Indian equity markets on Tuesday extended their fall for the fifth straight session, dragged by heavy selling pressure in information technology (IT), financial, and consumer goods stocks. The domestic indices fluctuated between gains and losses throughout the day before plunging sharply in late deals. Weaker quarterly corporate earnings, ongoing Russia-Ukraine spat, and high inflation worries dented investor sentiment. The benchmark S&P BSE Sensex plunged 1,183 points from the day’s high and settled 703 points down at 56,463 levels. The index had hit an intra-day low of 56,009 level.
Here are the top four small-cap stock recommendations by Yash
Ramkrishna Forgings- Target Price Rs 256 | Upside 41 per cent
Rationale
Ramkrishna Forgings (RKFL), a leading forging player in India and among a select few having heavy press stands to benefit from a favorable demand outlook for the Medium & Heavy Commercial Vehicle (M&HCV) industry in domestic and export markets in the near term. The company has phased out its CAPEX over the past few years during which it was impacted by industry slowdown in certain periods. With the end to the CAPEX cycle, the favorable outlook in the medium term, and sufficient capacity in place, we believe RKFL volumes would be able to post a volume CAGR of 29 per cent over FY21-23E.
RKFL has been able to add new products which have higher value addition. Better mix along with operating leverage is expected to result in ~550 YoY bps EBITDA margin improvement in FY22E. Aided by strong volumes and profitability as well as balance sheet deleveraging, we expect the RKFL’s earnings to jump 10-12x in FY23E-24E from FY21 levels.
Sobha Limited- Target Price Rs 1,050 | Upside 57 per cent
Rationale
The company operates in Residential & Commercial real estate along with the Contractual business. Companies 70 per cent of residential pre-sales come from the Bangalore market which is one of the IT hubs in India, we expect new hiring by the IT industry will increase residential demand in the South India market. We have seen a strong consolidation among listed players in India, post-Demon, RERA, IL&FS crisis.
Listed players have gained market share in new launches in the last 2-3 years, we expect this to continue in coming quarters. Ready-to-move inventory and under-construction inventory levels have moved down to their lowest levels. Customers are now having a preference for branded players like Sobha Developers Company expected to launch 17 new projects/phases spread over 12.56mn sqft across various geographies. The majority of launches will be coming from existing land banks. A company having a land bank of approx. 200mn Sqft of salable area.
Stove Kraft- Target Price Rs 1,050 | Upside 57 per cent
Rationale
Post-Covid, organized players are gaining market share from unorganized players which would benefit the player like SKL. Going forward, we expect SKL to report healthy top-line & bottom-line growth on the back of new product launches, a strong brand name, and a wide distribution network.
Suprajit Engg.- Target Price Rs 485 | Upside 26 per cent
Rationale
Suprajit Engineering (SEL), is the largest supplier of automotive cables to the domestic OEMs with a presence across both 2Ws and PVs. SEL over the years has evolved from a single product/client company in India to have a diversified exposure which coupled with its proposition of low-cost player has enabled it to gain market share and more business from existing customers. SEL has outperformed the Indian Auto industry in recent years (posting positive growth vs low double-digit declines for the domestic 2W and PV industry in FY21). The company believes that consolidation of vendors and new client additions would help in maintaining the trend of market/wallet share gains.
SEL has grown profitably over the years and as a result, boasts a strong balance sheet (net cash). We believe SEL is the prime beneficiary of a ramp-up in production by OEMs across the globe and is well insulated from the threat of EV (is developing new products). Its premium valuations are justified in our opinion owing to its strong outlook and top-grade quality of earnings.
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