The Sensex has now rallied to the 38,700 levels, which is a near historic peak. 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.
Jagran Prakashan is among the top publishing houses in the country. It owns the "Dinik Jagran", which is the largest read daily newspaper in the country. It also owns the "Radio City", through its subsidiary Music Broadcast and also owns Mid-day", which is the Number 1 read evening newspaper in Mumbai and a very popular one.
Interestingly, while its leadership status in certain categories remains, its digital business too is soaring. The company's unique visitors now equal a staggering 40.6 million. Radio City is a leader in cities like Bangalore.
Now, going ahead, while the newspaper revenues and advertisement revenues may remain flat, we see tremendous potential in the radio and the digital business.
What is most interesting is that with elections in key states like Madhya Pradesh, Rajasthan and the general elections next year, advertisement spends are going to soar. This means for the next four quarters, the company is likely to do very well.
Jagran Prakashan: Reasonably good financial performance
JPL has reported a decent set of quarterly numbers for the period ending June 30, 2018. Digital Business, which largely included the print business saw a robust growth of 16 per cent jump in revenues, when compared to the previous quarter of last year.
The radio business, which again is on a sustained growth path, also saw margins expand by 300 points. The one area that remains a concern is the print business. For two successive quarters there was a de-growth, but, for the June quarter this business saw a jump in revenues to Rs 361 crores from Rs 314 crores in the previous quarter.
The company regularly distributes good dividends and has engaged in buybacks to enhance shareholder value. The next big trigger for the stock would be the election season, which should begin shortly. The shares of Jagran are available at a p/e of just 12 times one year forward earnings. A good small cap stock to buy.
Shalby Ltd runs the popular Shalby hospitals, which are well known for their orthopaedic services. Shalby Hospital had a 15% market share of all joint replacement surgeries conducted by private corporate hospitals in India in 2016.
The company also provides other specialties such as neurology, cardiac care, critical care, oncology, and nephrology.
What is interesting is that the company had come out with an IPO at a price of Rs 248 and today the stock is quoting at Rs 148. This is a significant discount to the IPO price and at a new 52-week low.
There are a number of reasons to be buying the stock of Shalby. The company had as many as 11 operational hospitals with a bed size of 2012. The company has been able to grow its revenues to Rs 332 crores in FY 2018.
Shalby: Cheap on valuations
Shalby will see earnings momentum gain, as the company has retired debt from the IPO proceeds.
Augmentation of operations at the newly opened hospitals would only boost revenues in the coming years.
For the quarter ending March 31, 2018, the company reported an EPS of Rs 1.92 on a net profit of Rs 18.3 crores. The net profits would have been higher had the company not to incur heavy expenditure towards the three newly opened hospitals.
In fact, we believe the company can generate an EPS of Rs 12 in 2019-20.
Healthcare stocks almost always receive very steep discounting. If you value the stock at a p/e of 20 times, the shares should trade at Rs 250 at the very least in the coming days. A good share to buy for the long term. The promoters of the company own a solid 79 per cent shares. Good cash flows and solid healthcare demand may push the share price higher.
South Indian Bank
South Indian Bank reported numbers for the quarter ended June 30, 2018, that disappointed the street.
Gross non performing assets at the bank increased to 4.54 per cent as on June 30, 2018, as against 3.59 per cent in the corresponding period of last year.
The shares of the bank slumped and hit a 52-week low of Rs 17.90. The stock is now trading at Rs 18.05, which is very near to its 52-week low. However, if one does a close analysis of the numbers, one would realize that the stock represents an excellent opportunity at the current market price.
The Current and Savings Account at the bank rose by 8 per cent in the first quarter of 2018, as against the corresponding period of the last year. The deposits on the other hand rose 10 per cent and the advances surged 19 per cent.
South Indian Bank: Reasonably valued
The bank reported a profit before tax of Rs 38 crores, as against Rs 155 crores in the corresponding period of last year. However, the drop in the profits has largely come on the back of gratuity expenses and marked to market losses.
The bank is taking a number of initiatives going forward. Among these include A sharp focus on retail loan and liability/investment products. It is also gearing for efficient branches & processing centers for faster processing of loans. The bank also plans to set up a dedicated vertical to penetrate the SME sector.
We believe that the bank can report a good set of quarterly numbers by 2019-20. If one can hold the stock for a period of 1-2 years, it could yield great results. The stock has almost halved from levels of Rs 35 and is now available at just Rs 18. South Indian Bank is trading below book value and also gives a decent dividend.
This is a good small cap stock to buy for good returns. Check stock quote of South Indian Bank here
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 per cent.
The shares are currently trading at Rs 313, and the dividend on the same declared by the petroleum company is Rs 18 per share.
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 313. 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 6 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 Jagran Prakashan as on the date of publishing the article.