How to handle SME stocks & make money?

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As per a market veteran, the current craze for SME stocks is noticeable, but all SME are not worthy of investment. There is a concerning trend where investors overlook basic metrics like P/E, ROE and cash flows. It’s crucial to understand that valuation plays a significant role in investment decisions. As the market evolves, investors are likely to recognize the importance of evaluating fundamental aspects sooner rather than later. Strictly stay away from SME or main board shares with poor fundamentals. Since such shares are zooming with huge volumes, please remain cautious and trade/invest with a strict stop loss.

Last week’s MTT recommendations, Simran Farms at Rs.173 touched Rs.215, Artefact Projects at Rs.71 hit Rs.95, Resonance at Rs.112 hit Rs.125, BDH at Rs.219 touched Rs.264 and Sagar Cements at Rs.254 hit Rs.304 with huge volumes. Book partial profits at every rise.

• Gujarat Toolroom acquires 6 hectares of government mines in Zambia and estimates revenue of Rs.700 cr. with a profit margin of 10-12%. A big positive. Add.
• Siyaram Recycling, founded in 2007, is attracting investor attention for its brass scrap separation and production of brass components, especially for sanitary installations. Buy.
• Top of FormAnalysts recommend NSE SME stock Trident Techlabs, for its tailored technology solutions in aerospace, defense, automotive, telecommunications, semiconductor and power industries. Buy.
• Sree Raylaseema Hypo, a chemical manufacturer with a diverse product range boasts of 10 MW power plant and 11.25 MW wind power, it is projected to achieve an EPS exceeding Rs 80 in FY24. Buy.
• Trigyn Technologies, appraised at CMMI Level 5 (v2.0) by QAI India, showcases its commitment to performance excellence and alignment with global standards. Buy for the long-term gain.
• Federal Bank posted 19% growth in total deposits and 18% in gross advances to Rs. 2,02,475 cr. for 9MFY24. Its 30% growth in H1FY24 EPS to Rs 8.4 could take FY24 EPS to Rs.18. Buy for 30% gain.
• Repco Home Finance posted 47% higher Q2 EPS of Rs.15.5 and a 39% higher H1 EPS of Rs. 31.7, which may lead to FY24 EPS of Rs. 68+ from Rs. 35.4 in FY23. Buy.
• Chamanlal Setia, a rice exporter, with a 23% higher Q1 EPS of Rs. 5.3 could lead to FY24 EPS of Rs.30 (forward P/E 7.1x, compared to the industry average of 42x). Buy for 30% gains.
• Cigniti, a global leader in independent quality engineering and software testing posted a 25% higher H1FY24 EPS of Rs. 33.2. This could take FY24 EPS to Rs. 75+ from Rs 61.3 in FY23. Buy for 30% gains.
• Nile, a leading manufacturer of Lead and Lead Alloys posted a 45% higher H1FY24 EPS of Rs.44.1, which may lead to FY24 EPS of 90+. A reasonable P/E of 12x may take the share to Rs. 1000. Add.
• Voith Paper Fabrics, a German MNC with 74% equity, posted 30% higher H1 EPS of Rs. 44, which may take FY24 EPS to Rs. 95+ from Rs. 72.4 in FY23. Buy for 30% gains.
• Ujjivan Small Finance Bank's 29% YoY robust growth in total deposits to Rs. 29,869 cr., a 24% increase in CASA to Rs. 7,549 cr. and 27% YoY surge in the Gross Loan Book to Rs. 27,791 cr. portends good growth potential. Buy.
• Panacea Biotec launches the world’s first fully liquid wP-IPV Pentavalent vaccine to protect children from Diphtheria, Tetanus, Pertussis, Polio and invasive infections. Buy.
• Focus Lighting has reportedly received huge orders, which is a big positive. Add.
• Walchandnagar Industries likely to post good Q3 results. A good long-term story. Add on dips.
• HAL has huge orders and is set to get new orders to service the Rafael aircrafts. Add for multi-bagger returns.
