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Apollo Hospital Enterprise
Hathway Cable
Havells
HT Media
Jai Balaji
TV18 Broadcast
Jagran Prakashan
Jindal Saw
Monnet Ispat
Motherson Sumi
Petronet LNG
Pidilite Industries
Sintex Industries
Tata Chemicals
Triveni Engineering
Tube Investments
United Phosphorus
Voltas
VIP Industries
Welspun Corp
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How do we pick stocks ?
Our approach is to keep screening about 150-200 stocks top down on fundamental/valuation
parameters, meet companies and then pick up bottom up ideas. These ideas can be:
1. Secular themes in agri, consumption, healthcare, industrials.
2. Market leaders in small industries, sometimes with strong brands
3. Special Situations - Turnaround stories, value unlocking, regulatory catalysts, SOTP
4. Short-term positions where we see industry cycle bottoming out and stocks cheap
5. Huge resources like coal and cheap stocks
Stick with winners
•Which companies displayed earnings resilience in the last downcycle?
We analyzed the financials of our 33-stock mid-cap coverage during the last macro downcycle
(Q3 FY09-Q2 FY10). We find the most resilient earnings for companies which are: 1) market
leaders with a strong/niche brand (Exide, Havells, Emami); 2) exposed to non-cyclical demand
like agri/healthcare/city-gas (Coromandel, Apollo Hospitals); and 3) present in nascent highgrowth
markets like Dish TV.
•How did our coverage mid-cap stocks perform in the last downcycle?
Most of the companies displaying earnings resilience outperformed the Sensex and BSE Mid-
Cap Index over September 2008 to March 2009. However, all these stocks were down on an
absolute basis; the Sensex/BSE Mid-Cap Index was down 33%/49%.
•2011 YTD performance of our mid-cap stocks selectively impressive
2011 YTD stock price performance also continues to be above trend, arguably also because of
some macro uncertainty. The index of our mid-cap stocks coverage has outperformed the
Sensex/BSE Mid-cap Index by 8%/12% but performance has been much dispersed.
•Conclusion—continue to stick with winners
We prefer to stick with winners who have displayed resilience in earnings and stock price in the
last downcycle and have continued to do so recently.
—Top 10 mid-cap ideas: Coromandel, Exide, Havells, VIP, Triveni, Motherson, Emami, Dish TV,
DB Corp, Pidilite.
— Other ideas: Carborundum, Chola Finance, Tube Investments, Jai Balaji
What are companies saying ?
•We hosted senior management of 27 companies in meetings with about 100 investors at UBS’s
first India Mid-Cap Conference.
•Most popular company meetings (in terms of number of investors met) were Coromandel,
Exide, Havells, Motherson, Pidilite, Apollo Tyres, Triveni, TI, Chola.
•Barring one, all companies’ management exuded a confident outlook for FY12 as well as over
the medium term, despite concerns on macro environment.
•They remain confident on maintaining margins in FY12, despite input price pressures,
indicating confidence in pricing power.
•Expansion projects are on track, so is turnaround/restructuring in some cases
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