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

Indian share markets have once again started the week on a positive note.

As sentiment is bullish across segments, investors are on the lookout for stocks that are outperforming the market.

The idea is that momentum stocks could find favor if the bullish sentiment prevails for a long time. Then, there'll be no stopping stocks.

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

Today, we'll take a look at midcaps that are near 52-week high but still look undervalued.

#1 OFSS

First on this list is Oracle Financial Services Software (OFSS).

OFSS, majority owned by Oracle, is a world leader in providing IT solutions to the financial services industry.

The company develops, sells and markets computer software, computer systems, and provides consultancy and other information technology (IT) related activities.

Shares of the company currently trade at Rs 3,542, a tad lower from their 52-week high price of Rs 3,725 touched on 8 May 2023.

On the valuations front, the company trades at a price to earnings (PE) multiple of 17x, compared to its 5-year median PE of 17.6x. The 10-year median PE comes to 22.6x, which gives enough comfort on the earnings front at the current price.

Its price to book value ratio comes to 5.1x, a slight premium to its 5-year median P/BV of 4.6x.

Compared to its peer group, OFSS has the lowest PE ratio and its price to book value is also below the industry average.

Historical Valuations of OFSS

	FY18	FY19	FY20	FY21	FY22
Adjusted PE (x)	16.4	16.9	11.1	11.5	8.5
Price to Book Value (x)	3.5	3.7	2.7	2.9	2.1
Dividend Yield (%)	2.0	4.0	6.3	5.1	5.9
Marketcap to Sales	1.1	1.0	0.9	1.3	0.7

Data Source: Ace Equity

In recent years, OFSS has made significant investments in rapidly moving its solutions to the cloud and launched solutions and AI platforms, much ahead of its peers.

This worked well for the company as the pace of investment by financial services companies in digital capabilities had grown significantly and is expected to continue over the coming years.

In the last five years, Oracle Financial's dividend payout and dividend yield have averaged 76% and 4.4%, respectively. A steady increase in dividends is due to increased profitability.

In the last five years, the company's net profit went up by 52.7%. The return ratios are also high, with RoE at 27.2% and RoCE at 36.6% in financial year 2022.

Like any other IT company, OFSS also faced the heat of the market for the better part of 2022. But right now, shares of the company have picked up momentum, and are trading near 52-week high.

#2 Exide Industries

Next on this list is Exide Industries, an India-based storage battery company.

The company's segments include Storage batteries and allied products. The company is engaged in manufacturing storage batteries for the automotive, industrial, and submarine sectors.

With over 75 years of experience, the company leads the battery market in India. It caters to all top original equipment manufacturers (OEM), including Tata Motors, Maruti, and Bajaj.

Shares of the company currently trade at Rs 206, a tad lower from their 52-week high price of Rs 214 touched on 1 June 2023.

On the valuations front, the company trades at a PE multiple of 21.2x, compared to its 5-year median PE of 20.7x. The 10-year median PE comes to 21.6x.

Its price to book value ratio comes to 1.6x, a big discount to its 5-year median P/BV of 2.2x.

Historical Valuations of Exide Industries

	FY18	FY19	FY20	FY21	FY22
Adjusted PE (x)	27.3	22.0	14.4	19.3	2.9
Price to Book Value (x)	3.5	3.0	1.7	2.2	1.2
Dividend Yield (%)	1.1	1.1	3.1	1.1	1.3
Marketcap to Sales	1.5	1.3	0.8	1.5	1.0

Data Source: Ace Equity

As part of its expansion plan, the company is setting up a green-field plant to manufacture Lithium-ion batteries. Earlier, it announced that the first phase of the plant (6 gigawatt-hour) will entail an investment of around Rs 40 bn.

With this project on track, it's looking forward to becoming one of the leading domestic players offering state-of-the-art products and solutions in the fast-growing electric mobility space and stationary space.

Additionally, the company has established strategic partnerships and collaborations, such as its alliance with Leclanche, to bolster its presence in the EV sector.

Further, a proposed customs duty exemption on the import of capital goods and machinery required for the manufacturing of lithium-ion batteries will also aid the stock.

#3 IDFC First Bank

Third on this list is IDFC First Bank.

The bank was founded by the merger of erstwhile IDFC Bank and erstwhile Capital First in 2018.

IDFC Bank was in the business of lending for infrastructure projects while Capital First was an Indian non-bank financial company (NBFC) providing debt financing to small entrepreneurs, MSMEs (Micro, Small and Medium Enterprises), and Indian consumers.

Shares of IDFC First Bank currently trade at Rs 71.6, a tad lower from their 52-week high price of Rs 74 touched on 7 June 2023.

On the valuations front, the bank trades at a PE multiple of 19.5x, compared to its 5-year median PE of 20.1x. The 10-year median PE comes to 18.7x.

