Infra spends aid small cap pipe makers generate big returns

Among the small caps, Rama Steel Tubes has generated the highest return of 167%, followed by Hi-Tech Pipes (71%) and JTL Industries (45%) while midcap stock APL Apollo Tubes has returned almost 25% over the same period. The small caps robust returns come in the wake of the Nifty Small Cap 100 giving a negative 12% return in the past one year. APL Apollo’s return eclipses that of the Nifty Midcap 100’s modest 6.4% return.

“These companies have shown strong fundamental performance and have benefited immensely from the Prime Minister’s pet project the Har Ghar Jal and the infrastructure spending of the government across the country,” said Jyotivardhan Jaipuria, MD, Valentis Advisors, which specializes in identifying small caps performers across industry. “Their outlook remains robust after the strong performance.”

Adds SK Joshi, ED, Khambatta Securities, “These companies are benefiting from the thrust on infra development and hold promise in terms of performance and generating strong investor returns.”

Indeed, some of these companies have attracted institutional interest in the past one year, thanks to their index beating performance. Kotak Life Insurance Co purchased over 9,00,000 shares worth almost ₹24 crore in JTL Industries on 18 November in a bulk deal on BSE, while Quant MF purchased 2,00,000 shares in Hi–Tech Pipes for ₹17.6 crore in a bulk deal on NSE.

“We stay positive view on Hi-Tech Pipes with an upside of 20% (market price was then ₹606) rolling forward our valuation multiple to September 2024 earnings,” said Sharekhan by BNP Paribas in a note on 16 November after the Q2 performance of the company.

“Consolidated revenues beat estimates in Q2FY2023, led by solid volume growth. EBITDA/tonne was marginally ahead of estimate. Adjusting for one-time provision, net profit was ahead of estimates.”

“Notwithstanding the near term challenges to margins on account of declining input prices, we remain constructive on APAT’s medium to long term growth prospects, given its market leadership, strong distribution reach, constant focus on product innovation,” said brokerage Dhanki Securities in a note in November post APL Apollo’s Q2 numbers.