Why Mayuresh Joshi is betting on these 3 midcaps

Ramco Cement and Sadbhav Engineering are top favourites, says Mayuresh Joshi, Fund Manager, Angel Broking. In an interview with ETNOW, Joshi said he also continues to like Dilip Buildcon in the road space.

Edited excerpts:

HDFC AMC declined 6.5% after taking Rs 500-crore Essel group exposure in its books. What do you make of the corrective move and is this a buy on dips?
The market conditions at this point of time are very volatile and susceptible to the worst case scenario. The reaction that the stock got was probably more on expectation that if the deal does not come through. the hit probably has to be taken on the books.

In terms of investor approach, what the AMC has done is the very prudent way of doing it but a large element of the apprehensions that the street has got at this point of time is what is bearing on the stock at this point of time. Everything hinges on how the Essel Group is able to structure a deal over the next few weeks.

As the timeline looms large, if they are able to successfully close it, it is a matter of time before the reversal happens. It is an if and but scenario and the market reaction was an obvious one. But I think the investors who own the stock should hold on but they should probably be tracking this news over the next few weeks.

What are your top stocks?
Not just for today, we are looking at certain pockets over a longer period of time on the basis of an optimistic perspective of earnings. We expect these sectors and stocks to probably grow at a very compounded and a gradual base going forward.

We continue to like midcap cement and within it Ramco Cement. A clear disclaimer we own this stock in our funds. They are in the phase of capacity expansion close to 20 million odd tonnes. You are probably looking at a lot of capacity coming through. You are also probably expected to see the EBITDA per tonne improve,. The volume-led leverage on their balance sheet can be very evident.

The second stock is within the road space. It is Sadbhav Engineering. It has a very strong order book. You have also probably got the receivable debts which are a tad bit high and are expected to come down.

Let us talk about a couple of names which has seen a lot of up and down with regards to regulatory hurdles but there is still a hope of the sector picking up and get a boost on the back of reforms. What are the good companies to get into at this point?
Last quarter, the road contractors got hampered by elections. The mobilisation advances could not pass through. So, the mobilisation advances for a few of their projects are expected to come through in the next few weeks on the next quarter itself.

The second element is the selective bidding that a lot of these players are going for at this point of time, specifically in terms of the hybrid annuity model projects. The IRRs thereof are better off compared to the normal BoT or EPC projects at hand.

The third element is the availability of land to start the project. A few of the players have availability to the extent of 70-75%. Further acquisition will start taking place and as government and the NHAI takes steps to address these issues before handing over these projects in totality. The execution has greatly improved over the last few quarters and is expected to stay robust over the next few quarters. There will be exemption over the next quarter or two with monsoons at play.

The general consensus here is that there should be very steady earnings improvement. Order books have been extremely strong for the sector as a whole and there have been selective bidding on a few of the projects at large.

Receivability is something to monitor as well and a few of the companies have reported better receivabilities at this point of time. Within this group itself, we are still holding on to stocks like Dilip Buildcon at this point of time where our belief is that the earnings momentum should improve going forward. Very strong order book and improved execution should reflect very clearly in terms of strong IRRs getting reported for a whole host of their projects.

The second stock would also be Sadbhav Engineering which we partly own and there again, the same parameters probably play out so I think a couple of players is something that we are comfortable holding on to.