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Investing in the times of COVID-19: ICICI Direct lists resilient midcaps and smallcaps

Updated : 2020-07-03 14:18:42

In the current uncertain scenario, when many stocks are at multi-year lows, and finding opportunities is challenging, ICICI Direct in a recent report has identified resilient stocks from the midcap and smallcap space. The brokerage added that stock selection is based on price structure analysis, relative strength rankings, and Dow Theory bullish signals. It further said that structurally, current rally from March 2020 lows is highest quarterly gain since 2014 indicating structural turnaround. Midcap and smallcap segments also seem to be at the cusp of the next major bull market signaling their outperformance ahead. Here's a list of resilient stock picks by ICICI Direct:

 Balkrishna Industries:  The company is a leading tyre manufacturer domestically in the off-highway tyre (OHT) segment which is primarily meant for exports. The company stands out in the domestic tyre space, with its balance sheet strength, robust EBITDA margins and healthy return ratio matrix. With back integration in place (carbon black), it is well poised to further augment its EBITDA margin profile with near term margin guidance at around 28-30 percent.
Balkrishna Industries: The company is a leading tyre manufacturer domestically in the off-highway tyre (OHT) segment which is primarily meant for exports. The company stands out in the domestic tyre space, with its balance sheet strength, robust EBITDA margins and healthy return ratio matrix. With back integration in place (carbon black), it is well poised to further augment its EBITDA margin profile with near term margin guidance at around 28-30 percent.
 Trent:  Trent’s flagship store format ‘Westside’ generates one of the highest gross margins in the industry. Westside continues to be one of the most successful and established franchises and has continuously sustained same-store sales growth of over 7 percent, outperforming peers in the industry. Despite a subdued Q4FY20 owing to COVID-19 disruptions, Trent exited FY20 with robust revenue growth of 25.5 percent at Rs 3177.67 crore (standalone). For YTD-February, revenue grew at a robust pace of 33 percent YoY. Healthy performance in a challenging scenario instills confidence in the business model. Furthermore, being a net cash positive company, it would be in a better position to tide over the current turbulent scenario.
Trent: Trent’s flagship store format ‘Westside’ generates one of the highest gross margins in the industry. Westside continues to be one of the most successful and established franchises and has continuously sustained same-store sales growth of over 7 percent, outperforming peers in the industry. Despite a subdued Q4FY20 owing to COVID-19 disruptions, Trent exited FY20 with robust revenue growth of 25.5 percent at Rs 3177.67 crore (standalone). For YTD-February, revenue grew at a robust pace of 33 percent YoY. Healthy performance in a challenging scenario instills confidence in the business model. Furthermore, being a net cash positive company, it would be in a better position to tide over the current turbulent scenario.
 Natco Pharma : It is a mid-sized pharmaceutical company with a presence across the pharma value chain. It owns six manufacturing facilities including four formulation facilities and two API facilities. The company management has recently charted a new growth roadmap with an increased focus on other geographies and businesses (agrochemicals). As per new strategy, specific markets- India, Brazil, Canada, China and the agrochemical segment, together are likely to contribute 70-80% of revenues in the next two to three years. The bright spot for Natco is of course its strong balance sheet besides management’s ability to carve out a niche out of the available opportunities. The growth trajectory is likely to improve from FY22 onwards as the new strategy settles down.
Natco Pharma: It is a mid-sized pharmaceutical company with a presence across the pharma value chain. It owns six manufacturing facilities including four formulation facilities and two API facilities. The company management has recently charted a new growth roadmap with an increased focus on other geographies and businesses (agrochemicals). As per new strategy, specific markets- India, Brazil, Canada, China and the agrochemical segment, together are likely to contribute 70-80% of revenues in the next two to three years. The bright spot for Natco is of course its strong balance sheet besides management’s ability to carve out a niche out of the available opportunities. The growth trajectory is likely to improve from FY22 onwards as the new strategy settles down.
 Deepak Nitrite:  Deepak Nitrite is a leading manufacturer of organic, inorganic, fine and specialty chemicals. The company has a presence in basic chemical, fine & specialty chemical, performance chemical and phenolics and sells phenol in the domestic market. The recent increase in acetone prices can aid the performance of the company in the coming quarters. Further, the management also plans to enter into few derivatives in the years to come, which should likely aid specialty share going ahead and thereby can support the operational performance.
Deepak Nitrite: Deepak Nitrite is a leading manufacturer of organic, inorganic, fine and specialty chemicals. The company has a presence in basic chemical, fine & specialty chemical, performance chemical and phenolics and sells phenol in the domestic market. The recent increase in acetone prices can aid the performance of the company in the coming quarters. Further, the management also plans to enter into few derivatives in the years to come, which should likely aid specialty share going ahead and thereby can support the operational performance.
 MCX : Incorporated in 2003, Multi Commodity Exchange of India Ltd (MCX) is a commodity derivatives exchange which facilitates nationwide online trading, clearing & settlement operations of commodities derivatives. It is the leader in commodity derivatives with 94 percent market share in terms of the value of commodity futures contracts traded in FY20. Commodity-wise, MCX is practically sole exchange with 98.57 percent share in precious metals, 99.95 percent share in energy and 100 percent share in base metals. Volatility in commodity prices including gold and crude will drive volume ahead. Strong operational efficiency enabled to deliver improvement in EBIDTA margins from 31.6 percent in FY19 to 41.3 percent in FY20. An increase in turnover and cost control is expected to improve EBITDA margin to 46.4 percent in FY22.
MCX: Incorporated in 2003, Multi Commodity Exchange of India Ltd (MCX) is a commodity derivatives exchange which facilitates nationwide online trading, clearing & settlement operations of commodities derivatives. It is the leader in commodity derivatives with 94 percent market share in terms of the value of commodity futures contracts traded in FY20. Commodity-wise, MCX is practically sole exchange with 98.57 percent share in precious metals, 99.95 percent share in energy and 100 percent share in base metals. Volatility in commodity prices including gold and crude will drive volume ahead. Strong operational efficiency enabled to deliver improvement in EBIDTA margins from 31.6 percent in FY19 to 41.3 percent in FY20. An increase in turnover and cost control is expected to improve EBITDA margin to 46.4 percent in FY22.
 Rallis India : Rallis India is an agrochemical company with a presence in insecticide, herbicide and fungicide. The company derives around 60% of the agrochemical revenue from the domestic market while the rest has been dispersed from geographies such as North America, Europe, Africa etc. Going ahead, it can witness gross margins expansion in the medium term.
Rallis India: Rallis India is an agrochemical company with a presence in insecticide, herbicide and fungicide. The company derives around 60% of the agrochemical revenue from the domestic market while the rest has been dispersed from geographies such as North America, Europe, Africa etc. Going ahead, it can witness gross margins expansion in the medium term.
 Bajaj Electricals:  Bajaj Electricals Limited (BEL), a leading consumer durable company in India with an annual turnover of Rs 5000 crores (FY20). The growth momentum in the consumer-facing business is likely to continue given Bajaj’s strong presence in the semi-urban and rural markets where the impact of COVID-19 infections is very limited.
Bajaj Electricals: Bajaj Electricals Limited (BEL), a leading consumer durable company in India with an annual turnover of Rs 5000 crores (FY20). The growth momentum in the consumer-facing business is likely to continue given Bajaj’s strong presence in the semi-urban and rural markets where the impact of COVID-19 infections is very limited.
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