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10 smallcaps that rallied up to 227% to save LIC blushes in last 1 year

As of December 31, LIC held 189 stocks with market capitalisations less than Rs 10,000 crore.

, ETMarkets.com|
Last Updated: Feb 19, 2020, 05.34 PM IST
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LIC has been the talk of the town ever since the Finance Minister Nirmala Sitharaman announced government plans to sell a part of its holding in the insurance behemoth through an IPO next financial year.
Just 10 smart smallcap picks came to the rescue of Life Insurance Corporation of India (LIC), as their outperformance helped India’s largest institutional investor cap the downside in the portfolio as most of its holding bled profusely all through last one year.

As of December 31, the insurance behemoth held 189 stocks with market capitalisations less than Rs 10,000 crore, in its portfolio. Several of them bled: Cox & Kings, Reliance Home Finance, Reliance Capital, Dewan Housing Finance, Reliance Communications, Ballarpur Industries and YES Bank all eroded 83-99 per cent of wealth, causing a major dent in LIC’s portfolio in last one year. But 44 of the smallcaps delivered solid returns, and thus helping do some damage control.

Orissa Minerals Development Company (OMDC) was the top performer, rallying some 227 per cent from Rs 708.40 on February 15 last year to Rs 2,318 on February 17, 2020. The company recently reported a net loss of Rs 14.52 crore for December quarter against a Rs 0.22 crore loss reported for the same quarter last year. LIC held over 14 per cent in the stock as of December 31.

Welspun Corporation (up 121 per cent) and Granules India (up 102 per cent) doubled LIC’s investment in these stocks in last one year. The insurer held over 2.50 per cent stakes in these two.

Granules India recently divested its entire stake in Granules-Biocause Pharmaceutical, a joint venture company located in China. Last year, the company had intimated about the divestment of its entire stake of the JV company for a total consideration of RMB 109 million (around Rs 110.8 crore).

Welspun Corporation reported 643 per cent growth in Q3FY20 net profit at Rs 223.50 crore, while Granules India grew its bottom line 6 per cent YoY to Rs 64 crore.

Among others, Mishra Dhatu Nigam (Midhani), Garden Reach Shipbuilders & Engineers (up 96 per cent), Birla Corporation (up 65.60 per cent), Wanbury (up 58 per cent) and Shipping Corporation of India (up 57 per cent) also delivered superlative returns during this period.

LIC table 1

Midhani is a manufacturer of superalloy and titanium alloy, catering to the very niche segments of the super-alloy steel segment in India.

“An increase in Indian space expenditure Budget has been one of the key tailwinds for Midhani,” ICICI Securities said in a report.

BSE Sensex has risen 15 per cent in last one year, while the Midcap and Smallcap indices have gained 11 per cent and 10 per cent, respectively.

Midhani and Birla Corporation also posted over two-fold rise in bottom line in Q3, while Garden Reach Shipbuilders and Wanbury reported 38 per cent and 3 per cent drop in net profit for the quarter. Wanbury offers active pharmaceutical ingredient (API) in over 70 countries.

Brokerage firm Anand Rathi is bullish on Birla Corporation with a price target of Rs 1,016. “Birla Corp’s Q3 performance was robust on all fronts. The ongoing 5 million tonne expansion cement capacity will keep leverage high. At the current rate of profitability, the net debt-to-equity is expected to be 0.75 times by FY22. The company’s increased marketing spend would further help it consolidate its position in the core markets of Bihar and UP,” Anand Rathi said in a report.

Drug firm Cipla on February 8 said it has acquired four brands from Wanbury to strengthen its presence in the women's health segment.

Shares of RITES have jumped 88 per cent, while those of Linde India have rallied 79 per cent since February last year. LIC bought over 5 per cent stake in RITES during December quarter and has been holding over 1 per cent in Linde India since March 2019.

LIC table 2

RITES reported a 16 per cent YoY sales growth at Rs 619.80 crore for Q3 with the consultancy, leasing and turnkey segments being key growth drivers. The company management has maintained its FY20 order book target at Rs 8,000 crore with Ebitda margin at 35 per cent.

“With order pipeline visibility from railways, various infrastructure projects from roads, highways and construction projects, we expect the company to bag at least 15-20 per cent orders and continue its growth momentum with estimated CAGR earnings growth of 16.4 per cent for FY19-22E. Hence, we maintain our ‘buy’ rating on the stock with a price target of Rs 364,” said Way2Wealth Securities.

LIC table 3

LIC has been the talk of the town ever since the Finance Minister Nirmala Sitharaman announced government plans to sell a part of its holding in the insurance behemoth through an IPO next financial year.

Market veteran Shankar Sharma recently said he would stay away from the LIC IPO and blamed the government for making the insurer absorb unsold issuances of PSU shares.

Global financial Services firm Macquarie believes the chances of LIC’s IPO hitting the market next financial year are very low, given a slew of challenges, related to valuations and various legal issues.
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