As we usher in record highs on the Sensex, it is time to look at small caps, which could beat the market in 2019. Picking the best small cap stocks is never easy in a falling 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. We wish to inform readers, that the markets in the next days are likely to be exceedingly volatile. So, buy into them, if you have a penchant for risk.
This bank posted a record net profit of Rs 477.74 crores for the financial year 2018-19. This is pretty decent profit, given the difficult economic environment.
What is most important is that the Non Performing Assets [NPA] of Karnataka Bank also dropped during the course of 2018-19. The Gross Non Performing Assets of the Bank fell to 4.41 per cent as of March 31, 2019, from 4.92 per cent as on March 31, 2019.
The capital adequacy of the bank surged to 13.17 per cent, as against the mandated 9 per cent by the Reserve Bank of India. The deposits of the bank also advanced by 8.88 per cent during the course of the year.
Karnataka Bank: Cheap on valuations
Karnataka Bank is a great small cap stock to buy, also because it is cheap on valuations. For example, the stock is available at a price to book of 0.52 times.
The bank's stock is available at a p/e of just 7 times one year forward earnings. What is most interesting is that the shares are available with a dividend yield of 3.5 per cent, which is a big positive.
The shares of the company have now dipped to a near 52-week low of Rs 100. At the current price the stock is extremely cheap. The bank is turning more aggressive, especially when it comes to garnering deposits and pushing for credit growth. Buy the stock with a long term perspective in mind.
Jammu and Kashmir Bank
This bank reported a superb set of quarterly numbers for the period ending March 2019. In fact, the NPAs at the bank dropped and the EPS surged past the Rs 8 mark.
In fact, if the same momentum continues in 2019-20, the bank can easily report an EPS of Rs 20. The stock is trading at just Rs 39, which means at a p/e of just 2.
The price to book value of the shares is also trading at 0.44 times, which makes it an extremely attractive buy at the current levels.
The shares of Jammu and Kashmir have fallen from levels of Rs 80 to the current levels of Rs 39, making it attractive.
Jammu & Kashmir Bank: A good stock to buy
The bank was recently in the news for worries of nepotism and corruption against its former chairman. However, the bank has immediately installed a new chairman and has taken steps to address investors concern.
In fact, the management of the bank has clarified that there would be no material changes to NPAs because of these developments.
We believe that the worst for the bank may now be over and hence this a great small cap stock to buy. In fact, the bank gets a lot of support from the state Government and also has a very small equity capital. This means a slight rise in profit can make the EPS soar. Buy the share for long term.
TV Today Network
TV Today network runs the popular channels namely, Aaj Tak (Hindi), India Today Television (English), Aajtak Tez (Hindi) etc.
Apart from this it also runs the radio business and digital business. The shares of the company have slumped from 52-week high levels of Rs 489 to the current levels of Rs 277. The company reported a set of numbers for the quarter ending March 31, 2019, which were not too encouraging.
The performance was largely hit due to the dual impact of new tariff order (NTO) and pre-emptive volume cut to improve ad volume.
The revenues for the quarter were down to Rs 165.7 crores. What was also surprising was the weakish set of numbers for the radio business. However, Digital revenues were robust and grew 24% YoY to Rs 19.5 crore.
Encouraging performance in the next year
The company is likely to report a good set of numbers for 2019-20, given that we had elections that were just complete and better results would be reflected in June. Apart from this the Delhi elections could also boost revenues and profits in 2019-20.
TV Today is also looking at demerging its radio business. Earlier, it had plans to sell the radio business, but, did not receive the approval from the said authorities. TV Today Network is the leader among Hindi newschannels and is also a good cash rich company, with almost negligible debt on its books.
We believe that the company should do well in the years to come, given its strong brand equity. The digital business is also expected to do well. TV Today is a good small cap stock to buy, if you have a medium term perspective in mind.
IndiaBulls Real Estate
From a holding period of 2-3 years, Indiabulls Real Estate shares could be a solid pick. The company has some massive developmental and office rental portfolio, which could fetch superb annuity revenue and solid sales revenue in the next few years.
Its development portfolio under construction is valued at a staggering Rs 28,857 crores. Under its office portfolio annuity revenue that is completed and owned is to the tune of Rs 109 crores and under construction expected annuity is Rs 511 crores.
Under its JV with Blackstone, the expected annuity revenue is around at Rs 4,600 crores by 2022, expecting a 95 per cent occupancy.
IndiaBulls Real Estate reported a reasonably good set of numbers for the quarter ending March 31, 2019. The company reported an EPS of Rs 2.82, as against Rs 1.30 in the corresponding period of last year.
The net profits also surged to Rs 126 crores for the period ending March 31, 2019.
IndiaBulls Real Estate: Huge value
The Equity Value of Development Portfolio is estimated at a staggering Rs 17,134 crores. The Equity Value of Owned Office Rental Portfolio is placed at Rs 5,908 crores and the equity Value of 50% in JV Portfolio with Blackstone is at Rs 2,250 crores. Interestingly, the equity Value of Land Bank, estimated @ 1.5 crores per acre aggregates Rs 1,569 Crores.
As against this, the company has a total net debt of only Rs 4,803 crores.
The company also recently announced a buyback of shares and accordingly, the equity capital of the company will stand reduced.
From a 2-3 year perspective, the shares of Indiabulls Real Estate is an excellent buy. We believe the shares can easily double from the current value. The shares are available at a p/e of just around 7 times, one year forward p/e. The price to book is also around 0.6 times, which is pretty attractive.
One interesting development that has taken place in this small cap company is the fact that the promoters of IndiaBulls Real Estate are planning to sell their stake in the company to the Embassy group. This is another big real estate company with a decent track record.
Federal Bank reported a good set of quarterly numbers for the 3-month period ending March 31, 2019.
Slippages continued to fall to and was placed at Rs 256 crore against Rs 426 crore in Q3FY19 and Rs 872 crore in Q4FY18.
There has been a trend of seeing elevated slippages in the corporate segment, slowing down considerably.
This would mean healthy growth for the bank going forward.
While slippages have been falling for the bank on one hand, on the other the bank has also been seeing healthy recovery. This has led to a drop in the Gross Non Performing assets of the bank to 2.92 per cent.
The bank may reported an EPS of Rs 11 by FY 2020-21 as asset quality improves. This means the stock is trading at a p/e of around 9 times, these earnings. If we value the bank at 15 times, a near 40 to 50 per cent appreciation in the stock cannot be rule out from the current levels. Federal Bank thus remains an interesting small cap stock at the current levels.
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.