected to outperform other segments such as derma, and urology segment in the domestic market. Thus, the scrip can be looked at from a medium to long-term horizon.
JK Cement Ltd (JKCL) is part of the multi-disciplinary industrial conglomerate JK Organisation founded by Lala Kamlapat Singhania. The company’s operations started in May 1975 with its first grey cement plant at Nimbahera in the state of Rajasthan.
Today, the company has an installed grey cement capacity of 10.5 MnTPA, making it one of the largest manufacturers in the country.
The company has an expansion plan of 7500 TPD (tons per day) clinker production line and split grinding unit at Aligarh and Balasinor.
The company has received clearances from the regulatory authorities. With the expected improvement in the operational efficiency of the company, the return ratios are likely to improve. Thus, the stock remains a valuable buy with a long-term horizon.
KEC International Ltd
KEC International Ltd (KEC) is India’s second-largest manufacturer of electric power transmission towers and one of the leading power transmission engineering, procurement & construction companies in the world.
The T&D business is likely to perform well with a major contribution from international projects in countries like SAARC, Africa, and Brazil. The company is expected to get benefit from its healthy order book, which is expected to support revenue growth. Also, the non-T&D business segment is expected to show positive growth.
Thus, the company remains a favorite pick in the space with medium to long-term view.
MOIL is a Miniratna company which is a state-owned manganese-ore mining company. The company, headquartered in Nagpur, commands the highest production of manganese ore in the country.
The company’s sales are likely to grow in double-digit given about 7.5-8 percent growth in the steel industry. Backed by the firm international price and strong demand, the company increased manganese ore prices across all the grades.
The price rise was also supported by lower supply from the domestic miners. Also, the company has seen a higher volume of non-fines.
Thus, given the strong business model, a robust balance sheet with strong liquidity positions and a dominant market position, the company is well-positioned for investment over the long-term.
Sobha Ltd (Sobha) is an Indian multinational real estate developer headquartered in Bangalore, India. The company is involved in the business of construction, development, sale, management, and operation, of real estate projects such as townships, housing projects, commercial premises, etc.
We believe the company will be a major beneficiary post RERA scenario, which has resulted in consolidation in the industry. The company has also built a reputation around its execution track record. The same has enabled the company to gain market share from the unorganized players. Thus, we retain our buy in the stock from medium to long-term horizon.
Subros Ltd (Subros) is India’s largest car ac manufacturing company. The company’s business model remains attractive with Denso as its technology partner and Maruti Suzuki India Ltd being its primary customer and shareholder. Also, Subros enjoys over 40 percent market share in the Indian car ac market.
Strengthening relationships with Deno is likely to help in product innovation that would bolster the market position. The long-term growth story for the firm remains attractive with upcoming new capacity, rising market share, and robust pick up in the non-PV business.
Also, the deleveraging of the balance sheet along with consistent free cash flow generation and improving return ratios make the company fundamentally sound. Thus, we maintain our buy call on the stock from a long-term horizon.
Note to investors
The names mentioned above are not a recommendation to invest. It is always preferable that investors also conduct their due diligence with special focus on the financial strength, future outlook of business while not concerning the short-term volatility. The views expressed here are that of the author and do not reflect those of Groww.