This week I am introducing two interesting small caps, which
might create huge wealth if everything goes as per plan.
Marksans Pharma: CMP:67.5 TP: 200+ for next 5 years.
Marksans Pharma (MRKS),
post successfully tackling operational and financial issues, has emerged much
stronger and focused, and is now well poised to ride the growth superhighway
over coming years. While the softgel capsules opportunity will be growth lynchpin,
most of the company’s other businesses too will propel surge. Management
expects more approvals, market share gains in launched products and better mix
to boost revenue and profitability. It has guided for 30% plus revenue CAGR and
300-400bps margin surge over FY14-17.
Marksans is Out of the woods,Clocking robust growth. It had a host of
issues (negative net worth, high debt, low profitability, etc.) had cropped up
simultaneously in FY10-12, taking a toll on MRKS’ financial health. However,
management’s focused and tenacious approach helped the company sail through
turbulent times relatively unscathed. As investments have ripened and the
ecosystem for businesses has improved, MRKS has clocked impressive growth/
return metrics over the past 2 years. It delivered 27% / 31% revenue/EBITDA
CAGR over FY11-FY14, net worth has turned positive and debt has plummeted
significantly.
Its well placed to cash in on niche softgel opportunity.Softgel
capsules is an uncrowded segment with healthy margins, and MRKS is one of the
potent emerging global players in this market. While US is the key driver, the
company’s current softgel business will ramp up further as approvals start
flowing in across the globe. The US softgel market is estimated at USD8bn+, of
which MRKS is eyeing 90% (including RX & OTC segments). With single product
approval (Ibuprofen softgel), the company generates USD12mn revenue in the US.
Additionally, it has a healthy pipeline (10 ANDAs awaiting approval) and more
ANDA approvals are bound to spur growth.
Marksans has almost zero debt, whatever debt company has planned
to clear soon. As per analysis, sales of Marksans pharma likely to increase three to four times
in next 2-3 years.
T&D Power systems: CMP :430 TP: 1000+ in next 3-4 years.
TDPS is small emerging company which has
global presence in the turbine business and power generators .TDPS cash rich
and zero debt with 98% of the shares with promoters, Institutional investor and
FIIs. Only 2% is with retail.
It also TDPS is all set to reap the benefits
of its focus on international business and the expanded capacities in the next
few years. With its tie-ups with OEMs like GE and Voith Hydro, I expect a
substantial ramp up in revenues (17% CAGR) and profitability (60% CAGR) over
FY14-17E. I expect the improvement in profits to translate into higher dividend
payouts given TDPS' low capex requirements and zero net debt.
In compared to other companies of same
segment, TDPS’s balance sheet and capex plan is in much better shape.
