Earlier this week, we had analysed the best performing Large Cap stocks (some of whom had returned more than 100% this calendar year!). Continuing from where we left off, we are looking at those Mid Cap stocks that have outperformed their peers this year; and boy, are there plenty of those! What a topsy-turvy year 2015 has turned out to be for the markets! The Nifty and Sensex had been beaten down, falling by 4.5% and 5.0% resp.
The Nifty Midcap 50 is an Index of stocks that have an “Average Free Float Market Cap” between Rs. 1,000 cr. and Rs. 5,000 cr. The stocks should also be a part of the Derivatives segment. The Midcap 50 has increased ever so slightly in 2015; a gain of 1.54%. Compare this to our Top 10 Midcap performers for the year:
1) Gayatri Projects
Gayatri Projects has returned an absurdly high 354.40% to its share-holders this year. The stock saw much of its appreciation in May this year. For a whole year until then, the stock had been languishing at its Rs. 160-170 levels.
The company is in the Infrastructure business, more specifically – irrigation, Build-operate-transfer, industrial buildings, Roads and Power transmission projects. The company has been listed since late 2006, with its first Road project being secured in 1990. Gradually, it diversified into Manufacturing (Sugars & Bio-organics), Hoteling (Park Hyatt) and Power (through its subsidiary Gayatri Energy Ventures).
Let’s take a closer look at their performance this calendar year – has it really justified the 3x-plus returns?
- Their recent results haven’t been great; they are reporting slightly increased profits, but seemingly not enough to justify the 3x jump in share price.
- They have considerable Borrowings, to the tune of Rs. 1,778 cr. which has been rising annually. Interest payments, however, have been more or less hovering around the Rs. 35 – 40 cr. mark quarterly.
- Valuations have shot through the roof! At the beginning of the year, on a TTM basis, its PE ratio was 23.3, while at the end of the year valuations had jumped more than 170% to 62.9!
So what does explain the fantastic returns that this stock has provided?
- In May 2015, the company announced that investment firm Mentor Capital had bought (1.48%) into the company (you can find out the Big Investors in this company on our Proprietary SNAP tool right here!) The share price of Gayatri Projects had been steadily climbing before this news broke out, post which it started rallying. Plenty of Domestic and FIIs have been buying into the company recently.
- The company issued new stock to Promoters and FIIs in June this year.
- Since the turn of the year, there has been a massive push by the government towards infra projects; and companies such as Gayatri Projects, as well as the more established larger players like IRB Infra and L&T have seen their order books swell in size. This article highlights some of the wonderful initiatives that have cropped up for companies in the Infra space.
- Also, in August, the company received orders worth Rs. 3318 cr. from the NHAI to build highways in various states. For a company with annual revenues till FY2015 between Rs. 1600 cr. & Rs. 2000 cr, this was a terrific shot in the arm.
Having said that, at nearly 63 PE, the stock is expensive. But with the great expectations that are currently following this sector, the growth story could be soon catching up with the valuations!
2) JMT Auto
JMT Auto’s stock has returned 311.6%; a close 2nd on our list. This is from the infamous Amtek stable, and is a part of the continuing drama as Amtek unwinds itself.
- Part of the much-maligned Amtek Auto group of companies (Amtek owns 66.7%.) The less said, the better. In case you want to understand more about what happened to Amtek Auto this year, check out the following posts:
- Amtek Auto Down Another 36% on Thursday as FIIs Dump Stock
- Amtek Auto Management Clarifies, Stock Moves Up, But Drama Still Ahead
- Amtek Auto Defaults on 800 cr. bonds. A View On The Tricky Recovery Process.
- TTM Profit growth and Sales growth has been negative.
- Borrowings have stayed the same – at about Rs. 160 cr.
- Much of the appreciation kicked in at the end of June, when the company split its shares 5:1.
- TTM EPS has gone down from Rs. 7.10 to just Rs. 1.01 – that’s a massive 85.8% drop!
- Based on TTM EPS, P/E at the beginning of the year was just 3.0; while at the end of the year it zoomed to 96.3!
Ever get into a situation, looking around you, wondering what on earth just happened? How did that just go down? That doesn’t make any sense… Well, this is the market version of that.
3) Sangam India
Sangam India, in the Textiles space, saw their shares rise 293.20% this year.
