How 5 mid-cap top performers will perform in 2023

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Mid-cap stocks are “just right” for investors seeking a balance between growth and profitability. (File)

In cricket, there are winners like Sachin Tendulkar and Virat Kohli who are highly acclaimed. And there are underrated or overlooked artists like Rahul Dravid.

The analogy is that in the stock market, there are large cap stocks where over 70% of the free-float market cap is in the spotlight. And then there are undervalued winners with a market cap of 12-15%.

Even the most seasoned investors sometimes overlook this significant portion of the stock market: mid-cap stocks.

Like the Goldilocks chair, mid-cap stocks are “just right” for investors seeking a balance between growth and profitability.

If your portfolio already contains many small-cap and large-cap companies, adding mid-cap stocks could be just right to diversify your portfolio.

Here’s a deeper look at the five best performing mid-cap stocks of 2022 and how they will perform in 2023.

#1 Adani power

The first stock on the list is Adani Power.

Adani Power is up 200% in 2022, making it the group’s best multibagger stock of 2022.

The stock surge came after the company announced an amalgamation plan to merge its six wholly owned subsidiaries into itself.

These subsidiaries are Adani Power Maharashtra, Adani Power Rajasthan, Adani Power Mundra, Udupi Power Corporation, Raipur Energen and Raigarh Energy Generation.

The rally in the stock received further support from MSCI (Morgan Stanley Capital International), including Adani Power in its global index.

Adani Power is India’s largest private thermal power company. It is a pioneer in establishing a coal-based supercritical thermal power plant in India.

The company’s revenue for the September 2022 quarter was Rs 84.5 billion (BN), up 51.5% year-on-year, while net profit rose 201.6% year-on-year to Rs 6.9 billion .

The increase in net profit was due to higher non-recurring revenues, while that in revenues was due to improved tariffs under long-term power purchase agreements as a result of higher import coal prices.

In 2023, as part of the company’s expansion plan, the company’s Godda Power Plant will provide 1,600 MW of electricity to Bangladesh.

With the special transmission line, it wants to build large-scale power connectivity with Nepal, Bhutan and Assam.

Furthermore, the company plans to expand its capacity in Central India through the acquisition of DB Power.

DB Power has long- and medium-term power purchase agreements for 923.5 megawatts (MW) of its capacity, supported by fuel supply agreements with Coal India, and operates its facilities profitably.

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#2 Varun drinks

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Second is Varun Beverages on the list.

Shares of the company are up 124% in 2022 and hit their 52-week high in December 2022. The stock outperformed the Nifty FMCG index, which gained 14% in 2022.

The rally in the stock was driven by strong earnings momentum, higher adoption of newly launched products and greater penetration in the newly acquired territories of South and West India.

The rally received further support from PepsiCo’s focus on increasing production capacity in India by 30-40% through March 2023.

The rally received further support as the company announced an interim dividend of 25% of Rs 2.5 per share for FY 2023.

Varun Beverages is a large cap company in the Indian FMCG sector. With a market capitalization of Rs 777.5 billion, it is the sixth largest FMCG giant in India.

The company produces and markets a wide variety of carbonated soft drinks (CSDs) and non-carbonated drinks (NCBs).

It is one of the largest PepsiCo franchisees outside the United States.

For the September 2022 quarter, the company reported a 33% year-on-year revenue increase to Rs 31.7 billion due to higher realization on a consolidated basis.

The company’s net profit was up 53% year-on-year to Rs 3.9 billion thanks to organic volume growth of 22% over the past year, supported by favorable demand and the strong performance of energy drink Sting.

The company is setting up two large greenfield plants in Madhya Pradesh and Rajasthan. It is expanding into Bihar and a few more areas of brownfield plants.

The company hopes to invest Rs 12 billion in capex during the year and plans to expand its capacity by 30%.

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#3 Hindu aviation

Third on the list is Hindustan Aeronautics.

The stock rose 109% in 2022, led by massive deal wins and continued revenue growth.

