Manali Bhatia
The dull phase for small caps generally extends to 2-2.5 years, as witnessed from FY11 till October FY13. During such a tenure, mid and smallcaps retrace to the levels of 50-80 percent. But at this particular time, investor fear rises to repurchase these stocks at lower levels, which generally arise due to collapse and revival concerns over invested stocks. As a result, it forces investors to shield themselves and prefer investing in large cap selective stocks.
To recollect, the last 1.5 years has been a difficult phase for mid caps and small caps. The S&P BSE small cap index touched 20,000 during January 2018 and is now sitting at 14084.24. It has beaten up by around 25 percent within a year and around 30 percent from past 1.5 years. Thus, the time and price correction phase, as stated above, is expected to arrest soon with another, perhaps 6-12 months of more pressure is left on the desk. Thus, the risk from here is expected to be quite low.
If investors looking for multibagger returns with some risk appetite, they may now invest in mid caps and small cap stocks for at least 2-3 years in their portfolio. As figures of the past indicate that after this index tumbles down, they come back has given multiple returns into the pockets of investors (for example, from October, 2013 to January, 2018).
Provided that the investment must be in good stocks on qualitative, quantitative parameters with a low chance of bankruptcy and favourable debt-equity ratios. Nevertheless, stocks having strong fundamentals with improved and unique business outlook should be looked upon particularly. Thus, we suggest investing in stocks mentioned below as they could give multibagger returns over the period of time.
Here are the top stock trading ideas which can give good returns:
GHCL | CMP: Rs 243 | Tenure 2-3 years | Return: Multibagger
In its organic segment, it has increased its soda ash production by 16,000 MT, which is expected to be fully benefited in FY20. Moreover, two modular expansions of 50,000 each are expected with the aggregate capex of Rs 300 crore and 95 percent utilization rate over the next two years. Thus, volume growth is expected to increase by 10 percent. Moreover the shut down of a plant in China due to pollution, helps growth in domestic demand (4-5 percent over next two to three years) and gives direct benefits to GHCL.
On the textile front, it is emerging as one of the innovative players. GHCL has invested Rs 13.50 billion and looks to invest another Rs 3.50 billion in the next two years. It exports its finished products to the US and UK, Australia, Canada, Germany and other European countries. Recent launches include fresh range of products under “NILE HARVEST”, mainly for US & UK and “MEDITASI”, being introduced in nine innovative ranges. Having a unique business model, it recycles plastic products and uses the re-polmerised fiber to blend it with cotton to manufacture bedspreads. Now, has partnered with a Japanese company to de-polymerize the polyester from its cotton-polyester blended fabrics.
Uflex | CMP: Rs 243 | Tenure 2-3 years | Return: Multibagger
On the back of growing domestic market and overseas operations, UFLEX would become $2 billion company by FY23. It is planning to set up a new manufacturing facility in Nigeria in order to increase the production of packaging film business by around 50,000 tonne annually. Moreover, in coming 3-4 years, it is expected to generate an additional revenue of around Rs 1,200 crore from the sale of Aseptic Liquid Packaging Material and Rs 300 crore from its Aseptic filling machine. Over the past one year, it had launched a series of new products and developments are on stream.
Some of the recent launches include- metallic dies for hot-foil stamping and embossing etc., an IIOT-enabled converting machine, and an extrusion coating and lamination machine EX LAM 400. Also, Uflex became the first-ever Indian company to make gearless CI flexo model Elisa. The company also introduced the solvent-less laminator machine Super-S-1300. Apart from this, it is available at an attractive valuation. Thus, if all the expansions of the company are in line, then good returns can be expected.
Lokesh Machines | CMP: Rs 42 | Tenure 2-3 years | Return: Multibagger
All in all, the stage is set for Lokesh machines to grow big and fast in the future as it claims to be the only Indian Company to have successfully executed Volvo Eicher's Euro 6 engine project and establishes a relationship with the world's machine tech giants. Looking at the foreseeable future, it is scaling up to around 1,500 CNC machines in 2019-20 with a capex of Rs 10 crore and expects its turnover to grow at a CAGR of 30 percent during next three years to reach Rs 370 crore mark by 2021, which has added to bring down its debt level. Also, the company look towards additional growth of around 22-25 percent from the non-automotive sectors.
Moreover, the company put a greater focus on CNC machines, which have a relatively shorter execution and working capital cycle; it is expected to post substantial growth with improving market conditions. As Europe is showing signs of recovery and the situation in Russia easing, there would certainly be an uptick in the export performance as well. SPM order book reflects a reasonable growth, besides, component division shows marginal growth.
Amber Enterprises | CMP: Rs 821 | Tenure 2-3 years | Return: Multibagger
The company has already acquired a 70 percent stake in IL JIN, and is planning to acquire a 70 percent stake in EVER (currently 19 percent) for Rs 22 crore by June 2019 to backward integrate its operations. Further, it has agreed to acquire the balance 30 percent stakes in IL JIN and EVER for a combined consideration of Rs 20-25 crore by FY 21-22. The integration of IL JIN and EVER was successfully done in last year and will be able to deliver higher growth for next financial year through the addition of new customers in these subsidiaries.
Recently, the company has acquired an 80 percent stake in Sidwal and a balance of 20 percent over the next two years for a consideration of Rs 202 crore. Acquisition is a strategic fit in Amber’s portfolio owing to its leadership position in railways/metro at a 50 percent share and Defence at 80 percent. Its expansion within the Heating, ventilation, and air conditioning (HVAC) segment diversifies its revenue stream from RAC to mobility and commercial AC, and it will give Amber entry into high entry barrier customers with long approval cycles.
Also, Sidwal’s strong technical background will help Amber to cross sell and provide more comprehensive solutions to its current set of customers. Further, we envisage acquisition to be EPS and ROCE accretive given Sidwal’s higher margin (20 percent plus vs Amber’s 9-10 percent), almost nil debt and better return ratios.
The author is Senior Research Analyst at Rudra Shares & Stock Brokers.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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