Market

Here are top five midcap, smallcap stocks recommended by Prabhudas Lilladher

Updated : April 22, 2019 11:04 AM IST

Markets opened lower on Monday, dragged by RIL, and as oil prices spiked on a report the US is likely to ask all importers of Iranian oil to end their purchases or face sanctions.

At 9:20 am, the BSE Sensex was trading at 38,940, down 199 points, while the broader NSE Nifty50 was ruling at 11,685, slipping 70 points.

Prabhudas Lilladher maintained 'buy' calls on Entertainment Network, IG Petrochemicals, Maharashtra Seamless, Music Broadcast and Navneet Education.

Markets retreated from its lifetime high last week as investors took money off the table ahead of an extended weekend. The Jet Airways crisis has also stoked fear in the market. Markets opened lower on Monday, dragged by RIL and oil marketing companies. Asian shares traded little changed as oil prices surged to a five-month high. Benchmark indices BSE Sensex and NSE's Nifty 50 traded about 0.7 percent lower. The midcap and smallcap indices fell oer 1 percent. Here are the top recommendations from Prabhudas Lilladher on the mid-cap and small-cap stocks for the near term.

Entertainment Network (TP: Rs 662)

Expect utilization levels to rise gradually to 85 percent (Phase 2), 40 percent (Batch 1) and 20 percent (Batch 2) in FY20E. Due to renewed focus on non-FCT (Free commercial time- Radio) business, we expect EBITDA margins to decline 10 bps YoY to 21.6% in FY19E. Given low capex, minimal working capital requirements and strong talent pool of employees (350 people), non-FCT business will be a key driver even as the traditional radio business is under pressure. Therefore, maintain ‘Accumulate’ rating on the stock.

I.G. Petrochemicals (TP: Rs 530)

I.G. Petrochemicals (IGPL) management maintained that spreads have recovered to US$150-160/ton (August 2018 lows of US$105/ton) led by healthy demand revival. Capex programme is on-track and the 53,000 tons Phthalic Anhydride (PAN) capacity addition will be commissioned by Dec 2019 while the 8,400 tons Plasticizer capacity will be commissioned by Mar 2020. IGPL has already spent Rs2 bn towards new capex. Total capex cost for the project stands at Rs3.4 bn which will be funded by mix of internal accruals and debt.

Maharashtra Seamless (TP: Rs 551)

Maharashtra Seamless (MSL) capacity is operating at 65 percent utilization and Electrical Resistance Welding) ERW at 50 percent utilization. We expect the company to end the year with total volumes of 3,98,000 tons and further grow by 28.4 percent CAGR by over FY19-21. Going forward we expect it to sustain at ~Rs17,000 and Rs 5,000 for ERW. Total order book as on date stands at ~Rs 13 billion. Of the total order, Rs300 million is towards ERW pipes and balance for seamless. ONGC and Oil India together accounted for roughly 40 percent of their order book until September but now it is likely to increase to 50 percent, after this order.

Music Broadcast (TP: Rs 81)

Formation of listenership body is taking longer than expected as advertisers are unwilling to share the measurement process expenses. Unlike print where there has been a hike in government ad rates to the extent of 25%, Directorate of Advertising and Visual Publicity (DAVP) rates for radio remain intact. Last hike happened ~2 years back and the industry is now engaging with DAVP to reconsider current rates.

Navneet Education (TP: Rs 157)

Launch of new titles and workbooks is likely to result in a steady growth of 20-25% for next few years. On a top line of Rs0.9-1bn the ILL business (Indiannica Learning Ltd) is estimated breakeven and start contributing towards the profitability. The school business is expected to report EBITDA of Rs500mn in the next year and no additional investment lined up in the space. In the domestic stationery business, Navneet faces stiff competition from ITC (Classmate and PaperKraft brands). Navneet has made considerable inroads and the growth is expected to be upwards of 60% in FY19E. approximately 32% of ILL’s sales are in Northern markets, balance is from 18 other states.

Here are top five midcap, smallcap stocks recommended by Prabhudas Lilladher

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