5 Smallcap Stocks Near 52-Week Highs That Still Look Undervalued

Indian benchmark index BSE Sensex crossed the 63,000-mark for the first time in 2023. Today again, the index extended gains after the Reserve Bank of India (RBI) kept interest rates on hold.

No doubt, the sentiment is bullish. Reports of Sensex touching the 1 lakh mark have started circulating once again.

And it's not just the benchmark indices that are rising. The broader market of midcap and smallcaps are also doing well. In fact, they are outperforming largecaps.

Last week, we wrote about 5 stocks near 52-week high that still look undervalued.

In the follow up articles, we're going to highlight smallcaps and midcaps that are near 52-week high but still look undervalued.

In this article, let's look at the smallcaps.

#1 Swaraj Engines

First on this list is Swaraj Engines.

Its primary business is to manufacture and sell diesel engines, especially tractors.

Shares of the company currently trade at Rs 2,037, a tad lower from their 52-week high price of Rs 2,060 touched yesterday on 7 June 2023.

On the valuations front, the company trades at a price to earnings (PE) multiple of 18x, compared to its 5-year median PE of 18.8x. The 10-year median PE comes to 10.3x, which gives enough comfort on the earnings front at the current price.

Its price to book value ratio comes to 7.2x, a slight premium to its 5-year median P/BV of 7.1x.

Historical Valuations of Swaraj Engines

	FY18	FY19	FY20	FY21	FY22
Adjusted PE (x)	30.2	20.7	15.4	17.2	14.5
Price to Book Value (x)	10.6	7.2	4.6	5.7	5.2
Dividend Yield (%)	2.5	3.6	4.4	5.3	6.1
Marketcap to Sales	3.1	2.0	1.4	1.6	1.4

Data Source: Ace Equity

The company believes in sharing profits with its shareholders. This is reflected in the dividend history.

In its 20 years of dividend-paying history, the dividend payout ratio was never less than 50%.

Last month, the company's board recommended an equity dividend of 920% (Rs 92 per share) for the financial year ended 31 March 2023.

In the last five years, the company's revenue has grown at a compound annual growth rate (CAGR) of 8.4% owing to higher demand. The net profit also grew by 6.5% CAGR during the same time.

The company also enjoys high return ratios (5-year average RoE is 33.8% and RoCE is 48%). It continued to perform well in the current fiscal (FY23) on the back of good monsoon.

The recent rally in the stock price of Swaraj Engines comes after the company logged a strong growth in Q4 of 2023.

To know more, check out the financial factsheet and the latest quarterly results of Swaraj Engines.

#2 Capacite Infraprojects

Second on this list is Capacite Infraprojects.

The company is primarily engaged in the EPC business and provides turnkey solutions for housing, high rises, super high rises, speciality buildings and urban infrastructure. The company offers these services to leading real-estate and government bodies in India.

Shares of the company currently trade at Rs 196, a tad lower from their 52-week high price of Rs 199 touched yesterday on 7 June 2023.

On the valuations front, the company trades at a price to earnings (PE) multiple of 14x, compared to its 5-year median PE of 15.8x. The 10-year median PE comes to 16.5x, which gives enough comfort on the earnings front at the current price.

Its price to book value ratio comes to 1.2x, almost near the same level as its 5-year median P/BV of 1.2x.

Historical Valuations of Capacite Infrastructure

	FY18	FY19	FY20	FY21	FY22
Adjusted PE (x)	25.8	15.9	5.4	892.1	16.9
Price to Book Value (x)	2.7	1.8	0.5	1.5	0.8
Dividend Yield (%)	0.3	0.4	0.0	0.0	0.0
Marketcap to Sales	1.5	0.9	0.3	1.6	0.6

Data Source: Ace Equity

In recent months, the stock has seen a breakout and reclaimed some lost momentum. The optimism could be due to a strong order book worth Rs 95.1 bn in the financial year 2023. The bifurcation of the order book is 70% for the public sector and 30% for the private sector.

Capacite Infraprojects recently received an order worth Rs 2.2 bn from Raymond to build a residential project in Thane.

The other reason behind the spectacular rally could be its fundraising plans. The company will hold a board meeting today to consider fundraising.

In FY24, the company's management has guided for a double-digit revenue growth.

The company expects to book Rs 2 bn in revenue for the MHADA project in the current financial year, with an additional Rs 2 bn building to be constructed.

To know more, check out the financial factsheet and the latest quarterly results of Capacite Infraprojects.

#3 NLC India

Third on this list is NLC India.

The company is engaged in the business of operating lignite and coal mines and thermal power stations in Neyveli and Tuticorin (NTPL) in Tamil Nadu and Barsingsar, Rajasthan, and Orissa.

The company is strategically important to the government of India as it's the nodal agency for lignite mining.

Shares of the company currently trade at Rs 98, a tad lower from their 52-week high price of Rs 99.5 touched yesterday on 7 June 2023.

On the valuations front, the company trades at a price to earnings (PE) multiple of 9.8x, compared to its 5-year median PE of 7x. The 10-year median PE comes to 7.2x.

While the company may not seem undervalued on the earnings front, it's trading below its book value. The company's price to book value ratio comes to 0.9x, almost near the same level as its 5-year median P/BV of 0.85x.

