Markets have now rallied to the 35,200 levels, which is a good 6 per cent higher from low levels seen in March. Picking the best small cap stocks is never easy in a rising market. However, we have picked some very good ones, which can generate good returns in the medium to long term. Take a look at some of the best small cap stocks that can be purchased in 2018.
Sanwaria Consumer is a company that has grown from a mere player in the Soya business, to a significant player in the FMCG business with turnover in excess of Rs 5,000 crores.
Sanwaria Consumer produces and sells food items like Basmati Rice, Refined Soyabean Oil, Refined Rice Bran Oil, Chakki fresh Atta, Soya chunks, salt, sugar etc.
The company has gradually moved away from soya to a host of products.
Sanwaria has recently tied-up with Patanjali for soya, which would be sold under the Patanjali brand name. The company is also looking at tie-ups with online retailers like Groffers, Big Basket etc. This should augur well for it in the coming years.
Sanwaria: Not Steeply Valued
The company has opened various Sanwaria shops, to retail its products directly to the consumer.
Recently, the promoters subscribed to shares to retire debt, which is likely to come down. The promoters have a very high holding in the company of nearly 65 per cent.
The shares of Sanwaria are not very expensive at a p/e of just 8 times one year forward earnings. For an FMCG company, Sanwaria deserves a better valuation. If e apply a p/e of 20 times one year forward earnings, the stock has the potential to double from current levels.
Parag Milk Foods
Parag Milk Foods is one of the fastest dairy growing companies in India. The company has the second largest market share in cheese. It has a product portfolio of 170 plus, including those in milk, ghee, cheese, beverages, whey etc.
It also has India's most advanced dairy farm, equipped with the finest international technology The cows at the farm are a handpicked herd of 2,000+ crossbred Holstein Friesians.
The company boasts the "Most Trusted Brand" in the ghee category. Parag Milk also has one of the largest cheese plant with a capacity of 60 metric tonnes per day and also India's 1st state-of-the-art whey plant.
Parag Milk Foods: Reasonable on fundamentals
Milk remains a key input at the company. Parag Milk Foods has Village collection centres that procure milk from over 2 lakh farmers in 29 districts. Milk is then transported to nearby Bulk Milk Coolers (BMC) and chilled.
The chilled milk is then transported in tanks to its dairy plant. Interestingly, the company now has a large chain of institutional clients, including the likes of prominent burger chains, hotels, prominent pizza chains etc. This would ensure large and regular demand for products like cheese.
The company would also take its products online, which is another key in terms of sales.
The shares of Parag Foods is slightly expensive, considering the huge potential the company has going forward. The share price at Rs 329, is trading around 30 times one year forward earnings. If the shares are available at Rs 280, it would be a good time to pick, given the strong potential earnings. A good small cap stock to buy at lower levels.
This stock has slumped from levels of Rs 500 to the current levels of Rs 135. Fidelity has been heavily selling into the stock and has trimmed its stake from levels of 9 per cent to around 3 per cent.
There were worries over corporate governance issues, which the management has quickly clarified. A bulk of the price destruction has happened because of the massive selling by Fidelity.
The management has time and again clarified that the store expansion has continued and footfalls have been pretty decent and nothing has changed fundamentally. The company declared a decent set of numbers for the quarter ending March 31, 2018.
PC Jeweller: Huge buyback
The company has gone ahead and declared a huge buyback programme, wherein it will buy shares at Rs 350 from shareholders. Now, as against this the prevailing share price is only Rs 170.
Interestingly, the promoters are not participating in the buyback, which means shareholders could be allocated larger volume.
Even fundamentally speaking, the stock is a little undervalued. For 2018-19, we anticipate an EPS of Rs 16 for the company. This means the share is trading at a p/e multiple of around 10 times. The stock being into the retail business, deserves a better valuation. A good share to buy at the current levels.
This is one stock that is excellent for its dividend yield. The shares are quoting at cum-dividend with a dividend yield of as much as 6.5 per cent.
The shares are currently trading at Rs 286, and the dividend on the same declared by the petroleum company is Rs 18 per share.
The company has not yet declared a book closure day. However, it is pertinent to note that the stock price of the Chennai Petroleum largely works on the basis of movement in crude oil.
The stock has dropped from 52-week high levels of Rs 480 to the current price of Rs 284. This is largely as crude oil prices have risen from $65 par barrel to the current levels of $75 per barrel. This in turn can squeeze margins of companies like Chennai Petroleum.
At the moment the downside risk on the stock is very limited, given that it has fallen from such high levels. The p/e of the stock is just about 5 times.
Can rally further
Chennai Petroleum shares are unlikely to fall further, as the government is unlikely to burden refineries to absorb the increase in crude prices.
In all probability as per reports, ONGC may be asked to shoulder that responsibility. Hence, we believe that Chennai Petroleum shares has the potential to rally from here on.
Also read: Best largecap stocks to buy
Taxation on small cap shares
It is important to note that the government from 2018-19 has levied a long-term capital gains tax on shares. Accordingly, investors would now have to pay a 10 per cent tax, if their profits in a financial year crosses Rs 1 lakh.
Short term capital gains tax on shares is already levied at a rate of 15 per cent.
The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article. The author owns shares in Sanwaria Consumer as on the date of publishing the article.