5 Fundamentally Strong Midcap Stocks to Add to Your Watchlist

No matter how bad a crisis gets ... any sound investment will eventually pay off.

This means that if you invest in fundamentally strong companies, you can make money in the long run, despite volatile markets.

Taking this into consideration, we bring to you a list of five midcap companies that are fundamentally strong.

Take a look...

#1 Supreme Petrochem

First on our list of fundamentally strong midcap companies is Supreme Petrochem, the largest producer of polystyrene products in India.

Polystyrene is an important raw material which is used in the food packaging, textiles, medical equipment, and in most of the day-to-day items.

Apart from manufacturing polystyrene products, it also trades in a raw material that is used to make polymers. This gives the company cost advantage over its peers.

Supreme Petrochem not only enjoys a strong market position but also has impressive financials.

In the last three years, Supreme Petrochem's revenue has grown at a compound annual growth rate (CAGR) of 22.8%. This was due to growth in volumes after the second largest producer of polystyrene products shut down its plant due to a fire accident.

The net profit also grew at a whooping rate of 86.2% (CAGR) due to higher spread between the price of polystyrene and the key raw material, styrene monomer.

As a result, the company's return on equity (RoE) also improved to 43.8% in financial year 2022, from 15.2% two years ago.

Steady cashflows allow Supreme Petrochem to use internal sources to meet its working capital and capex requirements. Thus the company can retain its debt-free status.

Currently the company is investing heavily to increase its production capacity. It has invested close to Rs 12 bn to cater to the growing demand for polystyrene products.

Going forward, new product launches, and growing share of value-added products will help the company acquire new clients and retain the existing ones.

To know more about Supreme Petrochem, checkout its factsheet.

#2 Esab India

Esab India, part of the Esab Group, is a leading supplier of welding and cutting equipment in India.

The company's customer base covers several industries including petrochemicals, wind energy, shipbuilding, liquified natural gas, and pipeline solutions.

Esab India benefits from its promoter group's legacy and expertise. The Esab Group has a presence in over 80 countries across four continents.

In the last three years, Esab India's revenue has grown at a CAGR of 8.6% due to volume growth across all key products. Despite an increase in the raw material prices, the net profit has grown at a CAGR of 5.7% due to improvement in productivity.

Its RoE also grew by 13.4% in the last two years and currently stands at 34.5%. Being a debt-free company, it has the ability to leverage its balance sheet to expand its production capacity in the future.

Esab India is also popular among investors as it pays consistent and high dividends. Its three-year average dividend payout ratio is 124.9%.

Currently the company is focusing on improving its market share by launching new products in existing markets.

Going forward, growing share of exports, and new product launches will help the company maintain and grow its market share in India.

To know more about Esab India, checkout its factsheet.

#3 Route Mobile

Third on our list is Route Mobile, a company that provides cloud communication platform to enterprises, over-the-top (OTT) companies, and mobile network operators.

The company provides an array of products and services such as messaging, voice calls, identity and verification, email, operator, analytics, payment as a service (PaaS), and communication platform as a service (CPaaS).

It also provides business process outsourcing (BPO) services such as client and technical support.

The company has grown through acquisitions. In the last five years it has acquired businesses to expand and strengthen its offerings in BPO, SMS analytics, and telecom operating.

These acquisitions were quite successful and the same is reflected in the company's performance.

In the last three years, Route Mobile's revenue has grown at a CAGR of 27.8% driven by growth across all business verticals and on-boarding of new clients. The net profit also grew at a healthy rate of 41.2%.

Its RoE for the financial year 2022 is 10.3%. Despite several acquisitions, the company managed to retain its debt free status.

Currently the company is focussing on expanding to new geographies through acquisitions. Going forward, the company's growth plans will drive revenue and profit growth.

To know more about Route Mobile, checkout its factsheet.

#4 Saregama India

Fourth on our list is Saregama India.

Established in 1902, Saregama India is one of the oldest music labels in the country. The company's business spans across music, films, web series, television serials, and retail.

It's also the largest recording and publishing company in India. It has a music library of over 142,000 songs. The company has also produced over 60 films and has over 6,000 hours of television serials.

Despite being a victim of piracy for more than a decade, Saregama India made a comeback in 2017 after its product 'Caravaan', and its production house 'Yoodlee Films' become a hit.

In financial year 2022, the company ventured into live music events and artist management.

Currently the company is focussing on creating content for regional languages and acquiring music from Bollywood movies.

In the last three years, the company's revenue has grown at a CAGR of 4.9%. The net profit also grew at a whopping 51.9% driven by digital penetration.

Saregama India's steady cash flows has helped it fund its working capital requirements through internal sources and remain debt-free for the last five years.

Going forward, its focus on creating new content and digital penetration will drive its revenue growth.

All these make Saregama India a fundamentally strong company. To know more about Saregama India, checkout its factsheet.

#5 KIOCL

Last on our list of fundamentally strong midcap companies is KIOCL, a government of India enterprise and is a flagship company under the Ministry of Steel.

It manufactures iron-ore pellets of multiple grades and has a manufacturing capacity of 3.5 million tons per annum (MTPA).

The company is also engaged in mineral exploration and undertook close to 15 exploration projects so far. KIOCL has a diversified and reputed clientele such as Jindal, Vizag Steel, Tata Steel, Aditya Birla Group, and ArcelorMittal.

It's an export oriented company and derives more than 90% of its revenue from exports.

Currently the company is working on forward and backward integration and is setting up plants for the same in India.

Additionally, it is planning to increase its market share of 3.5% in the iron ore pellet market by expanding to other countries.

KIOCL is also investing Rs 20 bn in capex for developing Devadari mines and another Rs 2 bn for modernisation of its pellet plant.

Apart from this, it has entered into a joint venture with Rashtriya Ispat Nigam to set up a pellet plant in Vishakhapatnam.

Its efforts to improve its market share are reflected in its financials. In the last three years, the company's revenue has grown at a CAGR of 14.4%. However, its profits have jumped 93.1% during the same period. This was mainly because of higher pellet prices.

Its RoE also expanded by 12.3% in the last three years, and it is 14.6% in financial year 2022.

Despite a high capex, the company is debt free due to its strong liquidity position.

Going forward, its focus on acquiring mine leases, and setting up pellet plants for expanding its market share will drive its revenue growth.

To know more about KIOCL, checkout its factsheet.

Why should you invest in fundamentally strong midcap companies?

The markets were on a roller coaster ride this year. They were very volatile and investors lost a lot of money in the last 9 months.

In times like these it is important to evaluate the fundamentals of the companies you've invested in.

This is because a fundamentally strong company can stand tall even during the toughest of times, despite being a victim to market volatility.

Low debt will not put pressure on its cashflows, a high quality product or service and a loyal customer base will ensure stable revenues, and operational efficiency will bring in steady profits.

Moreover, such companies are the first to recover in case of recession.

In the long run, companies with strong fundamentals can outperform the market and reward their investors handsomely.

Hence, it's important to invest in such companies for the long term, to ride out such volatile periods.

Since you are interested in midcap stocks checkout the most undervalued midcap stocks and midcap stocks that could turn into largecaps in 2023.

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...