Mid-Cap & Small Cap Picks -- IIFL IJK • Blue Star – In the same segments as Voltas – both well run companies but victims of a tough external environment. In the past six months, Voltas has doubled whereas Blue Star is up only 10%. Blue Star in purely domestic whereas Voltas has 30% of revenues coming from overseas. So, Blue Star is more levered to domestic revival than Voltas • Schneider Electric – Expensive stock currently making losses as kitchen sinking of all issues inherited from Areva T&D still going. In its segments, Schneider has the technological edge to take on MNC biggies likes ABB and Siemens. Has the right products to play distribution grid improvement and metro network expansion in India. Sharp turnaround in FY15, already witnessed in Q3 order inflows – up 40% YoY. • KEC International – Well diversified power T&D company with equal exposure to India and overseas markets. Margin contraction due to losses in new businesses are now behind. Will witness strong margin expansion and earnings growth already evident in last two quarters. Available at 6x 1-yr fwd P/E. The only EPC company to have not diluted equity in last 12-13 years. • Kalpataru Power - Well diversified power T&D company with equal exposure to India and overseas markets. Available at 7x 1-yr fwd. Value of a number of investments which have started generating cash flows like BOT transmission asset in Haryana and the warehouse business is not reflected in the share price. • Simplex Infrastructure – Trading at 0.3x P/B. Simplex is among the best managed mid-cap contractor and does not have a balance sheet overhang as it does not have a large BOT portfolio. Small improvements in revenues and margins will result in disproportionate earnings growth. • MBL Infra – 9MFY14 EPS of Rs31; mkt price Rs134 and profits are increasing not declining. Another small well run contractor, like Simplex can execute projects in multiple secotrs. • V-Guard – Down 8% in the last six months when other electric good companies have run up: Bajaj Electric up 53%, Havells up 35% and Crompton up 66%. Not that the company is doing worse than competition – 3QFY14 profits were up 14% YoY. • Jaypee Infratech – A laggard in the real estate space with stock up 4% in six months versus the two NCR based players: DLF up 21% and Anant Raj up 29%. The parent company has proven willingness to monetize assets unlike many other managements. • Jaiprakash Power Ventures – Another JPA group company that recently sold its two hydro projects to deleverage the balance sheet. The operational thermal power plant will benefit from improved coal availability and as the captive coal block based Nigrie plant comes on stream by end-2014, cash flows will witness a huge jump. Their coal block is not subject to de-allocation as the original allocation is to MP government company and JPA entered into an MDO agreement with the MP company. • Valecha Engineering – A big multi-bagger. Current market cap of Rs70cr is insufficient to account for the value of the corporate headquarters in Andheri West. The company is not making losses. 9MFY14 profits of 13cr. Debt overhang not an issue – parent company net D:E less than 1. Consolidated debt higher on account of BOT road projects – nature of business as in case of financial sector. • NCC – Trading at 0.3x. Again among the few promoters who have demonstrated commitment to asset sales to repair the balance sheet. Among the contractors who would participate in the upswing in the roads segment. • McNally Bharat – A company which has transformed gradually from being primary a material handling equipment and project company to a general EPC company at the right time to participate in the general upswing in infra investment uptick. Market Cap-164cr. FY13 profit of Rs38cr. 9MFY14 profit depressed at Rs8.2cr because of increase in interest costs to finance working capital to foray in general EPC business not because of undue build up of working capital in existing business lines like other companies. • Essar Ports – A 5x PE stock which has gone down 28% in 6-months versus Adani Ports up 42% and Gujarat Pipavav Port up 82%. The two other port companies trade at 25x+ multiple. Essar Ports assets are well diversified with presence in both west and east coast. 9MFY14 PAT up 22% YoY. Multiple take-or-pay contracts, so little risk of earnings declining. • Indiabulls Power – Trading at a fifth of IPO price, the company has commissioned the first units at both its power plant locations. So, it will no longer be a company with no operational cash flows. Its thermal power projects are fuelled from supplies from Coal India. Among the private sector power plays, the biggest beneficiary if the new government is able to do anything for the power sector and coal availability.
Posted on: Tue, 18 Mar 2014 09:10:02 +0000
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