Also because despite their recent outperformance vis-a-vis the large-caps, some fundamentally sound companies are available at investable valuations. And considering that there is limited value at the current juncture in large-caps, "we believe that mid-caps will take the baton in their hand as they have the potential to outperform going forward as concerns with respect to the segment would continue to get allayed with the passage of time," says the report.
Angel Broking, therefore, has selected 11 stocks from the small and mid-cap space representing different sectors such as auto-ancillary, tyre, hotels, IT, consumer durable, construction, packaging, logistics, pharma, cement and oil & gas. According to it, these companies are either expected to report improved financial performance over the next few years on the back of the economic recovery and/or are available at very attractive valuations, which warrant them as value buys.
Here they go:
The Amtek Group is India's leading auto components player in the forgings and castings space. The group has been aggressively pursuing an inorganic growth strategy and has also been rapidly scaling up capacity.
It has a track record of successfully exploiting synergies from its acquisitions and such integration benefits are likely to go up further.
Amtek Auto (AAL) has announced to merge Amtek India (AIL) and Ahmednagar Forging (AFL) with Amtek Auto by December 2009 or January 2010.
Considering the swap ratios, AIL and AFL are trading at 43% and 27% discount at Rs 44 and Rs 64. This provides an opportunity to enter Amtek Auto through AIL and AFL with a significant discount to its current market price.
Apollo Tyres (ATL), India's premier tyre company, is set to witness a turnaround in its fortunes post the decline in the global commodity prices. It is estimated to post 6.7% and 31.7% CAGR in revenues and earnings over FY2009-11E, respectively.
This is despite the slowdown in industrial activity, which will result in declining demand for tyres from the OEMs in the short term.
In the last nine years, the company did not lose any volumes even though there was a severe downturn in the commercial vehicles (CV) Segment in FY2001.
Over the years, ATL's average growth in volumes has been in the range of 16%. On the valuation front, the company has always traded at around 8x one-year forward P/E multiple. At the Rs 29, the stock is trading at 6.1x FY2011E EPS and 0.8xFY2011E P/BV, which is attractive.
Asian Hotels
The worst seems to be over for the hotel sector and the operating environment is set to improve post 2HFY 2010.
In case of Asian Hotels (AHL), given its sharp underperformance vis-a-vis peers, despite better earnings visibility, potential value unlocking through demerger and cheap valuations, we believe the company is an attractive play for investors to play out the consumer story.
At the CMP of Rs 301, AHL trades at attractive valuations of 6.2x FY2011E earnings.
The company is also the only smart cards manufacturer in India and this segment is expected to surge on demand from the telecom, banking and government sectors.
The company through bagging the Rs 5,000-cr ‘Aapke Dwar’ order has also opened up a new avenue for growth in e-governance.
BIL is expected to record CAGRs of 39.6% and 34.7% in top-line and bottom-line, respectively over FY2009-11E. At the CMP, the stock trades at 3.2x FY2011E EPS. Angel Broking recommends a Buy on the stock with a Target Price of Rs 235.
Blue Star (BSL), India's largest central air-conditioning company, is on course to scale greater heights riding on favourable industry scenario, superior project execution skills and its preferred status among institutional buyers.
BSL continues to be a major beneficiary of the strong growth momentum across various verticals, such as, SEZs and cold chain infrastructure amidst slackness in demand from the IT/ITES and retail sectors.Angel Broking believes that BSL's leadership position, noticeable high-growth prospects and first-mover initiatives in the emerging cold storage space will aid its growth going ahead.
It also expects BSL to post a strong 22.1% and 16.8% CAGR in revenues and earnings over FY2009-11E. At Rs299, the stock is trading at compelling valuations of 10.9x FY2011E EPS and 4.2x FY2011E P/BV.
Further, on the valuation front, CCCL is trading at a substantial discount to its peers, which is unjustified given its superior return ratios, de-leveraged balance sheet, strong order book, earnings CAGR of 30% and no equity commitment over the next few years.
Essel Propack (EPP), the world's largest packaging company, is part of the Essel Group. The company is expected to register an improvement in its performance on the back of low crude oil prices and stabilisation of new units.
The company may post 13.5% CAGR in sales over the next two years and record consolidated profits of Rs 44.4cr in CY2010, as against the loss of Rs 88.3cr in CY2008. At the CMP, the stock is trading at inexpensive valuations of 0.6x P/BV and 0.3x EV/Sales on CY2010 estimates. Angel Broking initiates Coverage on the stock, with a Buy recommendation and a Target Price of Rs 37.
GDL's presence at strategic locations and its ongoing expansion plans may make it a key beneficiary of the growing container traffic in India going ahead.
At Rs 88, the stock is trading at 8.9x FY2011E EPS of Rs 9.9 and 5.4x EV/EBIDTA of FY2011E. The stock is trading at attractive valuations on the back of our estimated Earnings CAGR of 15% over FY2009-11E
Going forward, the next leg of growth for the company is expected to come from the export segment as it leverages its API capabilities to create a sturdy business in the regulated and emerging formulations markets. Angel Broking estimates Ipca's net sales to post a CAGR of 16.9% and adjusted net profit to register a CAGR of 29.4% over FY2009-11E.
JK Lakshi Cement, a JK Group company, is an established cement player in north India. The company is increasing its cement as well captive power capacity. Cost savings on account of the decline in input costs, additional captive power and strategic tie up to source power would help the company maintain its margins amidst downturn. At Rs100, JKL is trading at an EV/tonne of US $47/tonne on FY2011 capacity, which seems to be attractive.
Shiv Vani Oil
Shiv Vani Oil & Gas Exploration Services (SOGES) is an integrated oil servicing company focused on onshore drilling and seismic surveying. It is the visible play on the huge upcoming investments in the Indian E&P segment. We expect SOGES to record a CAGR of 32.8% and 29.1% in top-line and bottom-line respectively, over FY2009-11E. At the CMP, the stock is trading at 5.1x FY2011E EPS. Angel Broking initiates Coverage on the stock, with a Buy recommendation and a Target Price of Rs 406.
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