CLSA Has These 10 Mid-Cap Stocks On Its Radar

Amid a selloff in mid-caps stocks, CLSA is betting on medium-sized companies that it expects to grow on the back of strong business fundamentals.The NSE Nifty Midcap index has fallen over 11 percent so far this year compared with a 2.6 percent rise in the NSE Nifty 50 Index.The global brokerage now expects the valuations to normalise. And it prefers structural long-term themes such as housing, building materials and healthcare, according to a note. CLSA also sees a cyclical recovery in hotels.Here are the 10 mid-cap stocks on CLSA’s watchlist and why:Apollo HospitalsThe stock is preferred because of strong brand equity, pan-India presence and a strong execution track record.The hospital has added 20 percent of its current capacity in the past 36 months, which has impacted profitability in the past few years.But the next few years will be about execution of new beds and consolidating its presence in key markets.ArvindThe stock is attractive as the proposed demerger of brands and retail from the parent company should help create value.Value unlocking will be dependent on the B&R business being able to fund its own growth.Management expects all brands to exit FY19 with positive EBITDA.Planned capital expenditure of Rs 500 crore largely to expand garment capacities in the textiles space.Godrej PropertiesThe stock is preferred as the company is an asset-light, volume driven, residential developer.Ten new project launches are expected in the current financial year from five in the previous, with Bengaluru and NCR being the major markets.Volume driven sales strategy and a fleet-footed approach, taking advantage of affordable housing boom should be easier amongst peers.HavellsThe stock should be considered as the acquisition of Lloyds has helped the company gain entry into the fast growing $10-billion consumer durable market.Havells saw strong market share gains in the fans and water heater segments.FY19 is expected to be a decisive year for Lloyds as it gains scale with the commissioning of a captive manufacturing facility and with footprint expansion.Jubilant FoodWorksThe stock is attractive as the new management has addressed several issues in the past 12 months.There’s an uptick in same-store sales growth, improvement in customer satisfaction scores and margin improvement over the past year.Strong earnings per share growth expected of over 40 percent over FY18-20.Lemon Tree HotelsThe stock is preferred as the company is well placed to leverage its existing market position as a leading mid-priced hotel chain.The company plans to expand its portfolio by 67 percent over FY18-21 to 8,152 rooms through the development or acquisition of properties and also new leases and management contracts that complement its existing geographical spread.Ramco CementsThe stock is attractive as the cement maker is in the midst of raising grinding capacity by nearly 3.5 million tonnes to reach 20 MT by 2020.Outlook is improving, as channel checks indicate demand pick-up in Tamil Nadu.Over the past five years, Ramco has strengthened its balance sheet, as absolute net debt has halved, with net debt to Ebitda ratio down to 1.4 times.Prestige EstatesThe stock is preferred as the company is expanding again after two years of consolidation mode.Management has guided for pre-sales growth of 6 percent-21 percent in FY19, helped by 10 million square feet in new launches.This aggressive strategy as industry consolidation gives a rare opportunity to scale up.PidiliteThe stock should be avoided as valuation leave little room for upside. CLSA believes that competition is rising in its core category of adhesives.Raw material cost pressures and increasing competitive intensity should restrict EPS growth to 10 percent over FY18-20.VoltasThe stock is not preferred as the company is rapidly shifting to inverter air conditioners from AC business, where it is not a market leader.The March 2018 quarter was the first one after tighter energy efficiency norms came into effect, which accelerated the shift toward inverter ACs.With its AC business trading at a 41 times earnings per share FY19CL, the stock is not ready for any negative surprises.

CLSA Has These 10 Mid-Cap Stocks On Its Radar

CLSA said it prefers structural long-term themes such as housing, building materials and healthcare.

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