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Midcap Review – Sintex + Titan + Exide + Shriran Transport

July 9, 2008

CNXMCAP index fell 20.2% in June 2008 while Nifty and Sensex were down 17% and 18% respectively. The mid-cap discount to large caps is ~18% currently and in spite of the concerns of inflation related margin pressures and high oil price, there are currently quality companies available at attractive price in the mid-cap space. While none of them may be immune to the immediate effects of a broader market meltdown, the quality investment theses should prevail over a 12 month horizon.

Selected stocks from the Mid-cap space that are good bets for the long term are,
Sintex Industries:
Consensus estimate the organic growth to be about 60%, chiefly driven by 79% growth in its plastic mass housing solutions business (pre-fabs and monolithic). Expected EPS for Fy09 is Rs 28.2 a 70% growth and the stock is trading at P/E of 11x. Going forward 40% growth is sustainable.

Shriram Transport Finance:
The pre-used Commercial Vehicle finance company, has lived up to our conviction in it as a “secular” high growth company whose fortunes seem to be de-coupled from the CV cycle. The asset quality seems to be holding up impressively. It is expected to report an EPS of Rs 33.3 for Fy09 and is currently trading at 10.8x FY09 earnings.

Exide Industries:
Exide reported revenue growth of 52% YoY, driving profit growth of 61% YoY for FY08, as volumes grew by 18-20%. The insurance business under ING Vysya Life reported strong growth of 60% in new premiums during 11MFY08. Insurance business contributes Rs 15 /share. EPS for Fy09 is expected to be Rs 4.0. Add on Correction.

Titan:
Titan reported strong 4QFY08 results with revenue growth of 38% YoY and pretax profit growth of 25%. Strong 4QFY08 results corroborate our view that with higher-end of jewellery contributing c.60% of sales, Titan will be able to partly withstand moderation in gold demand due to sharp rise in gold prices. Tital is expected to report an EPS OF Rs 45 for FY09 and is trading at 27x FY09 earnings. Hold and Add on Correction.

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