Its price to book value ratio comes to 1.8x, a decent premium to its 5-year median P/BV of 1.7x.

Historical Valuations of IDFC First Bank

	FY18	FY19	FY20	FY21	FY22
Adjusted PE (x)	18.3	0.0	0.0	65.4	186.3
Price to Book Value (x)	1.1	1.5	0.7	1.8	1.2
Dividend Yield (%)	1.6	0.0	0.0	0.0	0.0
Marketcap to Sales	1.8	2.2	0.6	2.0	1.4

Data Source: Ace Equity

While it doesn't have a proven track record with respect to its profitability and return ratios, the bank has bright prospects.

The bank's balance sheet is now clean. It is also transforming into a retail focused high NIM bank from a corporate focussed low net interest margin (NIM) bank.

It has developed multiple and diversified streams of income in the bank across Fast Tag, Cash management, wealth management and continues to launch new business lines.

The private lender's PAT jumped 134% year-on-year (YoY) to Rs 8 bn in the March 2023 quarter. This was the highest-ever quarterly profit for the bank.

Its asset quality also improved with gross NPA at 2.51% (up 119 bps YoY) and net NPA at 0.86% (up 67 bps YoY).

No wonder shares of the private lender currently trade near 52-week high.

#4 Petronet LNG

Fourth on the list is Petronet LNG.

Established as a joint venture between four public sector oil companies, Petronet LNG is the fastest-growing public limited company in the energy sector.

The company is a pioneer in setting up liquified natural gas (LNG) terminals in India and its primary business includes transportation, storage, and regasification of LNG.

Shares of the company currently trade at Rs 223, a tad lower from their 52-week high price of Rs 242 touched on 3 May 2023.

On the valuations front, the company trades at a PE multiple of 10.3x, compared to its 5-year median PE of 13x. The 10-year median PE comes to 15.1x.

Its price to book value ratio comes to 2.2x, a big discount to its 5-year median P/BV of 3.2x.

Historical Valuations of Petronet LNG

	FY18	FY19	FY20	FY21	FY22
Adjusted PE (x)	16.4	16.9	11.1	11.5	8.5
Price to Book Value (x)	3.5	3.7	2.7	2.9	2.1
Dividend Yield (%)	2.0	4.0	6.3	5.1	5.9
Marketcap to Sales	1.1	1.0	0.9	1.3	0.7

Data Source: Ace Equity

Due to higher volumes, the company's net profit has grown at a CAGR of 10.7% in the last three years.

The company has a robust contractual structure and a demonstrated track record in running re-gasification operations profitably. Further, the low debt on its books and strong parentage is also a big positive for Petronet.

It plans to expand its capacity by 5 MMTPA in two phases spread over the next four to five years. It also plans to expand abroad by setting up regasification terminals in Bangladesh and Sri Lanka.

There is good cash flow visibility due to the long term and medium-term sales agreement with its customers.

Last month in its earnings call, the company's management said that big customers like MRPL may switch back to natural gas from liquid fuel which they adopted after LNG prices skyrocketed last year. This could help improve volumes.

Following the earnings announcement, shares of Petronet LNG have come under pressure as it missed street estimates.

#5 IRFC

Last on this list is IRFC.

The company is the financing arm of the Indian Railways. It is a Government of India Enterprise, under the Ministry of Railways (MoR).

IRFC's principal business is to borrow funds from the financial markets to finance the acquisition/creation of assets which are then leased out to the Indian Railways.

Shares of the company currently trade at Rs 33, a tad lower from their 52-week high price of Rs 37 touched on 4 May 2023.

On the valuations front, the company trades at a PE multiple of 6.8x, compared to its 5-year median PE of 6x. The 10-year median PE comes to 5.4x.

Its price to book value ratio comes to 0.9x, near the same levels as its 5-year median P/BV.

On the back of rising disbursements, IRFC's revenue has grown at a CAGR of 22% YoY in the last three years while its net profit has grown at a CAGR of 39% YoY.

The company operates in the railways segment and huge capex announcements have already been made with more in the offing.

Last month, the company reported its full year earnings where net profit soared to Rs 63.4 bn compared to Rs 60 bn last year.

The disbursement in FY23 was less than the initial target, but the budgetary support for Indian Railways is increasing year-after-year. The centre has provided support of Rs 2.4 trillion to Indian Railways for their capex plans, and railway players can either use it directly from their balance sheet or give authority to IRFC to lend it to railways.

For its next leg of growth, the company is foraying into new fields such as leasing of rolling stock to entities other than Indian Railways, etc.

The government is likely to sell 11% stake in IRFC by the financial year 2024 as part of its disinvestment plan.

The ministry of railways currently owns 86.4% stake in the firm. The intent is to bring the government's stake down to 75% by 2024.

So there you go...five midcap 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...