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The brokerage’s take on GFL

According to the research report of the brokerage “GFL is in a sweet spot with its presence in fluoropolymers, demand for which is increasingly driven by the new-age verticals of battery, solar panel and green hydrogen. GFL is in the process of expanding its capacity in fluoropolymers, which provides visibility on growth during our forecast period (FY21-FY24E). GFL is also expanding into other fluorine derivatives used in the new-age verticals, which expands the company’s addressable market and provides a vista of sustained growth. GFL has laid out a bold CAPEX plan of Rs25bn over the next three years. It is likely to see its earnings grow at 45.9% CAGR over FY21-FY24E (on a low base though), and RoCE (post-tax) improve from 6.7% to 18% over the same period. Despite the strong earnings outlook, GFL is trading at a reasonable P/E multiple of 20x FY24 vs 42.1x for Navin Fluorine and 27.5x for SRF.”

ICICI Securities has claimed that “Fluoropolymer revenues to grow at 32.9% CAGR over FY21-FY24E (58% of GFL revenues). GFL achieved full capacity utilisation in PTFE in Q2FY22 and is planning to expand capacity by 25% in FY23 with a planned CAPEX of Rs2.5bn. It already has enough capacity for R-22 and TFE; hence we expect a higher asset turnover of 1.5-1.6x. The new fluoropolymers segment has achieved only 65% capacity utilisation, and GFL expects it to hit full utilisation soon. The company is in the process of adding 57% capacity in new fluoropolymers including critical PVDF, FKM and micropowders. It is also introducing I-SAN, which finds application in flame retardants. This gives visibility on fluoropolymers’ revenue growth, while the higher contribution from this portfolio should also aid margin expansion. GFL is also backward-integrating into R-142B, which should help scale PVDF in future.”

Investment rationale

The brokerage in its research report has claimed that “Gujarat Fluorochemicals (GFL), through its large portfolio of fluoropolymers, has a presence in materials which are used by new-age verticals like lithium-ion-battery, solar panels and hydrogen fuel cells. Fluoropolymers such as PVDF, PTFE and FEP would find good use in these verticals. Further, GFL is planning CAPEX targeting certain new fluorine derivatives, which could expand its addressable market in new age segments, in our view.”

The brokerage has further stated that “We believe the entry into new-age verticals puts GFL ahead of its Indian peers in high-performance materials and could prove key for the longevity of the company’s growth. Further, backward integration for most of these materials by GFL would prove to be a high entry barrier for others. Revenue contribution from the new-age verticals in our forecast period is very small, but successful execution and long-term contracts at least with India OEMs could prove to be an ice breaker, and would be key to watch.”

Buy Gujarat Fluorochemicals Limited (GFL) with a target price of Rs. 3,086 (upside 50% from CMP)

According to the brokerage’s call “We are initiating coverage on Gujarat Fluorochemicals with a BUY rating and target price of Rs3,086 valuing the stock at 30x FY24E EPS (P/E multiple). The 30x PE multiple is based on the market capitalisation weighted average PE multiple for other Indian fluorine companies. Our target prices imply an EV/EBITDA multiple of 18.7x FY24E.”

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

How Crisil rates small cap and other mutual funds?

Unlike most other ranking models, which are based purely on returns or net asset value (NAV), Crisil Mutual Funds Ratings uses a combination of NAV and portfolio-based attributes for evaluation. This provides a single point analysis of mutual funds, taking into consideration key parameters such as risk-adjusted returns, asset concentration, liquidity and asset quality.

While most houses that rank mutual funds can do so on sound guidelines, there is no guarantee of returns and markets being extremely volatile there is no saying where returns could be headed. In any case let’s highlight some of the things that are worth taking a look at for Kotak Small Cap Fund.

Kotak Small Cap Fund: Great performance

The Kotak Small Cap Fund has assets under management to the tune of nearly Rs 6,180 crores. This fund is backed by a solid performance and has generated returns of almost 71% in the last 1-year. Having said that there is no guarantee that similar returns would be churned out in the future as well. Markets are extremely volatile and one has to be careful before investing.

The fund has holdings in stocks like Century Plyboard, Sheela Foam, Persistent Systems, Galaxy Surfactants etc. All of these stocks have rallied sharply in the last 1-year, which has boosted returns. The minimum SIP investment required is Rs 1,000.

Should you invest in the Kotak Small Cap Fund through SIP?