Fantastic moves in the stock this year. The Textile stocks have been a great wealth creator for investors this year. On an average, the Textile stocks above Rs. 100 cr. market cap returned 65.76%!
- Sales haven’t been growing much. TTM Sales have grown just 2.30%.
- Op Profits (15.53%) and Net Profits have been growing considerably well.
- TTM EPS has grown 40.66%! Net Profit Margin has been increasing; currently at 4.67%.
- May onwards is when the price started surging. This was mainly after Promoters (Sangam Business Credit Ltd) upped their stake by 5%.
- This year, Sangam moved from a pure B2B play, to include B2C business models as well with the launch of Channel Nine, their women’s apparel brand.
- Started the year with a PE ratio of 6.7 – now it is at 18.7.
4) Tata Elxsi
Tata Elxsi is next on the list with a 279.07% increase.
Tata Elxsi is not your run-of-the-mill IT/Software company. It is a more new-age IT products/design/software support company that also has an in-house incubator to support start-ups. Most of their revenues come from the development of electronics that are used in the automobiles and broadcast industry.
- Tata Elxsi has rewarded shareholders handsomely; we can see that their RoE over the last 10 years has been fantastic:
- Operating Margins have been steadily rising which could indicate that the company has identified an area of business where it can consistently attain higher margins.
- The main driver for the near 280% bump in stock price, is that the stock has become much more expensive.
5) Srikalahasthi Pipes
The stock has gone up 266.6% this year. The stock had hit its all-time high of Rs. 349 In August 2015. Since then, it has steadily climbed down to the current Rs. 250-260 levels.
- One of the leading Ductile Iron (DI) pipe manufacturers in India. It also manufactures cement under its ‘Srikalahasthi Gold Cement’ brand name.
- This company was initially incorporated as Lanco Industries Ltd. and only in 2014 the name changed to Srikalahasthi Pipes.
- Electrosteel Castings owns 48.54% of the company and is the main Promoter. Its clients include various Water Boards, PHED, Municipal Corps, Railways, Contractors and more such.
- Morgan Stanley bought into the company this year, as did a host of other Foreign Investors.
What has led to its rise?
- Operating Margins and Net Profit Margins are constantly increasing; currently at 24.04% & 12.67% resp.
- Sales have grown 18.55% on a TTM basis; while NP has grown 117.44% – another clear indication of much-improved margins.
- In the June quarter, CARE upgraded the company’s Credit Rating.
- Interest Costs are coming down as Borrowings have gradually reduced over the last 3 years.
- The company has been reporting strong positive Operating Cash Flows for the last 3 years running.
- TTM EPS has gone up 117.35% from Rs. 14.24 to Rs. 30.95; the stock is valued at 8.55 times TTM Earnings:
6) Kwality Limited
Kwality is a dairy products company that was initially established in 1992 as a backward-integration division of Kwality Ice Creams Ltd. The company’s stock has returned 260.1% this calendar year!
A quick snapshot of their business:
- Kwality sells dairy products across verticals; from Milk and pouched milk (15% procured directly from farmers) to milk-based products and other dairy products such as ghee, curd, ‘Chaas’, butter, cottage cheese and so on. They retail the dairy products under their own brand ‘Dairy Best’, and supply raw materials to International brands such as Mother Dairy, Britannia, HUL, Coffee Day, ITC etc.
- Exports currently account for about 10% of Total Annual sales. They have a wholly-owned subsidiary Kwality Dairy Products – FZE, in the Free Trade Zone of Dubai that helps in achieving their export targets. Exports as a whole stood at Rs. 530.2 cr. for FY 15, an increase of 189% y-on-y.
- The company focuses on gradually switching from bulk milk sale to sale of FMCG-based products and exports, and in pursuit of this ambition, are looking at introducing new value-added products. They are also aggressively looking to make inroads into the un-organized portion of this sector, which accounts for around 80% of total Milk sales in India.
The company’s Annual Report for 2014-15 makes for fantastic reading for those who want to know more about the industry and its future prospects.
Key Financial metrics:
- Annual Sales have been increasing at a phenomenal rate; from Rs. 71.97 cr. in FY 2005, to Rs. 5,269.17 cr. in FY15.
