Well, that’s the tell-tale story related to the benchmark index. But, looking into its constituents and sub-indices, one can easily figure out that there is more blood in the markets than meets the eyes. Many individual stocks, especially mid-cap counters, have capitulated by over 50% in the last 3 months itself.
But, now investors have become wiser after witnessing a deadly 2008-recession. Other than evaluating business earnings and its future prospects, they also tend to check whether the companies that they invest in are over-leveraged in context of the prevailing high interest rate scenario.
Evaluating cash flow statements have gained all the more importance in the current times – fraught with project delays led by funding constraints. In an era where frauds, scams and tax-evasion have become common practices, investments based on determining the quality of management and its track record is gaining more and more traction.
Under such circumstances, we screen 5 quality mid-caps stocks for our readers which could prove to be handy long-term investment bets in prevailing tumultuous market conditions.
However, investors are recommended that, if at all, they take position in any of the below counters, they do so in slow accumulation mode in phased (time-wise) manner in order to leave room for averaging at lower levels in case markets tend to slip further. And, of course, a little bit of your own research and due-diligence before getting on with it will always help.
Rural Electrification Corporation (CMP Rs.175)
REC commenced operations in 1969 to develop power infrastructure in rural areas. This state-run lender to power projects has a strong sanctions pipeline of Rs.1.6t and high exposure in power transmission and distribution segment. The loan book of this Navratna status company grew 24% YoY to Rs.858b at sequentially stable margins.
REC has an edge in power financing over banks, as power projects have long gestation periods. However, the stock has taken a sharp beating over the last one year led by concerns on the bad debts happening from the poor financial health of SEBs and delay in implementation of projects marred by fuel availability and coal linkages.
The stock has taken a severe beating on the bourses from its October 2010 highs of Rs.385 to Rs.175 now, correcting beyond its fundamentals and presents a good opportunity to buy at current levels looking at the government’s continued thrust on power sector reforms.
Thermax Limited (CMP Rs.525)
Pune-based Thermax is one of the leading engineering solutions providers in the country with a major thrust on manufacturing industrial heaters, sub-critical power boilers, steam vaporizers, waste heat recovery, captive power, water treatment, recycling and waste management. Thermax is a zero-debt, cash surplus company with an order book worth Rs.5900-crore at the end of June quarter.
Over the last 5 years, this multi-national energy and environment engineering company grew at a CAGR of over 50%. The energy segment contributes over two-thirds of the company’s consolidate revenues, whereas rest is made up by its business related to environment segment. Thermax’s high stakes in the renewable energy segment would benefit it from government’s increased focus and budgetary allocations in fiscal 2012 to develop renewable energy resources.
The company stock price has corrected from the highs of Rs.900 in Nov 2010 to Rs.525 now on the back of negative news of its order book shrinking by 16% YoY, margins coming under pressure and the capital goods sector facing multiple challenges on account of industrial slowdown. However, these concerns have gone overboard to say that the stock is quoting at nearly half its average P/E of the past 5 years.
Jain Irrigation Systems (CMP Rs.170)
Jain Irrigation is India’s biggest drip irrigation company and leading global producer, provider of tailor-made irrigation solutions and holds 55% share in domestic Micro irrigation systems (MIS) business.
This largest integrated agri business player boasts of multi-product industrial profile and manufacture Drip and Sprinkler irrigation systems and components, PVC pipes and sheets, processed food business such as dehydrated onions and processed fruits, hybrid and grafted plants, bio-fertilizers and solar water heating systems, amongst other business segments.
Early this year, the stock price of Jain Irrigation witnessed a sharp fall on the news of its proposed new commitment in form of a setting up a low-margin NBFC arm to finance the purchase of micro-drip irrigation and other agri productivity tools for rural India. However, it panned out that the investor concerns were over-done regarding its unrelated NBFC arm, and the stock seems to be building strong base at current levels.
Educomp Solutions (CMP Rs.225)
Educomp still remains the most dynamic thematic investment story in India – being a well-planned business model involved in providing diversified education solutions including its pioneered digital initiative transforming the way teachers teach and students learn in schools.
In latest, this education solution provider bagged a Rs.60.72 crore order from the Chhattisgarh government for implementation of ICT solutions across 582 government high schools and higher secondary institutes. With the new project, the total number of schools in Edureach’s portfolio is 11,154. The company serves more than 15 million learners and educators.
Currently, the stock price is way off from its peak levels of Rs.1000 per share, almost 80% down; more recently marred by likely corporate governance issues with respect to Income Tax department search and surveys conducted on its premises.
United Phosphorus (CMP Rs.150)
United Phosphorus Limited (UPL) is India’s biggest agrochemicals maker which is currently trading at attractive valuations given its growth prospects on the back of improved global agrochemicals demand and the company’s growing foothold in the Brazilian market through inorganic route.
Over the last 5 years, the company’s revenue has grown at CAGR of 26% led by its backward and forward integration in the agrochemical industry; and derives almost 70% of its total revenues from overseas. The company has revised its revenue guidance for FY12 upwards to 25-30% on account of improved volumes. However, its earnings have been negatively impacted by rising input prices, despite strong global demand for its products.
So, do you feel the above list of stocks is good enough to take the bait?
Disclaimer: The above content/report is only for the educational purpose of the readers. It does not qualify as any type of advice or recommendation to Buy/Sell securities. The author and the blog are not responsible for the reader’s decisions based on the above report and news within.