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  • Feb 5, 2023 - 5 Indian Midcap Stocks Set to Grow Dramatically in 2023. Add them to Your Watchlist

5 Indian Midcap Stocks Set to Grow Dramatically in 2023. Add them to Your Watchlist

Feb 5, 2023

5 Indian Midcap Stocks Set to Grow Dramatically in 2023. Add them to Your Watchlist

In a market where big names dominate, midcap stocks offer a unique opportunity for high growth at a relatively lower valuation.

And with the recent stock market correction, adding fundamentally strong midcap stocks that have seen a decent correction from their peak is a smart move.

If you're searching for investment opportunities in the stock market right now, look no further! The Indian midcap segment is poised for growth in 2023.

So, sit tight as we explore why these midcap stocks could be the next big thing in the Indian stock market.

#1 PI Industries

First on the list is PI Industries.

The company is a leading player in the agrochemical space with an established presence in domestic and export markets.

It has a wide portfolio of chemicals, including insecticides, fungicides, herbicides and speciality products.

Why does PI industries make it to this list?

The company has world-class research and development (R&D) facilities that continuously innovate. In the first two quarters of the financial year 2023, the company launched five new products, and two more were expected to launch this quarter (December 2022). Another 17 products are in different stages of development.

Apart from this, the company is also focussing on scaling up the capacities of existing products to cater to the growing demand. For this, it plans to invest around Rs 7 billion (bn) in capex in the financial year 2023.

PI Industries is also expanding its current portfolio to new market segments.

The company forayed into the pharma business and successfully developed a Covid-19 drug intermediate. Now the company plans to grow in the pharma sector through acquisitions.

All these indicate that the company is all set to grow dramatically in the next few years.

The company's revenue has grown at a compound annual growth rate (CAGR) of 18.6%, driven by volume growth and new product launches over the last five years. Its net profit also grew by a CAGR of 18%.

PI Industries Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 23,057 29,093 34,154 47,019 54,009
Growth   26.2% 17.4% 37.7% 14.9%
Operating Profit 4,955 5,696 7,198 10,180 11,496
Operating Profit Margin 22.1% 20% 21.4% 22.2% 21.7%
Net Profit 3,675 4,102 4,558 7,339 8,402
Net Profit Margin 16.4% 14.4% 13.5% 16% 15.9%
Source: Equitymaster

The company continued to perform well in recent quarters despite macroeconomic and geopolitical uncertainties. In the September 2022 quarter, the revenue grew by 30.4% year-on-year (YoY), driven by high volume and price growth, and the net profit grew by 48.4% YoY.

The agrochemical industry in India is all set to grow from the 'China plus one' strategy and the boost given to agriculture in the union budget 2023.

Being a leading player, PI Industries will be a primary beneficiary of this growth.

Going forward, new product launches and diversifying into pharma intermediaries' business will drive revenue growth.

To know more about PI industries, checkout its factsheet and latest quarterly results.

#2 SRF

SRF Limited is second on this list.

The company is a diversified manufacturing company operating in four segments - chemical, packaging films, technical textiles, and coated fabrics.

It has fourteen manufacturing facilities in four countries and a global presence in over 90 countries.

SRF has a strong presence in the chemicals business and manufactures fluorochemicals and speciality chemicals.

So, what makes the company worthy?

SRF is building a knowledge-based product portfolio. In line with its goal, it has leveraged technology to launch four new products in the agro and pharma space. The company was also granted three new process patents in the current fiscal, taking the total count of patents to 130.

It announced a capex of Rs 11.9 bn in the first three quarters of 2023 to manufacture agrochemicals and speciality fluoropolymers in its plants. This will help the company diversify its already wide product portfolio.

In its speciality chemicals business, it plans to move up the value chain by accelerating the qualifications of new molecules in the agro and pharmaceuticals sectors.

The company is also focussing on entering new markets with its existing chemical product portfolio.

To support the growth of its packaging film business, PI Industries plans to introduce new value-added products and is tying up with regional channel partners to enhance its presence in key strategic markets.