• GMDC seeks mining lease for lithium. The new lignite and coal mines will contribute significantly to its revenues. Buy for hefty gains.
• IRCON has entered uncharted territory. Add this railway PSU for the long term.
• BBTC (Bombay Burmah Trading) shows signs of a breakout and deserves a place in every model portfolio. Add.
• Demand for properties display a rising trend, which will need financing. Buy India Bulls Housing Finance
• Torrent Power signs an MoU with Gujarat Govt. to invest Rs.47,450 cr. to promote green energy projects. Add.
• Satia Industies will declare strong Q3 results. Add.
• Jio Blackrock JV has applied for MF licence. This big business opportunity makes Jio a good buy. Add.
• SBI contemplates raising up to Rs.5000 cr. via AT-1 bonds to meet long term funds requirements. Add in small lots.
• Bajaj Auto may announce buy-back. Add for short-term gains.
• Adani Port plans to raise Rs.5000 cr. via NCDs for expansion and debt refinance. Add.
• ONGC won seven blocks for exploration of oil. Add on dips.
• Dr. Reddy’s acquires US based Menolabs, a women’s health and dietary supplement company. A big positive. Add.
• Reliance Infra is rising again. Seems like the DMRC payments are on the way. Risk bearing investors may add.
• Happiest Minds’ revenue to grow at a CAGR of 18% and EPS by 22% during FY24-26 on strong volume growth. Add.
• Olectra Greentech set to bag huge orders for e-busses. A big positive. Add.
• NOCIL is increasing its capacities. A very good buy even at these elevated prices.
• Pearl Global quotes ex-split rates and is witnessing robust demand on the back of rising prices for its products. Add for hefty gains.
• ABM Knowledgeware is a pioneer offering Smart City solutions, Cyber Security, Smart Water Management, SAP Practice etc. It has a large order book & huge reserve. Promoters hold 67% stake and it trades at a P/E of just 22x. Keep track.
• Metroglobal engaged in trading of chemicals, textiles, minerals and ores, metals and is a EPC realty player. It notched H1 EPS of Rs.13.57 and has a BV of Rs.300 but trades at a P/E of 5.6x and P/BV of 0.51x with a dividend payout of 23.8%. It is almost debt-free. Buy for multi-bagger gains.
• Debt-free Denis Chem producer of sterile intravenous injectables is an attractive buy with a dividend yield of 3%, M.Cap: Sales of 0.55x. Varun Daga,? Mg. partner of billion-dollar company, Dream 11, holds 11.5% and FIIs hold 20.74% stake. Add.
• Rising Covid-19 cases globally spell good prospects for IOL Chemicals & Pharma, Morepen Labs and Poly Medicure. Add for decent gains.
• Menon Pistons, the only company to design & manufacture steel forged pistons & gudgeon pins, Rings, auto shafts. It has a RoCE and RoE of 27% and 20%. Its equity of Rs.5 cr. is backed by reserves of Rs.122 cr. The promoters hold 75% and HNIs hold 3.47%. It paid 100% dividend for FY23. Buy for 30% gains.
• After August 2022, first time Subex close above Rs.39 with record break volumes on 5th January. Its all-time high is Rs.790. Risk bearing investor may add.
• NSE SME listed SJ Logistic technically looks strong and is likely to cross Rs.200. Keep track.
• NSE SME listed Jayant Infratech recommended at Rs.131 on 2nd December hit new high of Rs.262. Book part profit at every rise.
• Last week’s MTT recommendations, Simran Farms at Rs.173 touched Rs.215, Artefact Projects at Rs.71 hit Rs.95, Resonance at Rs.112 hit Rs.125, BDH at Rs.219 touched Rs.264 and Sagar Cements at Rs.254 hit Rs.304 with huge volumes. Book partial profits at every rise.
