4 Smallcap Stocks Sharekhan Has A Buy Call On

Buy Purvankara for 22% upside on the stock

One of Sharekhan's stock recommendations is small cap stock Purvankara. The company reported the highest-ever Q1 sales of any fiscal year of Rs. 513 crore (up 63% y-o-y) purely led by sustenance sales in Q1FY2023. Sales volumes rose 64% y-o-y at 0.69 msf while realizations remained almost flat y-o-y at Rs. 7435 psf. Net debt marginally rose by Rs. 43 crore q-o-q to Rs. 1,889 crore. The revenue booking remained below estimate with consolidated revenues at Rs. 215 crore (up 19% y-o-y), while OPM at 26.6% (up more than 12 ppts y-o-y) surprised positively. Further, higher-than-expected other income led to beat on consolidated net profit at Rs. 34 crore (down 78% y-o-y) as against our estimate of a net loss of Rs. 12 crore.

Purvankara to benefit from real estate growth

According to Sharekhan, Puravankara is well-poised to benefit from an uptick in the realty market with a strong launch pipeline, de-leveraged balance sheet, huge paid-up land bank and credible management bandwidth.

"Continued consolidation in the realty market with large size developers expected to achieve significant size is expected to benefit Puravankara, especially in the southwestern regions. The stock is currently trading at just 0.4x P/B its FY2024E which is much below larger peers while it has set itself for high surplus cash generation going ahead. Hence, we retain a positive view of the stock and expect a 20-22% upside," Sharekhan has said.

SP Apparels

Another small cap stock being recommended by Sharekhan is SP Apparels Ltd's (SPAL's). The company's revenues grew by 85% y-o-y to Rs. 245.8 crore (13% ahead of Q1FY2020 levels) in Q1FY2023 led by a 91% y-o-y growth in the garment division, 3.7x y-o-y growth in the retail division, while SPUK division's revenue stood flat. Gross and EBITDA margins decreased by 577 bps and 362 bps y-o-y to 56.5% and 17.5% (decreased by 170 bps on like-to-like basis), respectively, due to higher cotton and yarn prices. EBITDA grew by 53.0% y-o-y to Rs. 43.0 crore. This along with higher other income resulted in PAT almost doubling to Rs. 25.9 crore during the quarter. Net debt stood at Rs. 171 crore in Q1FY2023 as against ~Rs. 141 crore as on March 31, 2022. Capacity utilisation came in at 75% in Q1FY2023, it is expected to increase to 80-85% in H2FY2023. Buyback of shares will be considered post the AGM in September 2022.

SP Apparels: Buy for 20% upside on the stock

According to Sharekhan, te stock has seen a good run-up of 26% in last three months and is trading at 10.8x and 8.3x its FY2023E and FY2024E EPS. Buyback of shares will be considered post the AGM in September 2022. "The likely signing of FTA with UK, kids wear category less impacted by global recession and India becoming a consistent supply base for global retailers will boost up the earnings prospects for the garment exporters such as SP Apparels. We stay Positive and expect a 20% upside in the stock from the current levels," the brokerage firm has said.

Buy the stock of IGSEC

ISGEC is expected to be affected by commodity-led pressure in its fixed price contracts in manufacturing and EPC verticals in the near term. However, commodity prices are stabilizing and new orders are being taken at better margins, which should lead to better OPMs in the long term. Additionally, some of the long gestation PSU orders would be completed in Q4FY23/Q1FY24, thereby aiding growth and profit. However, the company has given muted revenue growth guidance of 5% in FY23.

Buy for 10 to 12% upside

According to Sharekhan, the uncertainty over the completion and sale of the Philippines plant has been a drag on the company's performance for quite some time. We believe it may take the company a year or two to revert to the erstwhile growth trajectory. "Hence, we maintain a neutral outlook on the stock and expect an upside of 10-12% from current price levels," the brokerage firm has said.

Astral: Buy for a price target of Rs 2300

Astral is expected to feel operating margin pressure in pipes vertical in the near term due to a sustained decline in PVC prices. "However, with expected stabilization of PVC prices in H2FY2023, it should benefit from revival in demand led by channel re-stocking. Further, in-house manufacturing of faucets & sanitaryware is likely to provide better operating margins for the vertical. The scale-up of new businesses viz. plastic tanks, valves, paints, faucets and sanitaryware are likely to provide sustainable growth trajectory for the company going ahead. The stock is currently trading at a P/E of 61.5x its FY2024E earnings, which we believe provides further room for an upside owing to strong growth potential for its existing and new businesses. Hence, we retain a Buy with a revised price target of Rs. 2,300," Sharekhan has said.