2 Stocks To Buy From The Small And Midcap Space According To Sharekhan

Finolex Cables

Finolex Cables Ltd is India's largest and leading manufacturer of electrical and telecommunication cables. Besides a wide variety of Wires & Cables, the Company is also manufacturing lighting products, electrical accessories, switchgear, fans and water heaters.

According to Sharekhan, Finolex Cables reported strong out performance on both revenue and OPM fronts in Q2FY2022. Working capital days reduced q-o-q, while cash rose.

Target price on the stock 26% higher than current levels

"We believe the company is expected to see healthy growth to continue, led by pick up in real estate, auto sector, and traction in FMEG products. Further, COVID-19 led impact on unorganised players allows the company to increase its market share. Finolex's debt-free balance sheet and net cash position provide comfort in the present environment.

Further, the government's push for optical fibre cable will aid business and boost demand for telecom cables for the company. The stock is trading at a valuation of 18.5 times P/E its FY2024E earnings. With improving growth visibility, we retain our Buy rating on the stock with a revised SOTP-based target price of Rs. 734 (17.5x its P/E on FY2024E standalone EPS and 20% holding company discount for its stake in Finolex Industries)," the brokerage has said.

Va Tech Wabag Ltd

Sharekhan sees an upside of at least 22% on the stock of Va Tech Wabag Ltd and has recommended to buy the stock. The company is among the leading players in providing water solutions like drinking water treatment, water desalination, waste water treatment, operation and maintenance, water reclamation etc.

According to Sharekhan Va Tech Wabag reported broadly in-line consolidated revenue at Rs. 684 crore, up 12.4% y-o-y, as the company increased net debt and reduced payables to expedite project execution and protect operating margins (rise in commodity prices along with COVID-19 led project delays).

Price target of Rs 435, “Buy the stock”, says Sharekhan

According to the brokerage firm, Va Tech Wabag is on a strong earnings growth trajectory going ahead with concerns of high leverage, led by increasing working capital now behind it.

"A well-funded strong order book provides comfort on execution and collections going ahead. Further, the government's focus is expected to remain on water-related investments, providing healthy order intake tailwinds for the company going ahead. At the CMP, the stock trades at P/E of 10x its FY2024E earnings, which we believe is attractive considering its strong net earnings growth outlook and strengthened balance sheet. Hence, we maintain Buy with an unchanged price target of Rs. 435," the brokerage has said.

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