Investors eye small, midcap stocks

Thu, 13 May 01:30 pm

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Although trading well above the dotted line, the Indian markets did see some pressure as the indices shed the gains that were seen during the previous two hours of trade. The market breadth is positive at present as there are 2.2 gainers for every loser on the overall BSE. In terms of sector specific stocks, buying is seen in stocks across the board led by those from the realty, auto and healthcare spaces. Stocks from the oil and gas and metal spaces are amongst the lowest gainers at present.

The BSE-Sensex is trading up by 125 points (up 0.7%) while NSE-Nifty is trading 35 points (up 0.7%) above the dotted line. Stocks from the small and midcap spaces seem to be in demand as the BSE-Midcap and BSE-Smallcap indices are both trading up by 1.3%. The rupee is trading at 44.96 to the US dollar.

Engineering stocks are currently trading firm led by Crompton Greaves, Praj Industries and ABB. Blue Star announced its results yesterday. The company reported a 22% YoY revenue growth during 4QFY10, while revenues for the full year FY10 grew by 1% YoY. The company's electro-mechanical projects & packaged air-conditioning systems (EMPS) business led to the strong growth during the quarter. Revenues of this segment increased by 25% YoY. For the full year, revenues of this segment increased by 4% YoY. The EMPS division contributed to nearly 71% of sales as against 69% during the previous year.

Operating margins during the quarter contracted by 1.3% YoY mainly on account of higher cost of traded goods. As for FY10, operating margins expanded by 0.5% YoY and stood at 10.9%. Net profits during the quarter grew by 18% YoY owing to higher depreciation costs and the contraction in operating margins. Higher other income and lower interest costs helped in the faster increase in bottomline as compared to the 9% YoY increase in operating profits during the quarter. Profits for the full year grew by 10% YoY. As of March 2010, the company had an order backlog of Rs 17.3 bn which is nearly 0.7 times its FY10 revenues. The company's backlog grew by 29% YoY as compared to the previous year.

Operating margins during the quarter contracted by 1.3% YoY mainly on account of higher cost of traded goods. As for FY10, operating margins expanded by 0.5% YoY and stood at 10.9%. Net profits during the quarter grew by 18% YoY owing to higher depreciation costs and the contraction in operating margins. Higher other income and lower interest costs helped in the faster increase in bottomline as compared to the 9% YoY increase in operating profits during the quarter. Profits for the full year grew by 10% YoY. As of March 2010, the company had an order backlog of Rs 17.3 bn which is nearly 0.7 times its FY10 revenues. The company's backlog grew by 29% YoY as compared to the previous year.

Auto stocks are currently trading firm led by Mahindra and Mahindra, Ashok Leyland and Tata Motors. A leading daily has reported that the management of Mahindra and Mahindra is looking to relaunch its passenger car Logan in a new avatar. It is believed that the company will rename the vehicle, give it a makeover and also cut the size to less than 4 metres. The latter will help in reducing the excise duty on the vehicle, thereby reducing the overall cost of the vehicle. It must be noted that the sales volumes of the vehicle have not been anywhere close to the initial target set by the company. This is despite the Indian auto industry seeing its best year in FY10. To put things in perspective, only 303 units were sold during the month of April 2010. This was a 45% YoY decline as compared to the corresponding month last year.

As per the company's management, the company will focus on building a new campaign in the short term. The name of the vehicle will be changed in December, around the time when Renault exits the picture. It must be noted that M&M bought out Renault's (its partner) stake in the joint venture recently. And within a week of it doing so the company reduced the vehicle's price. However, on an overall basis, all these developments will not have a significant development on the company's overall operations.