Mid & smallcap stocks that led the recent rally
Strong quarterly results have been a key factor behind the surge in Divi’s Lab.
TOP CONTRIBUTORS TO LAST ONE MONTH’s RALLY
MID-CAP INDEX CONSTITUENTS
The stock got a boost after the Supreme Court allowed power regulator to amend power purchase agreements of three power plants in Gujarat. Adani Power also reported a 22 per cent rise in consolidated net profit for Q2. Edelweiss said that the Supreme Court’s ruling on Mundra resolution raises hopes of a positive outcome and a successful resolution could be a turning point for Adani Power. The brokerage has maintained hold rating and target price of Rs 25, awaiting final tariff order from CERC for further clarity.
Strong quarterly results have been a key factor behind the surge in Divi’s Lab. It posted a 92.30 per cent YoY rise in net profit at Rs 397.65 crore for Q2. HDFC Securities sees limited upside in the stock from hereon. “Divi’s is trading at 30 times FY19E and 26 times FY20E EPS, 20 per cent premium to its historical average. There have been times when Divi’s has delivered 40 per cent plus RoICs, but it has rarely traded above 25 times one year forward P/E,” said HDFC Securities, maintaining a sell rating.
Tata Power Co.
Tata Power reported 85 per cent jump in consolidated net profit at Rs 393.4 crore for Q2. “Monetisation of various non-core assets, new growth platforms and a successful resolution of CGPL losses are the key triggers that have already started playing out. We maintain TPCL (Tata Power) as one of our top picks in the power space,” said Edelweiss in a recent note, maintaining a buy rating on the stock with a target price of Rs 92.
M&M Financial Services
The company reported a more than two-fold jump in standalone net profit for Q2 at Rs 381 crore. Suresh Ganapathy of Macquarie said that sharp improvement in asset quality, strong growth and positive tailwind in the commercial vehicles segment have helped the stock. However, the next few months could prove to be a challenge as the full impact of the liquidity crisis in the NBFC segment is felt in Q3, said Ganapathy. Moreover, there will be an impact from high base effect of last year, he added.
SMALL-CAP INDEX CONSTITUENTS
The company reported strong results for second quarter. The stock is seen as a key play on rising data demand globally and subsequent need for network densification and deep fiberisation. “Given the robust growth potential, we maintain our buy recommendation on the stock. However, sharp increase in promoter’s pledged shares (currently 97 per cent) on the back of M&A activities in other businesses, remains the only spoiler, and needs to be monitored closely,” said ICICIdirect in a recent note.
The positive sentiment for the stock has continued following the surge in graphite electrode prices in the last one year. “For H1FY19 (April-September), Graphite India reported a strong performance on the back of healthy realisations. We continue to remain positive on the graphite electrode space...,” said ICICIdirect in a note on Friday. The brokerage has maintained a buy rating and target price of Rs 1,400 on the stock.
HEG has also been a beneficiary of rise in graphite electrode prices, and sentiment has stayed positive. “HEG again reported a stellar performance in Q2FY19 marked by sustained healthy realisation, lower raw material cost. We continue to remain positive on the graphite electrodes space and value the company at 10 times FY20 estimated EPS of Rs 575 thereby arriving at a target price of Rs 5,750,” said ICICIdirect.
Future Consumer’s second quarter results came in above expectations. “We expect FCL to post PAT (profit after tax) of Rs 206 mn (million) in FY19 against a loss of Rs 295 mn in FY18,” said Antique Stock Broking, maintaining a buy rating and target price of Rs 70 on the stock. The brokerage expects revenue of the company to grow at 34 per cent compounded annual growth rate during FY18-FY21.