We take a look at mid-caps that have become large-caps, despite plummeting markets
22-Apr-2009 •Research Desk
When there is carnage all around, seldom does anything come out unscathed. But some do, and some even come out better than before. Well, the past year and the few months of this year have been nothing short of carnage for the Indian capital markets. The dwindling markets have unsurprisingly led to the market capitalization of most companies to come down, mainly due to a fall in the market value of their shares.
The total capitalization of all stocks listed on the BSE has also witnessed a massive drop from around Rs 66 trillion during its peak in December 2007 to Rs 28 trillion in December 2008, a whopping 57 per cent fall. It is clearly evident that the entire market has been witnessing a decline in its market cap.
Amidst such a situation, when stocks are moving down the ladder in terms of capitalization, we set out to look for the unscathed: companies that have forced their way upwards or have been able to maintain their market capitalization.
Market capitalization is the product of outstanding shares of the company with its market price. In other words, it is the value of the outstanding equity of a company. Hence, a change in either of the two constituents can alter the market capitalization of a company.
At Value Research, we classify stocks on the basis of their market capitalization into three categories: large, mid and small. The stocks that account for the top 70 per cent of the total market cap of the BSE are classified as large-caps, those between 70 and 90 per cent are classified as mid-caps and the rest are classified as small-caps.
In our search for the unscathed, we came across six stocks that have moved up from the mid-cap space to the large-cap space. These are the stocks that stood tall when the market was battered by the bears. Out of these, two stocks have witnessed a rise in their market cap while four have seen their market capitalisation drop. These four have managed to climb the capitalization ladder, and are in our list, due to other large-caps shedding off their market cap.
Buoyed by a consistent domestic performance and a sharp rise in formulations exports, the company has managed to climb up the capitalization ladder. Its unique model of partnering with generic firms overseas instead of competing with them in their home markets makes its business less risky and protects margins as well.
It has reported the highest rise in market cap as per our selection. This company is an undisputed leader in its industry. It has performed better than its peers with a small decline as compared to the industry average. With a fall in raw material prices and excise duty cuts, the stock can well have a brighter future.
The stock has witnessed a decline in its market cap, but has emerged as a large-cap offering in turbulent times. A huge fall in the price of crude oil brought good news for the company. But price cuts by the government have put a pressure on its margins. The stock still remains fairly valued.
The company has managed to grow its net sales by 13.5 per cent on a y-o-y basis in Q3FY09. While its auto segment has witnessed a decline, its non-auto businesses continued to clock strong growth. The company, being one of the key suppliers for Tata's Nano, has been using its downscaling experience of Nano to expand its tech footprint in the ultra low-cost car business. With investments in new and innovative technologies, the company seems to be headed towards a good long-term growth.
It has smartly managed the downturn and has posted robust growth. It has reported an increase in its sales, earnings growth as well as EBITDA margins. The company has efficiently managed the impact of commodity inflation by hiking prices.
Here's another pharma company that has climbed up the capitalization ladder. Its priority product sales witnessed a modest growth while price controlled products grew at a faster rate, which compensated the shortfall. It has new producsts in pipeline with India specific pricing, which may help it achieve deeper penetration in the Indian market.
Mid to large
- Of the BSE 500 companies, we filtered out those companies that were classified as mid- cap stocks by Value Research as on December 31, 2007.
- We then isolated those companies that were classified as Large-cap by Value Research on February 28, 2009.
- Finally, we got six stocks that went from mid to large-cap organically.