MFs see value in these midcaps with revenue growth visibility


The 5 per cent drop in BSE Midcap index provided an opportunity to fund managers to up their holdings in select midcap stocks. They lapped up companies which represented not only value theme but also had high visibility of revenue growth in the next two to three years. Here are five prominent names which attracted fund managers’ attention in February.


BUYER: HDFC Mutual Fund | CMP (Rs): 229 | Market cap (Rs): 14,353 crore

Among the consumer electrical companies, Crompton Consumer has a dominant market share in fans, residential pumps and consumer lighting. The company is in a favourable position as it is expected to benefit from reforms announced by the government. These include housing for all, increasing electrification and gain in the share of organised players after the implementation of the GST. The company has gained market share in premium segments of fans and lighting which is also expected to enhance its operating margins in the next two to three years. Interestingly, considering FY19 and FY20 earnings, the company is trading at 10-20 per cent discount to its peers. With forecast of 25 per cent compounded annual growth rate between FY18 and FY21, the company is best suited to generate superior returns and cashflows.


BUYER: Franklin Templeton Mutual fund | CMP (Rs): 1,044 | Market cap (Rs): 28,373 crore

COLGATE LOST its market share in the toothpaste segment by 420 basis points from 57.6 per cent in the first quarter of FY16. Stiff competition from peers such as Dabur and Patanjali impacted its market share considerably which resulted in a fall of 7.5 per cent in its share price. To deal with the competition, the company launched Swarna Vedshakti brand in Ayurvedic segment in the southern and western regions. It has gained 2-3 per cent market share in some locations. The company plans to launch this Ayurvedic brand pan-India. Sector experts believe that there would not be a further fall (bottomed out) in market share for Colgate in the toothpaste segment after demonetisation and GST implementation. Given this, fund managers have enhance their exposure in the stock.


BUYER: HDFC Mutual Fund | CMP (Rs): 978 | Market cap (Rs): 13,375 crore

ONE OF the key factors which have worked in favour of construction company Dilip Buildcon is its superior execution. Besides this, the company has robust order book which is quite diversified geographically. The company’s order book of Rs12,400 crore is spread across Maharashtra, Uttar Pradesh and Madhya Pradesh, which form 60 per cent of its total order book while remaining 40 per cent of its order book covers nine states. The company’s order book gives revenue visibility for the next two to three years. With the government’s focus on infrastructure projects such as Bharatmala and other state projects, among the construction companies, Dilip Buildcon with its lean balance sheet is placed well in terms of grabbing good share of these roads projects.


BUYER: Aditya Birla SL Mutual Fund| CMP (Rs): 125 | Market cap (Rs): 7,496 crore

NCC SHOWED considerable improvement in its order book for the nine months of FY18. It had order inflows of Rs21,614 crore taking its order book to Rs31,627 crore. This order book gives revenue visibility for the next two to three years for the company. The company is in sweet spot after the bifurcation of Andhra Pradesh. It would be one of the key beneficiaries from irrigation and roads projects. Besides this, the company’s successful Qualified Institutional Placement (QIP) worth of Rs550 crore also helped it reduce its net debt to equity to 0.4 (FY18 estimated) from 0.43 as of FY17.


BUYER: Aditya Birla SL Mutual Fund & SBI Mutual Fund | CMP (Rs) : 677 | Market cap (Rs): 8,536 crore

ANALYSTS BELIEVE the worst is over for IPCA and they expect re-approval of facilities for oral and API plants with the management inviting USFDA to revisit the three facilities, which are banned to export drugs to the US. Over the last three years, the company has completed remediation work, which includes re-modelling of facilities and deployed three consultants for the same to get going. The company is seeing a recovery in key verticals namely US generics, API formulations, Indian formulation and international tenders in non-WHO markets.

Underutilisation of facilities related to the US and anti-malaria drugs will give operating leverage, leading to faster growth of margins.

Source: Economic Times