Historical Valuations of NLC India

	FY18	FY19	FY20	FY21	FY22
Adjusted PE (x)	6.4	6.5	4.6	5.3	7.5
Price to Book Value (x)	1.0	0.8	0.5	0.5	0.6
Dividend Yield (%)	5.4	6.5	16.1	5.0	4.8
Marketcap to Sales	1.1	1.0	0.6	0.7	0.7

Data Source: Ace Equity

A pioneer in the lignite-based power, NLC India intends to spend around Rs 300 bn in the next three years as part of its capacity expansion plan.

Some ongoing projects that it has taken include the 1,980-megawatt (MW) power plant in Uttar Pradesh, 2,400-MW Talabira pit-head thermal power station, Talabira and Pachwara coal mines in Odisha and Jharkhand, and capex for existing units and new renewable power projects.

The recent optimism in the stock price is due to its stellar Q4 numbers. NLC India's net profit rose 76% to Rs 7.7 bn in the quarter ended March 2023.

The company's board also recommended a final dividend of Rs 2 per equity share.

Going forward, the company's expansion plan and foray into the renewable segment will drive its growth for the medium term.

To know more, check out the financial factsheet and the latest quarterly results of NLC India.

#4 Transpek Industry

Fourth on this list is Transpek Industry.

The company is a part of Excel group of companies. Other group companies include Excel Industries Ltd, Excel Crop Care Ltd (sold), Hyderabad Chemicals (sold), Agrocel, and Punjab Chemicals Ltd.

Transpek Industry was set up as an acrylic manufacturing company in 1965 by Govind Shroff. Over the years, the company shifted into making acid and alkyl chlorides.

The company's niche is in making products using chlorinated chemistry. Over the years, it has developed an edge in making acid and alkyl chlorides.

Shares of the company currently trade at Rs 2,060, a tad lower from their 52-week high price of Rs 2,086 touched yesterday on 7 June 2023.

On the valuations front, the company trades at a price to earnings (PE) multiple of 13.8x, compared to its 5-year median PE of 15.3x. The 10-year median PE comes to 15.8x.

The stock's price to book value ratio is 1.9x, a huge discount from its 5-year median P/BV of 2.6x.

Historical Valuations of Transpek Industry

	FY18	FY19	FY20	FY21	FY22
Adjusted PE (x)	26.1	12.8	9.4	32.7	16.7
Price to Book Value (x)	2.8	2.7	2.0	2.0	2.3
Dividend Yield (%)	0.7	1.3	1.0	0.6	1.2
Marketcap to Sales	1.9	1.4	1.2	2.2	1.8

Data Source: Ace Equity

In the September and December 2022 quarters, the company's margins witnessed compression due to inflation and due to higher logistic costs. But along the expected lines, the company had a good Q4.

Despite an uncertain macro situation, the demand environment remains strong. The company is working on the pipeline of new products in chlorine and non-chlorine chemistry. It sees strong opportunity in multi synthesis products.

Transpek has undertaken a capex of Rs 350 million to replace an old plant to accommodate new products for which the demand is expected to be higher. The new plant will have 70% higher capacity.

After shelving its capex plan at Vizag due to covid, the expansion in capacity due to replacement is positive. Along with the focus on new products, there is good visibility in growth.

Shares of the company have been on a roll in the past one month, ever since it posted Q4 numbers.

Going forward, the growth prospects remain strong as Transpek's products find applications in electric vehicles (EV) and defence applications.

To know more, check out the financial factsheet and the latest quarterly results of Transpek Industry.

#5 Munjal Showa

Last on this list is Munjal Showa.

The company operates as an auto ancillary company and manufactures auto components for two-wheeler and four-wheeler automotive players in India. It holds a dominant position in the shock-absorber market. It's one of the leading suppliers to Hero MotoCorp.

Shares of the company currently trade at Rs 128, a tad lower from their 52-week high price of Rs 132 touched yesterday on 7 June 2023.

On the valuations front, the company trades at a price to earnings (PE) multiple of 15x, compared to its 5-year median PE of 12x. The 10-year median PE comes to 11.8x.

While the company is trading at a premium when looked at its earnings ratio, the price to book value ratio is 0.8x, a slight discount from its 5-year median P/BV of 0.9x and 10-year median P/BV of 1.1x.

Historical Valuations of Munjal Showa

	FY18	FY19	FY20	FY21	FY22
Adjusted PE (x)	10.6	10.6	5.6	21.2	32.2
Price to Book Value (x)	1.4	1.1	0.4	0.9	0.6
Dividend Yield (%)	2.2	2.7	7.5	3.3	4.6
Marketcap to Sales	0.5	0.4	0.2	0.5	0.4

Data Source: Ace Equity

The recent optimism surrounding the stock comes after the auto ancillary firm posted good numbers for Q4. Net profit zoomed to Rs 210 m in the March 2023 quarter compared to Rs 30 m in December 2022.

The full year profit rose almost three-fold to Rs 320 m compared to Rs 120 m in FY22.

The company's board also declared a dividend of Rs 4.5 per share.

In the past three years, the company's revenue has declined after touching a record of over Rs 16 bn in 2019 due to demand sluggishness and increasing competition.

Going forward, the company's diversification into electric two-wheelers space is expected to support revenue growth.

To know more, check out the financial factsheet and the latest quarterly results of Munjal Showa.

So there you go...five smallcap stocks that are near their 52-week high yet they seem undervalued when looked at their long term valuations.

These companies are also trading at a discount when looked at the overall industry price to earnings ratio and price to book value ratio.

Before you go, we highly recommend you check out the below video where Co-head of Research at Equitymaster Rahul Shah explains how to use the PE ratio like a pro.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...