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    These nine smallcaps in August may return 40% in 1 year

    These nine smallcaps in August may return 40% in 1 year

    These nine smallcaps in August may return 40% in 1 year
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    By CNBC-TV18  IST (Published)


    After the June quarter results, Sensex constituents are expected to report a 20-22 percent compounded annual growth rate over FY18-20.

    The Nifty hit the 11,700 mark this week. Despite expectations that the current bull run is here to stay, experts said investors should be cautious in what they buy. With markets hitting fresh highs, most experts said there is need for a portfolio rejig and investors should add stocks that are showing growth.
    "At a time when markets are trading at record highs, one can invest 40 percent of their portfolio in bonds, 30 percent in largecaps, 15 percent in smallcaps and 15 percent in midcaps for appropriate diversification," Jimeet Modi, CEO and Founder at Samco Securities, said. He sees sectors such as state-run banks, pharmaceuticals, cement, realty and oil marketing companies are likely to hog the limelight in the medium term.
    After the June quarter results, Sensex constituents are expected to report a 20-22 percent compounded annual growth rate over FY18-20. Healthy growth is contingent on the easing of asset quality issues for corporate lenders and normalisation of earnings.
    Given the recent recoveries, management commentary and record valuation gap between the private sector, retail banks and corporate lenders, brokerage Sharekhan says it might be a good idea to start nibbling on some quality corporate banks with an 18-24 month investment horizon. “We would suggest exploring opportunities in the industrial and quality midcap space now. We remain constructive on consumption, retail, and IT sectors,” it said.
    Here is a list of top 10 companies where brokerages have initiated coverage in August. These stocks can return up to 40 percent in the next 12 months from their August 24 closing price:
    NIIT: Buy| LTP: 96| Target: Rs 138| Return 43 percent
    Elara Capital initiates coverage on NIIT Ltd on August 14 with a buy recommendation and a target price of Rs 138 which translates into an upside of 43 percent.
    NIIT (NIIT IN) has transformed its revenue profile from an India-centric, retail-oriented IT training business to an exports-oriented, asset-light B2B training outsourcing business over FY10-18.
    Revenue volatility has been reduced by adding large, multi-year structured deals from international marquee corporate customers. Over FY15-18, the retail training business has also been revamped and repositioned to focus just on India & China and shorter duration programs, such as digital marketing.
    The brokerage firm expects visible revenue growth for NIIT starting in FY19. Given strong Order book for CLG and visibility into FY20 with the contract with the Real Estate Council of Ontario (RECO), Elara expects revenue growth for NIIT to continue into FY20 and beyond.
    Amber Enterprises Ltd: Buy| LTP: Rs 942.40| Target: Rs 1145| Return 21 percent
    Kotak Securities initiated coverage on Amber Enterprises on August 10 with a buy recommendation and a target price of Rs 1,145.
    Amber Enterprises (AEL) is the leading OEM/ODM for several room AC (RAC) brands in India, with a 55.4 percent market share. Being the market leader, Kotak Securities sees Amber as a significant beneficiary, thanks to a) its established relationship with 8 out of top 10 RAC companies, b) high level of backward integration, c) scale of manufacturing and testing facilities & d) impressive R&D capabilities.
    Given the strong demand dynamics of room AC industry, it expects AEL to post consolidated sales/PAT CAGR of 22 percent/53 percent over FY18-FY20E. AEL is a good play on India’s growing OEM/ODM RAC market.
    V-Mart Retail Ltd: Buy| LTP: Rs 3011| Target: Rs 3316| Return 10 percent
    Elara Capital initiates coverage on V-Mart Retail for the first time on August 6 with a buy rating and a target price of Rs 3,316.
    V-Mart Retail (VMART IN) has built its business model around value retailing in emerging India where there is still a huge gap between aspirational growth and organized retail presence. VMART has based its stores to cater to the “under-consumed” India, extending across Tier II, III & IV cities and towns.
    Despite expanding its store base from 22 to 171 at a CAGR of 23 percent and retaining a sales CAGR of 29 percent over FY08-18, the company has kept a debt-free balance sheet, maintained high operating profitability (10 percent+) & high ROCE (34 percent), and generated free cash flow (INR 701mn in the past four years).
    Sheela Foam Ltd: Buy| LTP: Rs 1622.90| Target: Rs 1744| Return 7.5 percent
    ICICI Securities Ltd initiates coverage on Sheela Foam with a buy rating on July 30 with a target price of Rs 1744. Sheela Foam (SFoam) is the leader in the organised mattress market in India with a 23 percent market share in terms of value.
    “We believe the company is best positioned to capture the opportunity being unlocked from the largely unorganised market, the macro-triggers being: 1) shift of preference from the cotton mattress to non-cotton mattress, 2) rising income levels, and 3) low penetration,” said the note.
    SFoam’s revenue has grown at CAGR of 11.3 percent between FY13-FY18, and ICICI Securities expects the revenue growth CAGR of 15.1 percent over FY18-21E aided by a confluence of gradual shift of customer preference toward the non-cotton mattress segment and SFoam’s strategy of: 1) premiumising and sub-segmenting, 2) expansion of distribution network, 3) outsourcing of some products, 4) higher focus on branding, and 5) product customization.