It it were a lumpsum investment into a small cap fund, we would have definitely told investors to be cautious. This is because the stock markets have rallied a great deal since the covid 19 sparked a nationwide closure. In fact, indices have more than doubled in value since then. We believe that the markets are over priced and hence investors should not invest any amounts that are lumpsum. It is now more sensible to invest through the SIP route, which would be a smart strategy to adopt under the current situation. It’s also important to remember that small cap mutual funds are risky, given that the invest only in companies with a small market capitalization. Having said that we are not advising any investment in mutual funds at this stage. All we are doing is informing readers of a well-rated fund.

We are unsure of where the markets will head from here on, given the way the Omicron variant is spreading. With increasingly new variants spreading every few months, I guess the markets would have to live with covid variants for a long-time. So expect volatility and invest only if you have an appetite for risk.

Disclaimer

Investing in equity mutual funds is risky and investors are advised caution. Invest only if you have an appetite to take risk. Please be informed neither Greynium Information Technologies Pvt Ltd nor the author are liable for any losses caused as a result of decisions based on the article.

Aditya Birla Fashion and Retail

Emkay Global is optimistic on the stock of Aditya Birla Fashion and Retail and says the company’s performance stood out in terms of per-store recovery for Lifestyle EBOs at 110% in Q2 vs. peers at 70-80%. According to the broking firm, the faster recovery in the relatively more impacted Pantaloons segment and the strong pick-up in the wholesale channel (MBO+LFS) on festive stocking, can surprise ahead.

“Faster recovery trends, aggressive portfolio/store expansion and improving efficiencies drive our positive stance on Aditya Birla Fashion and Retail. Valuations at 27x/22x FY23/FY24E EBITDA (pre-IndAS) are at a discount to peers. We have a Buy rating on Aditya Birla Fashion and Retail with a Dec’22E target price of Rs 340, based on 30x Dec’23E pre-IndAS EBITDA. Delay in full unlocking remains a key downside risk to estimates,” the brokerage has said.

The shares of Aditya Birla Fashion and Retail last changed hands at Rs 262 on the NSE.

Bharat Forge

Emkay Global is also bullish on the stock of forgings maker, Bharat Forge, and has a buy call on this midcap stock. “Our positive view is underpinned by Bharat Forge’s leadership position in automotive forgings, focus on diversification and expected recovery in the core segments,” the brokerage has said.

According to Emkay Global, the company’s revenue growth is expected to be robust at a 19% CAGR over FY22-24E, driven by strong recovery in domestic MHCV industry production, growth in export CV segments due to a revival in North America Class-8 trucks industry; consistent growth in the PV segment and recovery in other industrial segments.

“Medium-term performance will also be aided by high-potential segments such as Defence, Railways, Aerospace and Aluminium parts. We have a buy rating on the stock with a price target of Rs 950,” the brokerage has said.

The stock of Bharat Forge was last trading at Rs 703.

Birlasoft

Emkay Global also has a buy on small cap IT stock Birlasoft. The firm has set a Dec 2022 target price of Rs 550 based on 25x Dec’23E EPS.

“The management remains confident of sustaining revenue growth momentum and delivering mid-teen revenue growth in FY22 on broad-based demand, healthy deal intake (ACV remains robust although reported TCV not reflecting strength YoY), robust deal pipeline (up 50% YoY) and improving win rates, growing annuity revenue, and anticipated recovery in Enterprise Solutions. The company is well on track to achieve aspirational goal of USD1bn revenue by Mar’25 with an EBITDAM of 18%,” the brokerage has said.

Shares of Birlasoft were last changing hands at Rs 483.80.

Sunteck Realty

The brokerage has also recommended buying the stock of small cap realty player Sunteck Realty with a Dec‘22E target price of Rs740 on the stock based on 1.2x NAV (Development NAV of Rs 618 + NAV premium of Rs 124). “Further upside is possible from faster monetization of non-core land,” the brokerage has said.

“On a trailing 3-yr moving average basis, sales may witness a 27% CAGR in FY21-FY24E. Further, we estimate core ROE improving to 11% by FY24E as both construction and sales cycle gains traction,” the brokerage has further added in its latest report.

According to Emkay the key risks include delay in JDA formation, slower than estimated execution, rapid reversal in interest rate cycle resulting in high interest rate environment.

Disclaimer

The above small and midcap stocks have been picked from the latest brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.