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While investors have mostly focused on buying bluechips in the recent fall, some foreign funds are focusing on midcaps as valuations are mouth-watering. The big stocks became bigger in last 2 years while those in the small and midcap space shrank in the negative. After two years of lull in midcaps the valuation gap is now narrowing and I feel there are good quality midcaps, which are available at good valuations with good business dynamism. Nifty Midcap 100 index is still 42% down from lifetime high which made in Jan 2018. But not all midcaps are bad investments companies with quality management and a unique product profile can still be consider investing into.
1.Jubilant Foodworks Ltd : (CMP: 1478, 52 Week High/Low: 1973/1077)
• Jubilant Foodworks (Dominos) are delivering pizza to their customers in this pandemic time as well, so less affected with this pandemic.
• Tie-up with IRCTC for Delivery on train will be game changer for Jubilant Foodworks as less competition space.
• Changing lifestyle and work from home culture is biggest positives for Jubilant Foodworks.
• Jubilant Foodworks the master franchise for Domino’s Pizza in India (Nepal, Sri Lanka and Bangladesh) can be benefitted with corporate tax cut and it can boost profit by 15-20% this additional can be used to boost business.
2.Bata India Ltd : (CMP: 1239, 52 Week High/Low: 1895/1000
• Over the years, Bata India has gradually shifted its focus to tap the fashion-conscious youth, working women and children through the introduction of latest and trendier styles of footwear.
• Bata has constantly undertaken various efforts to improve the retail experience and curtailed unwanted retail space to rationalise its rental cost and enhance revenue per sq.ft of a store.
• India’s increase of custom duty to boost local manufacturing of footwear, Bata will be biggest beneficiary as India’s biggest footwear producer.
• Bata will strengthen its presence in the domestic market by adding 500 stores in the next five years on franchise model, focusing mainly on smaller markets.
3.Tata Consumer Products Ltd : (CMP: 326, 52 Week High/Low: 408/195)
• Strong branded portfolio of products, improving distribution and reach and restructuring initiatives are positives for the stock.
• Tata Consumer is on its way to becoming a diversified FMCG company with the addition of strong foods portfolio from Tata Chemicals (salt, pulses, spices) to its already strong tea, coffee and water portfolio both in India and internationally.
• The India tea business is growing steadily retaining its strong No.2 position, the Tetley international business is undergoing a successful restructuring, the coffee export business is seeing capacity expansion-led growth and the Starbucks JV is ramping up well given limited competition.
4.Manappuram Finance Ltd : (CMP: 107, 52 Week High/Low: 194/74)
• Manappuram Finance is a gold lending NBFC with a consolidated asset under management (AUM) of Rs 24,100 crore, diversified across gold loan (67%), microfinance (21%), and rest in housing, vehicle and other loans.
• There is minimal asset quality risk in Manappuram’s business as gold loan has a huge share in the total loan portfolio.
• It is quite attractive considering its healthy capital and comfortable liquidly position coupled with high share of secured lending.
• In the NBFC space Manappuram Finance looks attractive as much stable asset quality.
5.Quess Corp Ltd :(CMP: 204, 52 Week High/Low: 722/200)
• Quess Corp is India’s largest private sector employer, staffing solutions company has 3.85 lakh employees on its roster of employees and associates.
• In India the software major has about 3.6 lakh staff and Quess Corp has a staff of around 5,000 in overseas offices such as Singapore, Quess Corp’s staff has been growing 38% annually since 2016.
• Quess Corp has over 2,000 clients, including Samsung, Amazon, Vodafone India and Bajaj Finance.
• The company which has a consistent profit growth of 71.81% over five years, is currently trading at a PE of 12 which is very reasonable in terms of valuation.
• The current pandemic situation provides a long-term opportunity for the Quess Corp as the sector will be formalised further as blue-collar workers will look for security net by working for companies like Quess Corp and companies too would outsource more.
6.Havells India Ltd : (CMP: 525, 52 Week High/Low: 806/458)
• A diversified product mix and market leadership could help the electrical appliance maker and has a Buy. Havells product portfolio includes industrial (wire & cable and switchgear) and consumer segments (home appliances).
• Havells is a strong consumer brand with over 8,000-dealer network across India.
• The company is well-placed to recoup lost sales and stage a recovery in demand of industrial products whenever normalcy returns. Havells will also benefit from its backward integration (strong supply chain) and strong balance sheet position.
• Havells aggressive efforts on improving penetration in rural and semi-urban towns can help offset some moderation seen in core categories.
7.Glenmark :(CMP: 344, 52 Week High/Low: 654/161)
• Glenmark’s current portfolio consists of 165 products authorised for distribution in the US marketplace and 45 abbreviated new drug applications pending approval with the USFDA.
• Glenmark may become the first Indian company to develop an anti-retroviral (ARV) used for the treatment for coronavirus.
• Glenmark’s recent steps to address leverage and alleviate the R&D burden have rekindled investor interest.
• Recent investor interest in the pharmaceutical sector has also rubbed off on the Glenmark Pharma’s stock as it is amongst the cheapest stock in pharma sector.
8.UPL : (CMP: 335, 52 Week High/Low: 709/240)
• UPL is a leading producer of agrochemicals, specialty and industrial chemicals. It primarily deals in agricultural products (91% of the portfolio), which includes seeds, crop protection, pest control and soil fumigants. The second segment the company deals in is industrial chemicals and specialty products (9%).
• Govt’s priority to double farmer’s income by 2022 can help UPL to boost their volumes by more spending on agrochemicals in coming time.
• After back-to back weak quarters the agrochemical major is now showing signs of recovery despite challenges of a big acquisition and adverse macro and weather conditions.
• UPL completed its acquisition of the US-based Arysta Lifescience from Platform Specialty Products for $4.2 billion, Post the Arysta takeover the company has a better product basket on the back of a larger distribution network and access to more advanced technologies.
8. AMC : (CMP: 216, 52 Week High/Low: 452/185)
• Nippon Life Insurance Japan has completed acquisition of a 75% stake in the company from Reliance Capital so now has a very strong and growing SIP book of over Rs 10,000 crore per year.
• The company is one of the largest asset management companies in India which manages funds for provident fund bodies and government-managed pension Funds schemes.
• The resultant acquisition would add significant value as Nippon AMC would now be a fully MNC player. Given an opportunity, the company is open to inorganic growth.
• Growing consumer traction towards investment in financial assets, limited players, low penetration, huge market potential and considering higher valuation, the stock could lead to higher levels making it a multibagger.
9.M&M Financial Services : (CMP: 140, 52 Week High/Low: 442/128)
• Rural India is relatively less impacted by Covid-19, recovery would be faster for rural agri/ farm related activities. Growth in the short term will be driven by tractors on expectations of good harvest and used vehicles so we may see good growth potential in M&M Financial Services.
• Over the medium-long term M&M Financial remains best placed to play rural growth given its strong parentage and long track-record, deep penetration and larger presence across OEMs, low overlap with banks and pricing power, and increase in rural spending by government.
• M&M Financial has strong liquidity on its balance sheet with which it can comfortably discharge its liabilities and fixed cost obligations for the next six months.
• Liquidity position of M&M Financial remains very comfortable and company disclosed that it has Rs 40 billion in liquid investments and another Rs15 billion in sanctioned and undrawn lines.
Gaurav Bora
(Market Expert)
