30 Mar “The Secret to Midcap Success: The Stock That Crushed Volatility”
“The Midcap Stock That Kept Climbing: How It Defied Market Volatility”
At a glance, some people may think that the stock market has recently entered a correction. However, in reality, a significant portion of the stock market has been in a bearish phase since November 2021. By examining market breadth, it becomes clear that the number of mid-cap stocks that have experienced a decrease in value is much greater than the number of stocks that have increased in value.
Despite being under pressure for several weeks, there has been little indication of a bounce back in the markets. The recent up moves in global equity markets do not necessarily signal a full recovery. Over the past two months, the market has seen a back-and-forth battle between the bulls and bears, with the bears coming out on top.
This has led to Nifty and volatility becoming synonymous, reflecting the increased level of uncertainty and unpredictability in the market.
In spite of bearish and volatile market conditions, there are certain stocks that have the ability to outperform. There are generally two reasons why some mid-cap stocks may be able to outperform the broader market during bearish and volatile conditions
1. Fundamental developments:
–Some mid-cap stocks may outperform the broader market due to some fundamental developments in the company or sector.
-Positive developments such as strong earnings, new products or services, or secured contracts can drive outperformance.
–These fundamental factors can create a positive sentiment for the company, leading to increased investor demand for the stock.
2. Consolidation after correction:
-Another reason for mid-cap stocks to outperform the market during bearish and volatile conditions is due to consolidation after a correction.
-The stock may have undergone a correction before the bearish trend in the market, making it oversold and undervalued.
-This consolidation period allows the stock to stabilize before attempting to move upward again.
-If the market conditions improve, the oversold and undervalued stock may present an attractive investment opportunity, leading to increased investor demand and outperformance of the broader market.
KEI Ltd is a leading cable manufacturing company in India with a strong market position, healthy financials, and a focus on quality and innovation. While there are some risks associated with the industry, the company is well-positioned to benefit from the expected growth in the cable industry in India. Here are the key details:
1. Business Model: KEI Ltd operates in the manufacturing and marketing of cables and wires, with a strong focus on power cables, instrumentation cables, and building wires. Its primary customers are in the infrastructure, real estate, power, and manufacturing sectors.
2. Financial Performance: KEI Ltd has shown steady revenue growth over the years, with a CAGR of 22.32% over the past five years. The company’s net profit margin has also improved over the years, from 3.12% in FY2017 to 6.79% in FY2021. The company has maintained a healthy debt-to-equity ratio, with debt at 0.3 times the equity.
3. Market Position: KEI Ltd is one of the leading cable manufacturing companies in India, with a strong presence in the power and infrastructure segments. Data suggests that in-house wires’ current market share is ~6%, while cables it has a market share of ~12%. The company has a strong distribution network with over 6,000 dealers and distributors across India.
4. Competitive Advantage: KEI Ltd has a strong brand image in the market due to its focus on quality and innovation. The company has also invested heavily in R&D, which has helped it to introduce new products and maintain its competitive edge.
5. Industry Trends: Cables and wires industry is highly fragmented, but the market share of organized players is expected to grow from 61% in FY2014 to touch 74% in FY2023E. The overall cable industry in India is expected to grow at a CAGR of 16.18% between 2021 and 2026, driven by the increasing demand for power, infrastructure, and real estate. KEI Ltd is well-positioned to benefit from this trend due to its strong market position and product portfolio.
6. Management: KEI Ltd has a strong and experienced management team, with a track record of successfully navigating the industry and driving growth for the company.
Scope in Real Estate Sector: Wires and cables are a crucial component of industrial capital expenditure. In the real estate industry, cables typically account for 3.5-4% of the total expenditure, while in transmission and distribution, the proportion is higher, at 15-25%. Cables in the institutional business have strict qualifying standards due to their long lifetime of at least 25-30 years. KEI has a significant presence in various sectors, indicating vast growth opportunities for the company.
Business Expansion Plan: KEI is focusing on expanding its retail business by increasing its dealer and distribution network, with expectations of 30-35% year-on-year growth in this segment.
Increase in Exports: KEI also anticipates 10-15% year-on-year growth in exports, with a presence in the Middle East, Africa, and Australia, and expanding into Latin America.
An improved product mix, a higher proportion of retail segments and extra high-voltage(EHV) cables, and operating leverage due to volume growth are expected to lead to margin improvement for KEI in the upcoming years.
In terms of valuation, KEI Industries has shown superior 5-year revenue and PAT CAGR compared to its competitors Finolex Cables and Polycab India.
Furthermore, KEI has a strong balance sheet and has achieved a net cash position, with healthy ROE and ROCE at 19% and 23%, respectively. The stock is currently trading at 25 times and 21 times its estimated earnings per share for FY2024 and FY2025, respectively, and the current PE ratio of 33% and PEG at 1% which shows it is still undervalued.
The primary risks for KEI Ltd include the volatility of raw material prices, competition from other established players in the market, and regulatory changes in the industry.
However, investing in mid-cap stocks can be risky and may not be suitable for all investors, and it is essential to perform due diligence and assess the risk-reward profile before investing.
This electric vehicle EV stock is on the rise to reach an all-time high (ATH) in the current falling market. Here is the reason why…Read More
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies are their own and not that of the website or its management. Aceink.com advises users to check with certified experts before taking any investment decisions.