While the Sensex has been grinding for the last few weeks near the 32,000 points levels, the small cap index has slowly outperformed. These stocks tend to perform well and have the potential to rally. There are many stocks that are undervalued and have the potential to generate returns.
Here are a few small cap stocks that can make money for investors:
Indo Count Industries
Indo Count is one of the top textile manufacturers in the country with significant presence in bedsheets, fashion bedding and utility bedding. The company has offices around the globe and is now a reasonably large player in the products it owns. For the last few quarters the company's performance has been subdued largely on account of margin contraction due to pre-operative expenses with regards to expansion. However, going ahead the company is expected to perform well on account of margin expansion and also capacity expansion. The processing capacity will be higher by almost 11 per cent processing capacity from 68m meters to 90m meters. The company is also increasing the weaving capacity but that should take sometime to fructify.
Indo Count: Looks reasonably priced
Fundamentally the stock still leaves room for appreciation. For the FY 2016-17, IndoCount Industries reported an EPS of Rs 11.55. This discounts the current market price of Rs 156 by just 13.5 times. As the company continues to grow the EPS in the range of 10 to 15 per cent in the next few years, we see a higher target price for the stock. The shares of the company have already fallen from high levels of Rs 208 to the current market price of Rs 156. This leaves scope for appreciation of the stock in the coming days. Buy the stock with a time frame of around 3 years at the very least. Check stock quote of Indo Count here
Force Motors manufacturers the famous "Tempo Traveller" range of buses. The company is also the sole supplier of power train components for Mercedes and BMW. Force Motors did not begin FY 2017-18 on a great note. This was largely on account of the de-stocking undertaken by dealers due to implementation of the Goods and Services Tax. However, there are a few things that would work in favour of Force Motors in the coming quarters. The first is that the luxury car segment of Mercedes and BMW would grow very well given the sharp cuts in prices, following the GST. Force Motors is also likely to do well with new variants in the LCV segment and the niche that it already has there.
The company has a very small equity capital and any small gains in profits can lead to a spike in the EPS. We believe that the company can report an EPS of Rs 240 least by 2018-19. If you apply a p/e of around 20 times, the stock should trade at least at 4,800 to Rs 5000. At a price of Rs 4,000, the stock still has some potential for an upside. However, investors may need to be a little patient before investing. Among the best small cap stocks to buy, though it is listed only on the BSE.
Also read: Best midcap stocks to buy
TV Today Network
The TV Today Network stock has fallen to a new 52-week low. The company that runs the Aajtak and the English News channel India Today has been able to perform consistently well in the last few quarters. In fact, Aaj Tak has provided consistent leadership growth in the Hindi news segment over the decades now. India Today continues to be among the top news channels in the country. We believe that as literacy rates improve, there would be a consistent increase in revenue growth. The company ha entered DD's Free Dish platform for an outlay of Rs 6 crore to gain better rural viewership. We believe that the company going forward can see a huge growth in business. Even if we assume a very conservative EPS of Rs 25 for 2018-19, the stock should trade at 15 times p/e multiple, which should take the stock to at least a price of Rs 375. The shares are currently trading at Rs 237. Check stock quote here
Transport Corporation of India
TCI as it is commonly known is one of the top transportation and logistics company's in India. The TCI Group manages a staggering 10,000 vehicles on the road each day along with 5 cargo ships. The company also owns 5 domestic ships. The company is going to be one of the biggest beneficiaries of GST and this will be reflected in the next few quarters. This is because reduction in transit times and consolidation of warehousing will be the big benefits for the company. Rationalizing the impact of taxes on production, distribution and inventory management will help the company enormously. Transit time would be cut as there would be lesser/no checks and paper works as well across the state borders. The huge outlay in roads would cut transport time and ensure greater efficiency. All this is likely to benefit Transport Corporation of India.
TCI has an ambitious expansion plan in the coming years. This along with a consumption led demand from FMCG and retail should drive demand. The company reported an EPS of Rs 9.15 for FY 2016-17. This is likely to improve going forward, which should take the EPS to at least Rs 14. The stock should get a p/e of 20 times, taking the price to Rs 300. If you are able to hold the stock for the next 2-3 years, you should see your money multiplying. A good small cap stock to own at the current levels even in a rising market.
Century Enka is a part of the BK Birla group, which is engaged in the manufacture of Polyester Filament Yarn, Nylon Filament Yarn, Polyester POY etc. This is one stock that has remained undervalued even in a rising market. The company reported a decent set of results for the FY 2016-17, wherein the EPS was placed at Rs 41.62 for the year. At Rs 387 the stock is not even trading at a p/e of 10 times. The shares of century Enka have hit a 52-week high of Rs 484 recently, but has fallen from those levels. The shares of the company also give you a decent dividend yield of as much as 2 per cent. In fact, the book closure now is slated only in the month of July. Buy the stock for medium to long term gains.
Also read: Best largecap stocks to buy
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