In the last five years, the company's sales have grown at a CAGR of 17.5% on the back of volume growth. The net profit also grew by 32.5% due to softening of raw material prices.

SRF Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 56,083 71,276 72,585 84,664 125,492
Growth   27.1% 1.8% 16.6% 48.2%
Operating Profit 9,062 12,970 14,549 21,333 31,032
Operating Profit Margin 16.5% 18.3% 20.2% 25.4% 25%
Net Profit 4,617 5,916 9,159 11,983 18,889
Net Profit Margin 8.4% 8.3% 12.7% 14.3% 15.2%
Source: Equitymaster

Despite a heavy capex, its debt-to-equity remained low at 0.2x with a healthy interest coverage ratio of 23.3x for the financial year 2022.

The return on capital employed (RoCE) has also expanded to 26.2% in 2022.

High demand for chemicals, strong export growth, and anti-pollution measures in China are the primary growth drivers for the chemicals sector in India.

Going forward, continued ramp-up of capex and new product launches are expected to drive the company's revenue growth.

To know more about SRF, checkout its factsheet and latest quarterly results.

#3 Zomato

Third on the list is Zomato.

The company needs no introduction as most smartphone users have the app installed on their phones.

For the sake of people who don't know about Zomato, it's a leading food service platform with a strong presence across India. Its key business segments include food delivery, dining out, and hyper pure.

It is present in over 1,000 cities with over 180 thousand average monthly active food delivery restaurant partners as of March 2022.

Why does a loss-making company like Zomato make it to this list?

The way the world eats has kept changing dramatically over the years and this is expected to continue. A few decades ago, getting food delivered from your favourite restaurant to your home was unimaginable.

But with technology in the picture, ordering in has become the norm.

Being one of the top players in this growing food delivery ecosystem, Zomato enjoys a strong first-mover advantage.

It has 14.7 million (m) average monthly transacting customers as of March 2022, which is higher by 116% compared to the previous year, of which 1.5 m are paid members.

In the financial year 2022, it delivered 535 m orders against 238 m orders the previous year.

A strong brand value, a pan-India presence, and a growing delivery partner network have helped the company grow its orders.

As a result, its revenue has also grown by a CAGR of 19.3% over the last three years. The losses have also contracted by almost 50% during the same time.

Zomato Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 4,861 13,998 27,749 21,263 47,067
Growth   188% 98.2% -23.4% 121.4%
Operating Profit -848 -10,004 -24,589 -7,998 -15,728
Operating Profit Margin -18.2% -76.2% -94.4% -40.1% -37.5%
Net Profit -1,063 -10,011 -23,856 -8,164 -12,228
Net Profit Margin -22.8% -76.3% -91.6% -40.9% -29.2%
Source: Equitymaster

In the September 2022 quarter, the company's revenue grew by 57.7% YoY. The company also reported a positive cash flow for the quarter.

For its hyper-pure business, the company's hard work to set up infrastructure over the last four years has paid off, and this segment is contributing significantly to revenue growth. It is expanding this business to other cities as well.

As the food delivery ecosystem is here to stay, Zomato's growth prospects look good.

Improving fundamentals, growing customer and restaurant base, and expanding to new cities are primary growth drivers for the company.

With the recent fall in Zomato share price, it seems this may be the right time to look at a fallen angel like Zomato.

#4 Laurus Labs

Next on the list is Laurus Labs.

It is a fully integrated pharmaceutical and biotechnology company with leadership in active pharmaceutical ingredients (APIs).

The company also provides contract research and manufacturing services to global pharma companies.

Laurus Labs has grown from a one-product company to over 60 commercial products currently.

Focus on R&D, continuous investment in manufacturing capabilities and a strong leadership team have driven this growth.

It has 203 patents, 77 drug master files (DMF), and 36 abbreviated new drug applications (ANDA) under its name as of December quarter 2022.

So far, in the financial year 2023, the company has spent Rs 6 bn on capex for de-bottlenecking, expanding its existing capacity, and developing R&D facilities.

The capacity expansion will increase its API capacity by almost 20% by the end of the financial year 2023.

