5 Midcap Stocks with Bluechip Heritage. Add them to Your Watchlist

Mid-cap stocks are companies with a market capitalisation of more than Rs 50 bn (Rs 5,000 crore) but less than Rs 200 bn.

They are known to have a high growth potential because they're considerably smaller than largecaps giving them more room for growth.

Nevertheless, they are considered risky bets because they're very volatile in the short term. They are also less stable and less liquid than largecaps, making them investors' first choice to sell in crash or a bear market.

Many large companies today such as HDFC Bank and Bajaj Finance were midcaps at one point.

With this in mind, we have curated a list of five midcap companies that have the potential to become future bluechips. Add them to your watchlist.

#1 India Pesticides

First on our list is India Pesticides, a leading pesticide company.

It manufactures technicals that are used in fungicides and herbicides. The company also manufactures ready-to-use formulations of insecticides, fungicides, and herbicides.

It has a diversified product portfolio of over ten technicals and thirty formulations with a manufacturing monopoly in several products.

What makes India Pesticides bluechip worthy?

It is the fastest-growing agrochemicals business in India.

Over the last five years, the company's revenue has grown at a healthy compound annual growth rate (CAGR) of 24.3%. Its net profit also grew at a CAGR of 36.9% during the same time.

This was mainly driven by the growth in its formulation and technicals business.

Despite inflation, the company's operating margin has expanded over the years. Its five-year average stands at 23.9%. The company's backward integration strategy helps in keeping its cost low.

The company also has healthy return ratios. It reported a return on equity (RoE) and return on capital employed (RoCE) of 24.8% and 34% respectively for the financial year 2022.

Despite investing heavily in capex, the company is completely debt free and pays dividends. Promoter holding also stands at a high 66.8%.

Going forward, the new products will drive revenue, volume, and value growth for the business. It also stands to benefit from the 'China plus one strategy'.

To know more about India's Pesticides, checkout its factsheet and latest quarterly results.

#2 Tata Elxsi

Next on our list is Tata Elxsi, the world's leading provider of design and technology services.

The company offers its clients integrated services such as research and strategy, software development, and design. It serves several industries, including automobile, media, consumer appliances, semiconductors, and healthcare.

Why did Tata Elxsi make it to our list?

It was the first few in India to venture into Embedded Product Design (EPD) in 1990s. Today, the company has gained expertise and is a leading player in this field.

EPD is a specialised area in the technology industry that develops ideas into products using technology.

Apart from this the company also ventured into Internet of Things (IoT). Through IoT, the company has created a niche for itself by applying digital technologies such as cloud, mobility, virtual reality, and artificial intelligence, to product design.

With digitalisation becoming the new norm post pandemic, the company has an advantage over its peers in this field.

It has invested heavily over the last few years to build its capabilities in transportation, media, broadcast and communications, and healthcare.

The investments have paid off and the company's financial performance has improved over the years.

Despite facing many headwinds in the past few years due to the pandemic, and geopolitical tensions, the company saw its revenue grow at a CAGR of 11.9% in the last five years. This was driven by growth across all its segments.

The net profit grew at a CAGR of 18% during the same time. It also has a healthy operating profit margin which averaged 26.3% for the last five years.

Tata Elxsi is a debt-free company. Its RoE has expanded from 23% to 34% and Its RoCE expanded from 33% to 47.2% in the last three years.

It has also been paying high dividends to its shareholders. Its five-year average dividend payout is 45.4%.

The company's impeccable financial performance also led to rise in its share price. The shares of the company jumped more than 1,000% in just two years from the lows in 2020.

Going forward, the company's new deals will drive revenue growth in the medium term.

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

#3 Symphony

Third on our list is a household name for air coolers, Symphony.

It is the world's largest air cooler manufacturing company, with a presence in over 60 countries across five continents. The company's products include fans and household, commercial, and industrial coolers.

How is Symphony bluechip worthy?

Symphony is a pioneer in the air-cooling industry and a world leader in evaporative air cooling.

The company has been investing in research and development (R&D) to develop breakthrough technologies which translate into affordable, environmentally friendly, cooling solutions.