    Jyothy Laboratories Ltd: Buy| LTP: Rs 201| Target: Rs 270| Return 34 percent
    Ventura initiated coverage on Jyothy Laboratories for the first time on August 13 with a buy recommendation and a target price of Rs 270.
    Post the acquisition, Jyothy Laboratories Ltd (JLL) has demonstrated impeccable growth with Revenues, EBITDA & PAT witnessing 10.9 percent, 21.3 percent, and 29.2 percent CAGR growth respectively.
    Along with strong performance, debt has seen a substantial reduction with return ratios climbing. The market too has re-rated the stock reflected in the buoyant prices. While the stock is not cheap, the brokerage firm, still believes that going forth the robust growth should continue.
    Elgi Equipment Ltd: Buy| LTP: Rs 289.70| Target: Rs 350| Return 21 percent
    ICICIDirect initiates coverage on Elgi Equipment for the first time on August 17 with a buy recommendation for a target price of Rs 350. Elgi Equipments (Elgi) manufactures a complete range of compressed air solutions including a wide range of air compressors.
    Globally, it is the eighth largest player commanding ~1.3 percent market share. Its manufacturing facilities are spread across India, Europe & America. Air compressors, automotive equipment contributed 88.1 percent, 11.9 percent, respectively in FY18.
    With a profitable turnaround of foreign subsidiaries like Rotair in Italy, Patton’s in US, coupled with signs of growth revival in Indian operations, Elgi is in a sweet spot for solid business performance in the next couple of years.
    The global brokerage firm expects Elgi to report revenue CAGR of 18 percent and a PAT CAGR of 28.7 percent in FY18-20E.
    Westlife Development: Buy| LTP: 391| Target: Rs 485| Return 24 percent
    Nirmal Bank re-initiates coverage on Westlife Development on August 24 with a buy rating and a target price of Rs 485. Westlife Development (WLDL) through its 100 percent subsidiary, Hardcastle Restaurants Pvt. Ltd, owns and operates a chain of McDonald’s restaurants in west and south India, being a master franchisee of McDonald’s Corporation, USA.
    The management’s focus on the value-for-money proposition, menu innovation and efforts in improving consumer experience have helped the brand to sail through a challenging environment in the past.
    ‘Burger Plus’ is the differentiating factor for WLDL and has really helped in recruiting new consumers and driving frequency of eating out. The brokerage firm believes that Quick Service Restaurant (QSR) sector in India is at an inflection point and WLDL is set to grow well ahead of the market on account of company-led initiatives. It expects the revenue/EBITDA/PAT to post a three-year CAGR of 22 percent/54 percent/99 percent, respectively, over FY18-FY21E.
    TTK Prestige Ltd: Buy| LTP: Rs 6408| Target: Rs 7500| Return 17 percent
    Angel Broking Ltd initiates coverage on TTK Prestige on August 17 with a buy recommendation and a target price of Rs 7500.
    TTK Prestige (TTK) is the leading brands in kitchen appliances with 40 percent+ market share in the organized market. It has evolved from being a single product company to a multi-product company offering an entire gamut of the kitchen and home appliances (600+ products).
    It expects to double its revenue in the next 5 years backed by a revival in consumption demand, new 5 cr LPG connections under the Ujjawala Scheme, inorganic expansion and traction in exports.
    Aditya Birla Fashion: Buy| LTP: Rs 201| Target: Rs 220| Return 10 percent
    Kotak Institutional Equities initiates coverage on Aditya Birla Fashion on August 23 with a buy recommendation and a target price of Rs 220, based on June 2020E EV/EBITDA of 20x for Madura and EV/EBITDA of 17x for Pantaloons.
    Madura is a steady growth and strong FCF generating business, while Pantaloons turnaround can provide a strong margin kicker. “We forecast healthy revenue/PBT CAGR of 16/124 percent over
    FY2018-21 driving a reduction in leverage and improvement in return ratios,” said the note.
    Dixon Technologies Ltd: Buy| LTP: Rs 2585| Target: Rs 3285| Return 27 percent
    Nirmal Bang initiates coverage on Dixon Technologies for the first time on August 21 with a buy recommendation and a target price of Rs 3285.
    Dixon Technologies (India) or DTIL is the second-largest EMS (electronic manufacturing services) player in India with a market share of 9.3 percent. The EMS industry in India offers robust growth prospects, of which DTIL will be a major beneficiary.
    Over the past few quarters, DTIL has been investing in backward integration and capacity expansion across product categories to improve its value offerings, which has led to increased costs and lower-than-expected profitability.
    However, the exercise is nearing completion in 2QFY19, a post which DTIL is likely to reap immense benefits. DTIL posted industry-leading revenue CAGR of 30 percent over the past five years.
    “With multiple growths and margin levers in place, we expect DTIL to register 19 percent/31 percent revenue/PAT CAGR, respectively, over FY18-FY21E. We initiate coverage on DTIL with a Buy rating and a target price of Rs 3,285 based on 35x FY20E earnings, assigning it 1.1x PEG ratio and a 10 percent discount to branded peers,” added the note.
    Disclaimer: The views and investment tips expressed by investment experts are their own and not that of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
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