Invest In 8 Unknown Stocks To Yield Handsome Returns
By MEHER ONISA : 17-Jan-2017
MUMBAI: Though the Sensex has risen only 1.6% in the past two years, but many mutual fund schemes have marked good returns during this period.
Many of the outperformers that has hit in the recent past belongs to the mid-cap stocks segment.
Experts call this as an opportunity for the investors as this is the time to jump into quality mid-cap companies with earnings visibility for the upcoming 2-3 years. Let’s set to gain some market share from unorganised players.
1. STOCK NAME AND SENSEX: SOMANY CERAMICS
This is an organised player and country’s second-largest ceramics company with 7% market share. Somany is likely to gain market share to make up to 50% of the market. The company has rich network of 1,100-1,200 dealers and a strong brand image.
2. STOCK NAME AND SENSEX: AHLUWALIA CONTRACTS
Ahluwalia Contracts is an engineering, procurement and construction firm that rests its focus on civil works. Its stocks have been reporting good numbers for the last two quarters. Ahluwalia Contracts has been becoming analysts’ and investors favourite because its ‘Earnings Before Interest, Tax, Depreciation and Amortisation’ EBITDA margin which has constantly escalated because of better operations and depreciation in low-margin legacy orders.
Ahluwalia Contracts has shifted focus to high-margin public orders that contribute 60% of its order book.
The firm has strong asset light and follows low-debt model. It has increased its focus on order execution while reducing its working capital cycle that has reduced borrowing cost and cut debt.
Further debt reduction and better working capital management had aided the company in enhancing its debtequity ratio to 0.1 by 2017-18 from 0.3 in 2015-16.
3. STOCK NAME AND SENSEX: INOX LEISURE
This is India’s second-largest multiplex player with 19% share of multiplex screens. Inox accounts for 8% of all box office collections. The September quarter was a bit disappointing as the analysts remain bullish on Inox. On the long term, the stock is likely to remain intact marking double-digit growth.
In the tier-2 and tier-3 cities, there are around 8,000-10,000 number of single screen theatres out of which many are on the verge of shutdown. Inox is now trading at a discount rate of 20-25% compared to the PVR market leader whose advertising revenue has evidenced a double digit growth in the past three quarters.
4. STOCK NAME AND SENSEX: MINDA INDUSTRIES
On an average, this auto parts company has outperformed the industry in all major divisions including switches, horns and lighting.
The two-wheeler segment that had accounted for 56% of Minda’s revenue in 2015-16, has been hit badly. Despite all, Minda’s revenue is expected to grow by 25% in 2017-18.
In order to boost organic growth, Minda is going for consolidation. It will cut operating leverages and improve EBITDA margins by 2017-18. It has entered the alloy wheel chamber for supplying goods to Maruti and M&M. The company will soon enter the auto batteries business for 4 wheelers.
With an aim to grow exports at an annualised 25%, Minda is planning to strengthen its global presence via tie-ups and acquisitions. Its acquisition with Spain’s Clarton Horns, has invited leading players like BMW and Kawasaki.
5. STOCK NAME AND SENSEX: REPCO HOME FINANCE
The fast-growing company’s share prices have been falling sharply as 60% of its loan book comprises of the self-employed category.
Loans against property are 20% with its non-performing assets likely to rise in 1 or 2 quarters.
Because of Repco’s low loan-to-value ratios, the average has remained at 60%.
The company’s businesses are generally non-cash based so there won’t be any operational hurdles for it. The aggressive housing loan prices of the large banks will not affect the business of this smaller player that targets salaried class people from towns.
There is a good buying opportunity for long-term investors. Demand for low-cost housing has remained consistent. Repco is involved in money lending at low loan. As the borrower’s contribution is high, the chances of losses are less.
6. STOCK NAME AND SENSEX: PTC INDIA
PTC India is a listed power trading firm with a market share of 30%. It operates with a small margin of 4-6 paise per unit. The company has signed long-term power purchase agreements with national power generators. Similarly, the same is expected by the consumers as well.
The increased power generation capacity and its long-term power purchase policies will yield more than 16% annualised growth in 2017-18. The company has diversified and owns subsidiaries. Due to slowdown in the power sector, this counter is trading at a discount. With a stable cash flow, this market leader is trading at a PE of 9.44 and offers good opportunity to long-term investors.
PTC performed well with a double digit volume growth during crisis. It may record volume growth of 10-12% in the next 4-5 years.
7. STOCK NAME AND SENSEX: FINOLEX INDUSTRIES
Finolex Industries is India’s largest PVC pipes and fittings manufacturing firm.
The company’s sales slipped sharply in November but regained in December.
Analysts are increasingly bullish on this counter and speculating that by the end of January thins will get to shape as the domestic consumption remained intact.
Also, strong companies, such as Finolex Industries, are taking steps to benefit from the expected rise in domestic consumption.
Finolex Industries will increase its capacity by 30,000 metric tonne every financial year. With this it should be able to capture desired demand growth.
Finolex is also concentrating on new product development to meet the rising demand on account of increasing urbanisation.
The company’s total debt is expected to come down from Rs 112 crore in 2015-16 to Rs 42 crore in 2017-18, its total interest costs is likely to touch the floor.
The improved operating margin due to lower power costs will yield better margins in the coming years.
8. STOCK NAME AND SENSEX: CAPITAL FIRST LTD
This non-banking financial firm is engaged in mortgage financing for micro, medium and small enterprises (MSME), wholesale credit and consumer durable loans. Capital First enjoys a high net interest margin.
With the downgrade in estimates the NBFC’s loan book and net profit is expected to meet an annualised growth of 30 and 38% between 2015-16 and 2017-18
The speculated fall in the interest rate patterns will reduce its cost of capital thus resulting in higher NIM.
As on September 2016, Capital First maintained its gross NPA and net NPA levels at 0.98 and 0.45%. Since cash transaction mix in its loans portfolio is low, that may warn a risk to asset quality.
Capital First’s consumer durable finance segment is doing fair. The firm will get into home loan in tier-2 and tier-3 cities. A very high capital adequacy ratio (CAR) is another positive aspect for this counter.
STATUTORY NOTE: SHARES ARE SUBJECTED TO MARKET RISKS.