• SIKA Interplant engaged in the Defence & Space, Auto Engg., Aerospace, electrical module integration notched 137% higher Q2 NP. Its equity of Rs.4.24 cr. is back by reserves of Rs.90 cr. The promoters hold 71%, FPIs hold 2.42% and HNIs hold 3.04% stake. Add for multi-bagger gains.
• HFCL hit new 52-week high on Friday with big volumes as it received Rs.1127.27 cr. order from BSNL. It is likely to cross Rs.100. Keep it on your radar.
• NSE SME listed UNIHEALTH posted H1FY24 PAT of Rs.4.24 cr. and announced a collaboration with Myanmar Airways Int. to launch the UniHealth – MAI medical travel program. A big positive. Add.
• BSE SME listed Cosmic CRF was recommended at Rs.263 on 4th Nov. It touched a life time high of Rs.717. Book partial profits at every rise.
• NSE SME listed Kontor Space IPO at Rs.93 was subscribed 71 times and was listed at Rs.122. It is now available at around Rs.78. For H1FY24, its PAT rose 122% YoY. Add.
• Ritco Logistics’ Q2 NP rose 33.5% YoY and H2 is expected to be better as it issued 3 lakh convertible warrants at Rs.247.10. Buy for 25% gain.
• Indiabulls Real Estate hit 52-week high on Fri, 5th Jan, with record volumes. Keep it on your radar.
• Vascon Engineers Q2 NP rose 88% to Rs.19.67 cr. from Rs.10.74 cr. YoY. It plans to come out with a QIP soon and is likely to fare better. Add for 25% gain.
• Man Industries recommended at Rs.251 on 23rd Dec. Touched Rs.317. Book partial profit.
• Almost debt-free Wimplast Q2 PAT rose 52% to Rs.14.62 cr. YoY. HDFC Small cap fund holds 3.81% and 23 HNIs hold 15.23% stake. Add.
• Anantraj hit new high of Rs.322 on 5th January 24. Keep track.
• Himadri Speciality Chemicals hit new high of Rs.393 on Friday 5th Jan. Keep it on your radar.
• SPL Industries trades at a P/E multiple of 14.2x as against the industry average of 74.16x. It is available at attractive valuations. Add.
• TRF trades at a P/E of less than 7x and has seen turnaround after two years. Like Tata Metaliks, it may be re-rated. Add.
• Bajel Projects, the demerged entity from Bajaj Electricals was recently listed. It is available at a mktcap of Rs.1500 cr. Add for good gains.
• Swelect Energy manufactures Solar PV Modules and has a 500 MW manufacturing capacity. It has expansion plans on hand. Add.
• SNL Bearings trades at a P/E of less than 15x as against NRB Bearing which holds 75 % stake and P/E of 37x. Add.
• GTN Industries trades at a P/BV of 1.03x and has a DER of 0.26x. The largest Textile Expo ‘Bharat Tex 2024’ will benefit this undervalued counter. Add.
• Rudra Global Infra has RoCE of 12.4% and RoE of 14.1%. It is venturing into defense and aerospace industry apart from ‘Rudra Mart’ a place for construction related materials. Add.
• Gujarat Toolroom acquires 6 hectares of government mines in Zambia and estimates revenue of Rs.700 cr. with a profit margin of 10-12%. A big positive. Add.
• BCL Industries to leverage higher maize ethanol price as OMCs announce an additional incentive of Rs.5.79/litre of ethanol sourced from the grain. Add.
• Hampton Sky Realty to launch a 12-acre commercial project on NH-5 connecting Ludhiana with Chandigarh at an investment of Rs.120 cr. by FY25. A big positive. Buy.
• Dev Information Technology acquired 100% stake of Dhyey Consulting Services Pvt. Ltd. for Rs.9 cr. by issuing preference shares and bank transfer. A big positive. Buy.
• Sheetal Diamonds plans a preferential issue up to Rs.49.95 cr. at Rs.60/share to promoter & non-promoter groups. It will utilize the proceeds to foray into retail sector across India. Add.

This is an extract from Money Times Talk, part of 'Money Times' publication, Jan 6th, 2024 issue.

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