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MidCap Stocks for Long Term – Part II

November 19, 2009

Edelweiss Research has initiated coverage on few growth oriented MidCaps. You must read Part-1 of the coverage here. Here is the second set of Stocks recommendation in the MidCap space.

Infotech Enterprises:
Infotech Enterprises (IEL) has developed a unique positioning in the engineering services space.One of the key positives during the recent results is the scale up of revenues from the top 10 clients. Continuous expansion in services portfolioAs the overall environment is improving, revival of growth will be the key to upward valuation rerating. The company is close to two large deal wins that could add significant revenues in FY11 and boost growth rates. The stock is currently trading at a P/E of 10.2x and 9.0x FY10E and FY11E, earnings [Rs 25 and Rs 29 EPS], respectively.

Koutons Retail:
India’s organised retail industry is set to post ~19% CAGR over the next four years to INR 2,024 bn by FY13E. Clothing and fashion accessories account for 38% of total organised retail spending. Presence across value chain; garment manufacturer to specialty retailer. PAT margins to expand; earnings CAGR of 24.6% over FY09-11E likely. Edelweiss has a BUY recommendation on the stock and value it at 12.5x FY11E [EPS of 40] EPS (50% discount to Pantaloon’s FY11 P/E multiple) to arrive at a target price of INR 500.

Mahindra Holidays & Resorts:Leisure travel and vacation ownership set to boom in India. Mahindra Holidays & Resorts India (MHRIL) offers a differentiated product to leisure travellers with its unique Vacation Ownership (VO) model. As MHRIL charges membership fees upfront, it helps the company build resorts without borrowing capital. MHRIL is trading at 25.9x our FY10E consolidated EPS of INR 13.9 and 19.0x our FY11E consolidated EPS of INR 18.9.

Lakshmi Energy & Foods:
Lakshmi Energy & Foods (LEAF), the largest rice processor in India with processing capacity of 1.2 mtpa, still forms less than 1% of the country’s highly fragmented 135 mn tonne paddy processing industry. Rice volumes to rebound, premium rice to increase share. Estimates suggest paddy processing to normalise for the current year driven by stronger FCI offtake. At CMP of INR 124, LEAF is trading at a P/E of 8.4x FY09 EPS of INR 14.8 and P/E of 4.6x FY10E EPS of INR 27.2

Shiv Vani Oil & Gas:
Ideal play on the evolving opportunities in Indian onshore OFS space. SVOG has a robust order book of INR 37.2 bn (4.3x FY09 revenues) as on September 2009, ensuring revenue visibility for ~2-3 years. The company has well timed its asset expansion from 21 rigs and 4 seismic crews in CY06 to 40 rigs and 10 seismic crews by FY10E. The stock is trading attractively at P/E of 6.1x and 4.6x its FY10 and FY11 earnings estimates, and at EV/EBITDA of 6.4x and 4.9x our FY10 and FY11 estimates, respectively. This is at a significant discount to international peer valuations.

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