- Operating Margins have remained steady at around 6.6%.
- Fantastic long-term RoE:
- They have steadily increased Borrowings over the years, which is also reflected in their rising interest costs.
- Only turned Operating Cash Flow positive in FY14.
- TTM EPS has reduced to Rs. 6.65 from Rs. 6.85 in the preceding 12 months; this is also reflected in the valuations – PE ratio has risen from 5.81 to 21.55.
7) Caplin Point Labs
With a return of 249.2% in 2015, this is the best-performing Pharma stock in the Midcap space. Caplin Point was established in 1990, and its initial products were ointments, creams and the likes. It was then listed in 1994 and used the proceeds to set up a new manufacturing facility.
The company focuses its business in the countries of Latin America, the Caribbean and some parts of Southern Africa. Interesting Snippet: Caplin Point was listed on Forbes Asia’s ‘200 Best Under a Billion’ in 2015 and 2014. They are looking to increase their footprint in these geographical areas, and eventually extend into Brazil and US in the years to come.
Key Drivers of Price Rise:
- Their margins have been phenomenal over the last few quarters; Operating Margin stands at 28.71% and Net Profit Margin at 18.16% for the most recent September 2015 quarter!
- The company has virtually no debt; that means hardly any interest costs which has a direct effect on their bottom line.
- Check this out for their 5-year growth story:
- Operating Cash Flow positive for the last 10 years.
- Promoters had increased their stake in 2015.
- Consistent Dividend Payments.
- Foreign Investment in the company has increased this year.
8) Intellect Design Arena
Intellect is an IT company that focuses on building products for banks. They develop a suite of products that covers divisions such as Consumer Banking, Risk & Treasury Management, Transaction Banking and Insurance. The company got listed only on December 18th, 2014, so there isn’t much by way of comparable prior financial statements to analyse. (They were demerged from Polaris)
Their stock has gained 241.6% in 2015.
- Rakesh Jhunjhunwala has bought in. Holds nearly 6% of the stock.
- The stock touched its 52-week high this year, as recent as late November.
9) Jubilant Life Sciences
The Pharma sector has been the best-performing sector by far this year (Check out our Analysis of Individual Sector Performance in the Markets: 2015), outperforming the Nifty by a cool 10%. There were 2 Pharma companies in our Top 10 Large Cap list; continuing with that trend is Jubilant Life Sciences in the MidCap space, our 2nd Pharma company.
What a fantastic move for this stock. A 239.10% up move in a single year. The company had plenty going for it this year as it stage a remarkable turnaround after a tumultuous 2014. The stock had hit its all-time high of Rs. 454.9) in the first week of December.
- Plenty of positive news for the company, from FDA approvals, to product price increases and great quarterly results.
- Operating Margins and Net Profit margins had been consistently increasing.
- Several Institutional Investors had bought into the company this calendar year (2015).
- TTM EPS had increased by 80.3% as the PE ratio also rose.
10) 8K Miles Software
To round off our Top 10, we have a Cloud Solutions company. 8K Miles’s stock has provided its investors an incredible return of 238.0% in 2015.
This is a company that is highly differentiated in the Software industry with a variety of cloud-based solutions and products. They have been recognized by the industry in India and the US (where they are headquartered) and have won a host of awards for their innovation.
- In 2015, 8K has been involved in a slew of acquisitions; mainly cloud-based smaller companies with expertise in the Pharma/Healthcare space.
- The stock has seen renewed interest from both institutional and retail investors this year.
- Fantastic Operating Margins – Constantly increasing and currently at 34.59%!
- Since the company has taken on almost no debt, interest costs are negligible.
- Net Profit Margin is 14.32%.
- Over the last 3 years, Sales have grown at 80.97% CAGR, and Profits at 75.68%!
- TTM RoE is 23.46%.
- At 81.01, the company’s stock definitely does not come cheap and valuations have been rising since December 2014. TTM EPS has grown over 119%.
There we have it! The Top 10 performers in the Mid Cap space. It is fairly evident that most of the companies that have gained big time in these markets, are those with a good growth story ahead for them; companies that have exciting products in store and are looking to continually expand both their product offerings, and their geographical presence. Some of these listed above, have also managed to stay almost debt-free as they embark on their expansion plans. Let’s have a look at them after 2016!