This will help the company make the most of China plus one strategy. Post Covid, the API space was disrupted, and to add to this, China's tightening of environmental norms is making global pharma companies look for suppliers.

With the capacity expansion, Laurus Labs is all set to capitalise on this demand.

Coming to its financials, in the last five years, the revenue has grown at a CAGR of 19%, driven by volumes. The net profit also grew by 37.8%.

Laurus Labs Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 20,725 23,081 28,376 48,372 49,509
Growth   11.4% 22.9% 70.5% 2.4%
Operating Profit 4,133 3,560 5,646 15,507 14,224
Operating Profit Margin 20.2% 15.5% 19.9% 32.2% 28.8%
Net Profit 1,676 938 2,553 9,838 8,324
Net Profit Margin 8.2% 4.1% 9% 20.4% 16.9%
Source: Equitymaster

Going forward, the capacity expansion and high demand will drive the company's revenue growth.

To know more about Laurus Labs, checkout its factsheet and latest quarterly results.

#5 Sona BLW Precision

Last on the list is Sona BLW Precision (Sona Comstar).

The company is engaged in the business of designing, manufacturing, and supplying engineered automotive systems and components.

Some of its products include differential assemblies, gears, conventional and micro-hybrid motors, belt starter generator (BSG) systems, and electric vehicle (EV) traction motors.

With the electric vehicle (EV) revolution picking up pace, the company has increased its focus on EVs. It is one of the few companies that can design high power density EV systems.

This resulted in higher orders for the companies. It received 41 EV programs across 25 customers by the end of December 2022.

The company is currently focussing on diversification across geographies and vehicle segments. It is also introducing new products to widen its product portfolio.

In the December 2022 quarter, it introduced one new product in the EV segment taking its total product count to 15.

In the last five years, the revenue has grown at a CAGR of 28%, driven by volumes. The net profit also grew by 36.5% (CAGR).

Sona BLW Precision Financial Snapshot (2018-2022)

Particulars (Rs m) FY18 FY19 FY20 FY21 FY22
Total Revenue 6,259 8,152 10,438 15,686 21,507
Growth   30.2% 28% 50.3% 37.1%
Operating Profit 1,904 3,127 4,743 4,271 5,724
Operating Profit Margin 30.5% 38.5% 45.7% 27.3% 26.9%
Net Profit 764 1,730 3,603 2,152 3,615
Net Profit Margin 12.3% 21.3% 34.7% 13.7% 17%
Source: Equitymaster

In the December 2022 quarter, the revenue grew by 37.9% (YoY), and the net profit grew by 42.1% (YoY).

As of December 2022, it has an 8.7% market share in the global market in battery electric vehicle (BEV) differential assemblies, 7.2% in differential bevel gear, and a 4.1% market share in starter motors.

It plans to increase its market share by launching new products and penetrating into new geographies.

Currently, its share from EVs in revenue is 29%, and the company plans to increase it to 50% in the next two years.

With the growing adoption of EVs, Sona Comstar is capitalising on the opportunity to reach its goal.

Going forward, a strong order book and increasing market share will help the company drive its revenue.

To know more about Sona BLW Precision, checkout its factsheet and latest quarterly results.

Snapshot of above companies on valuation and other metrics

Take a look at the table below which compares the above companies on important metrics:

Comparative Analysis

Company PI Industries SRF Zomato Laurus Labs Sona Comstar
ROE (%) 14.6% 24.5% -10.8% 28.1% 21.5%
ROCE (%) 17.4% 24.2% -9.8% 26% 23.6%
Latest EPS (Rs) 67.5 74.4 -1 17 6.5
TTM PE (x) 44.8 29.6 - 19.4 68.5
TTM Price to book (x) 6.9 6.7 2.1 4.5 11.7
Dividend yield (%) 0.2% 0.8% 0% 0.6% 0.4%
Data Source: Ace Equity

Remember that it is important to do your due diligence before investing in a company.

Since you are interested in midcaps, checkout 5 midcaps that rallied in 2022, and most profitable midcap stocks.

Happy investing!

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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