The gathering was further fueled by the Ministry of Defense (MOD) recently imposing restrictions on the import of 108 military weapons and systems. This restriction has helped indigenous defense equipment suppliers like HAL, boosting the order book to Rs 840 billion.

It expects it to cross Rs 1 trillion by the end of next year, which will take the next 10-12 years.

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Hindustan Aeronautics is an aerospace and defense company owned by the Indian state.

The company manufactures and maintains aircraft and helicopters for the Indian Air Force, Indian Army, ISRO and Indian Navy, among others.

For the September 2022 quarter, the company reported a 7.3% year-on-year revenue decline to Rs 51.4 billion due to lower realizations.

Net profit rose more than 44% year-on-year to Rs 12.2 billion, led by large-scale orders in the manufacturing segment and engines.

The company is a debt-free company with no long-term debt obligations.

The company expects revenue growth of 8% in FY23 and FY24 and double-digit revenue growth from FY25.

To expand its order book, it is in talks with Argentina for a helicopter order.

It is also developing combat drones for logistics purposes that can carry payloads between 5kg and 40kg to troops in outposts.

Apart from this, the company also has a view of orders worth Rs 360 billion in the next six months to a year.

HAL has a full-fledged production facility for the manufacture of cryogenic motors. The company is partnering with the Indian Space Research Organization (ISRO) to manufacture and supply those engines.

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#4 Union Bank of India

The fourth on the list is Union Bank of India.

In 2022, the share increased by 85%.

The increase in share price was due to the government’s monumental investment plans and improved asset quality.

Union Bank of India is one of the largest state-owned banks in India. The bank also has an international presence with three foreign branches.

For the December 2022 quarter, the lender posted a net profit of Rs 22.3 billion, doubling its previous year’s figures of Rs 10.9 billion. This increase was due to a 20.3% increase in net interest income to Rs 86.3 billion.

The bank’s gross non-performing asset (GNPA) ratio was 7.9%, compared to 11.6% last year. The net NPA ratio was 2.1%, compared to 4.1%.

The bank is currently looking forward to raising Rs 35 billion through a qualified institutional placement (QIP).

For the coming quarter, it looks forward to expanding its customer base and accelerating the corporate credit cycle.

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#5 Indian Hotels Company

Last on the list is the Indian Hotels Company.

The share increased by more than 75% in 2022 due to strong demand in the leisure segment and boosted by more business travel.

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Despite a rate hike by several banks, major hotels such as Indian Hotels have not seen a drop in revenue.

It is one of South Asia’s oldest and largest hospitality chains and is home to the iconic Taj brand.

With a strong heritage and rich legacy, IHCL has maintained a leadership position in the global luxury hospitality landscape over the past century.

The company posted revenue of Rs 12.3 billion for the quarter of September 2022, up 69.2% year-on-year, and a net profit of Rs 1.3 billion against the net loss of Rs 1.1 billion in the same period last year.

The strong performance was driven by a robust pipeline in the domestic market, which recorded a growth rate of more than 20% in India compared to pre-Covid levels. Properties in the US, UK, Dubai and Maldives also showed a strong recovery.

Building on the vision, IHCL unveiled Ahvaan 2025 with plans to build a profitable cohort of 300 hotels by leveraging its brand equity in line with high-growth segments.

The goal is to achieve a share contribution of 35% EBITDA (earnings before interest, depreciation and amortization) from new businesses and management fees by the end of fiscal year 2025-2026.

Also, Ama Stays and Trails, one of the company’s previous initiatives, looks set to expand to 500 properties by fiscal year 2026.

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Should you invest in mid-cap stocks?

Investing in mid-cap companies is gaining in popularity among investors.

Since small cap stocks are volatile and large cap stocks grow relatively slowly, mid cap stocks offer the best of both worlds as they are less volatile than small caps and have more growth potential than large cap companies.

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

But you should not forget that these companies have had their fair share of volatile periods.

That is why it is important to do thorough research before investing in a company. You should consider all factors, both positive and negative, before investing.

disclaimer: This article is for informationpurposes only. It is not a stock recommendation and should not be treated as suchsuch an.

This article is from Equitymaster.com

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