COVID-proof stocks in the mid-cap category

COVID-proof stocks in the mid-cap category

The economy has considerably slowed down because of the COVID 19 pandemic. Economists and rating agencies are forecasting a contraction in the GDP contraction in the next fiscal year, followed by uncertain recovery in 2022. Despite all this gloom and doom, stock markets all over the world have managed to make a comeback from their lows of March, buoyed by the liquidity infusion by the central bank. From April 1, 2020; the SENSEX is up by around 28 percent; and swift economic recovery is expected in the days to come. 

Here are mid-cap companies that were growly steadily before the pandemic struck. And as and when the economy recovers, these companies would benefit even more. 

From an extensive list of mid-cap stocks, two companies are COVID proof. The first company is benefiting from a long-term trend in this sector that has favored the domestic chemical industry. The other company, on the other hand, belongs to the defensive sector. 

Deepak Nitrite

For the past few years, chemical companies in the country have been on a roll. This started in 2015-16 when China, which stands for 35 percent of the global chemical industry, started to impose restrictions on its chemical companies because of environmental concerns. The US-China trade war followed next, and this further impacted the Chinese exports to western markets. The global pandemic is now also causing a switch in the global chemical supply chain. All this is greatly benefiting our country. 

In the past year, the stocks of Deepak Nitrite have doubled; and at present, it is trading at a p/E of 13,8; in comparison with its give year median P/E of 16.

The company also managed to increase its sales by 45 percent YoY during the last three years; and net profit during the same period grew by around 85 percent. From 12 percent, the operating margin also zoomed to 25 percent during this time. 

Now the company is on an extended Capex cycle. It completed its CAPEX of INR 160 crores in the past five years till March 2020; and is now looking at expanding its acetone and phenol business. 

The company also brought down its debt to equity from 1.0 in 2017 to 0.7 in 2020. 

Jubilant Life Sciences

During the ongoing pandemic, Indian pharma companies are getting a shot in the arm. Pharma companies are now becoming a haven for investors; and the government is implementing a lot of reform measures to decrease the import of pharma raw materials from China. An expected switch in the global supply chain is making the way for growth path for this sector. 

Jubilant Life Sciences is benefitting greatly from these structural changes. Recently, it signed a licensing agreement with the US-based pharma major Gilead Sciences to manufacture and sell Gilead’s investigational drug Remdesivir. This drug could be a potential therapy for COVID 19. 

Furthermore, the company is also planning to launch Ruby-Fill, its flagship product, in Europe in FY21. 

In the last three months, stock prices have doubled. In the last three years, until March 2020; the company grew revenues and net profits by 15 percent YoY. The company also reduced debt to equity to 0.8 in March 2020 from 1.1 in March 2017; and maintained a healthy ROE of 17 percent. 

With a 1400 crore cash in the balance-sheet as on March 2020, the company also has the flexibility to tackle COVID led uncertainties. And the company is now demerging its low-margin life sciences business as a distinct entity. 

Presently, its stock is trading at a P/E of 13.7; as compared to the five year median of 16.3.