Top 4 Small Cap Stocks to Add During a Market Correction
Indian stock markets extended their fall for the fifth consecutive session on Tuesday, led by strong selling pressure in information technology (IT), financial stocks and consumer goods. National indices fluctuated between gains and losses throughout the day before plunging sharply in late trades. Declining quarterly corporate profits, the ongoing dispute between Russia and Ukraine and concerns about high inflation have shaken investor confidence. The benchmark S&P BSE Sensex plunged 1,183 points from the day’s high and settled 703 points at 56,463 levels. The index had hit an intraday low of 56,009.
Here are the top four small cap stock recommendations by Yash
Ramkrishna Forgings – Target Price Rs 256 | 41% increase
Ramkrishna Forgings (RKFL), one of the major forging players in India and among the select few with heavy presses, will benefit in the near term from a favorable demand outlook for the medium and heavy commercial vehicle (M&HCV) industry ) in domestic and export markets. The company has gradually reduced its CAPEX in recent years, during which it has been affected by the downturn in the industry at certain times. With the end of the CAPEX cycle, the favorable medium-term outlook and sufficient capacity in place, we believe RKFL volumes would be able to post a volume CAGR of 29% in FY21-23E.
RKFL was able to add new products with higher added value. A better mix coupled with operating leverage is expected to result in an EBITDA margin improvement of approximately 550bps year-over-year in FY22E. Aided by strong volumes and profitability as well as balance sheet deleveraging, we expect RKFL earnings to grow 10-12x in FY23E-24E from FY21 levels.
Sobha Limited – Target Price Rs 1,050 | 57% increase
The Company operates in residential and commercial real estate as well as contract business. Businesses 70% of residential pre-sales come from Bangalore market which is one of the IT hubs in India, we expect new hires by IT industry will increase residential demand in South Indian market. We have seen a strong consolidation among listed players in India, after the crisis of Demon, RERA, IL&FS.
Listed players have been gaining market share in new launches over the past 2-3 years, we expect this to continue in the coming quarters. Levels of inventory ready to move and inventory under construction reached their lowest levels. Clients now have a preference for brand players like Sobha Developers Company which is expected to launch 17 new projects/phases spread over 12.56 million square feet in various geographies. The majority of launches will come from existing land reserves. A company with a land base of approx. 200mn Sqft of salable area.
Kraft cooker – Target price Rs 1,050 | 57% increase
Stove Kraft Ltd (SKL) is engaged in the manufacture and sale of kitchen and household appliances such as pressure cookers, LPG cookers, non-stick cookware etc. under the “Pigeon” and “Gilma” brands. In the pressure cooker and cookware segment, over the past two years, the company has outperformed Industry and its peers.
Post-Covid, organized players are gaining market share from unorganized players, which would benefit the player like SKL. Going forward, we expect SKL to experience healthy revenue and earnings growth through new product launches, a strong brand and an extensive distribution network.
Suprajit Engg.- Target price Rs 485 | 26% increase
Suprajit Engineering (SEL) is the largest supplier of automotive cables for domestic OEMs with presence in both 2W and PV. Over the years, SEL has grown from a single product/customer company in India to a diversified exposure which, coupled with its low cost player proposition, has enabled it to gain market share and more business. with existing customers. SEL has outperformed India’s automotive industry in recent years (showing positive growth compared to low double-digit declines for the domestic 2W and PV industry in FY21). The company believes that consolidating vendors and adding new customers would help maintain the trend of market/portfolio share gains.
SEL has grown profitably over the years and as a result has a strong balance sheet (net cash). We believe that SEL is the main beneficiary of a ramp-up in production from OEMs around the world and is well insulated from the threat of electric vehicles (developing new products). Its premium valuations are warranted in our view due to its strong outlook and blue-chip earnings quality.
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