Markets have now corrected to the 35,400 levels, which is a good 7 per cent higher from low levels. 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.
This stock has slumped from levels of Rs 500 to the current levels of Rs 170. 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 is yet to declare its 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.
NCC is a company in the construction business and has presence in almost every sphere of this area, including real estate and commercial.
The company has a solid order book position and for the nine months ending Dec 31, 2017, the order inflow grew by a huge 132 per cent, when compared to the corresponding period of last year.
In fact, as on Dec 31, 2017 the company had a order book in excess of Rs 21,614 crores largely from fresh orders in building, road, water & environment, railway and irrigation.
As the government increasingly lays an emphasis on roads and infrastructure the company's order book is likely to see a further robust increase.
NCC: Superb performance for the quarter
NCC has had a superb performance for the quarter ending Dec 31, 2017. The company reported a net profit of Rs 100 crores for the said period, as compared to Rs 58 crores in the corresponding period of last year. The EPS of the company has almost doubled to Rs 2.3 from Rs 1.2 in the quarter of the previous year.
We believe that the huge order backlog would continue to see the company build on the momentum. The company can manage to do an EPS of Rs 10 by 2018-19. The stock is trading at just 12 times this earning. Applying a p/e of 15, the stock can rise to Rs 150.
Buy this small cap share with a long term perspective in mind.
BSE Ltd runs one of India's oldest Exchanges, the Bombay Stock Exchange. Along with NSE and the Metropolitan Stock Exchange, they control the entire trading in stocks, derivatives, currency etc.
In the past two decades, the BSE has lost out in volumes and size in the cash and the derivatives segment to the NSE, which is a significantly larger player.
There has been no doubt pressure on earnings, but there are reasons to be more optimistic on BSE Ltd.
First, the shares of the company have now fallen below the IPO price of Rs 806. The shares at Rs 798 are also at a new 52-week low. Also, the country is just beginning to see interest in shares are stocks.
Equity as a per centage in financial savings is just about 5 per cent, as compared to Brazil's 14 per cent, China's 16 per cent, 20 per cent in Indonesia and 42 per cent in the US.
BSE Ltd: Not Steeply Valued
The stock is not very steeply valued, given the fact that revenue stream of listing fees would continue.
Volumes in stock markets are always almost assured, even in a market downside, because at that time individuals are selling stocks.
Coming to financials, the exchange reported an EPS of Rs 10.75 for the quarter ending Dec 31, 2017. In 2018-19, it is possible that the exchange does an EPS of Rs 45. Now, if you accord a simple p/e of 25 times, the stock should trade at Rs 1,125.
Remember, the MCX which is largely a commodity exchange has a p/e of 40 times. This means the BSE is available at a much lower p/e.
Check stock quote of BSE Ltd
Jagaran Prakashan owns the popular "Dainik Jagran" newspaper which leads the IRS ranking with 7 crore readers. In fact, according to the company, Dainik Jagran leads the IRS survey ahead of its next competitor by a margin of 1.8 crore readers.
In fact, it now leads in UP, its major market in 12 of the 15 cities as reported by the IRS survey.
The company also owns the popular Mumbai eveninger "Mid-day", "Nai Duniya" and the radio business (Radio City), which is growing at a frantic pace.
The company continues to see strong growth in the print, digital media and the radio business, even while maintaining strong margins. The EBITDA margins, including those for the quarter ending Dec 31, 2017 has remained over 30 per cent for many quarters now.
Solid radio and digital growth
The company's these two businesses are showing robust growth. Market share of radio city is 25 per cent in Bengaluru and 14 per cent in Mumbai.
While the industry volume growth is at 2 per cent, the company has seen growth of 5 per cent in the radio business. The digital media business is also showing rapid growth.
For the quarter ended Dec 2017 growth in Digital topline was 16.8%. Unique users on mobile witnessed a growth of 25 per cent. This area is likely to reap rich dividends for the company, given that there is a gradual shift towards reading on mobile and desktops as compared to the print media. This should augur well for the company in the days to come.
Also read: Best midcap stocks to buy
Potential for future growth
The shares of Jagran Prakashan are very close to its 52-week low of Rs 159. The shares are currently trading at Rs 162, which makes it attractive.
With election in several states scheduled later this year, which are important markets for the company, there could be a boost to revenues. Also, with the central government elections slated next year, the potential for revenues to rise cannot be ruled out.
The company has a good cash generating business. The potential for business prospects improving tremendously in the next few years is likely given good growth areas like digital and radio, leaves the stock some headroom for a future upside. An EPS for 12 is likely for 2018-19, which on applying a p/e of 20 times, should take the stock towards the 240 mark.
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.