This has resulted in a very high brand recall, so much so that the brand name is now synonymous with air coolers.

It has a strong distribution network of over 30,000 dealers and over 1,000 distributors. It has invested heavily in marketing, which resulted in high sales growth.

In the last four years, the company's revenue grew at a CAGR of 5.2% driven by volume growth. The company's net profit also grew at a CAGR of 7.2%.

During this time the company also concentrated on improving its market share. This effort resulted in it capturing close to 50% market share in the organised sector.

In the recent quarterly results, its revenue and net profit grew by 25% YoY and 6.7% YoY driven by higher volumes.

Symphony follows an asset-light model. Hence has minimal debt on its balance sheet. Its debt-to-equity ratio is 0.1x. It has a healthy interest coverage ratio of 17.2x.

The company's RoE for the financial year 2022 is 14.4% which improved from 14.1% the previous year. Its RoCE also improved from 16% to 18.7% in the last one year.

Moreover, the company has a very high promoter holding of 73.2%.

Going forward, demand for more cost-efficient air cooling systems, rising income, and increased urbanisation will drive its revenue growth.

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

#4 Godrej Agrovet

Next on our list is a diversified agri-business company, Godrej Agrovet.

Its operations span across animal feed, crop protection, oil palm, dairy, poultry, and processed food business. The company has a diversified product portfolio with leading positions in respective businesses.

Why does Godrej Agrovet makes the cut?

Godrej Agrovet has a dominant market position in the animal feed business with a presence across all subcategories and the oil palm business.

This led to the company benefitting from economies of scale and achieving cost leadership in the industry.

Its continuous investment in R&D resulted in new product launches across all businesses, which helped the company increase its market share.

This has resulted in impeccable financials for the company.

In the last five years, its revenue has grown at a CAGR of 10%, driven by volume growth. The net profit also grew at a CAGR of 9.4%. Despite inflation, it maintained its operating profit margin at a five-year average of 8.3%.

In the financial year 2022, it became debt-free due to high operating cashflows, and its RoE and RoCE stood at 16.3% and 24% respectively.

The company also has a very high promoter holding of 74.1%.

Going forward, the company's growth will be driven by its diversified revenue profile, which also reduces the overall business risk.

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

#5 C E Infosystems

Last on our list is C E Info Systems, or popularly known as MapmyIndia.

The company is a leading provider of advanced digital maps, geospatial software, and location-based IoT technologies.

It also offers digital services like maps as a service (MaaS), software as a service (SaaS), and platform as a service (PaaS).

The company divides its reputed clientele into three segments: corporates, government, and automotive, which includes big names like ISRO, NITI Aayog, HDFC Bank, and Hyundai.

CE Info Systems has the potential to become a bluechip company.

Why is that?

It has a first-mover advantage in India's digital maps and is also a market leader in the segment.

Mobile navigation devices, wide use of 3D platforms, digital mapping, and advanced survey technology drive its growth.

Apart from this, the liberalisation of the geospatial sector and drone rules will enable more usage of 3D mapping which will also drive growth.

The company also has strong financials. In the last four years, its revenue has grown at a CAGR of 11.2%, driven by growth in its B2B2C revenue. The net profit also grew at a CAGR of 26.9%

As a result, the RoE has also expanded from 8.2% to 20.2%, whereas, the RoCE jumped from 12% to 27.7% in the last three years.

Its healthy cash flow from operations, supports the company's growth plans and helps in retaining its debt-free status. The company has won major deals in the quarter, increasing its order book and thus future revenues.

To know more about C E Info Systems, checkout its factsheet and latest quarterly results.

Investment Takeaway...

The companies mentioned above have strong fundamentals and exhibit the qualities of bluechip companies.

But you shouldn't forget that these companies have had their fair share of volatile periods.

Therefore, before investing in any company it's important to do a thorough research. It's essential that you consider all factors, both positives and negatives of the company, before considering it for investment.

Once you invest in a company, hold your investment for a long time, to ride out the short-term volatility.

Since you are interested in midcaps checkout midcaps that could turn into largecaps in 2023, and fundamentally strong midcap stocks.

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...