Good Mid cap stocks to consider investing

Companies whose share prices had fallen by at least 15 per cent, almost twice the fall in the Sensex as compared to its May 11 peak, and whose valuations looked attractive were considered. This, to some extent, helps in keeping a tab on the price one pays for a stock -- basically to ensure that one does not end up paying a huge premium for growth.

Quantitatively, key financial parameters like debt-equity ratio (we considered companies for which this figure was less then one), return on capital employed (greater than 15 per cent) and positive cash-flow from operating activities were analysed. (In Dishman's case, the actual debt-equity ratio is higher than one since it raised FCCB of $50 million last year for expansion and acquisition. A good part of that -- Rs 124 crore -- was kept in cash till March 2006, which when adjusted for, gives a net debt-equity ratio of less than one.)

Finally, only companies with good growth prospects were considered. Given below are five companies from the mid-cap category which we believe have the ability to grow at a fast clip and the potential to deliver healthy returns.

1. Blue Star

It is India's largest central air-conditioning and commercial refrigeration company, well-known for delivering quality products, and has a six-decade-long history.

The company has a network of 23 offices, four modern manufacturing facilities and around 1,800 employees. Blue Star supplies large central air-conditioning plants, packaged air-conditioning systems, split and window air-conditioners, cold storages and water coolers for commercial and residential use.

The boom in sectors like IT and IT enabled services, healthcare, entertainment, retail, hospitality, telecom, power and banking has created a strong demand for Blue Star products in the commercial air-conditioning space. The prospects are good too, as this segment is expected to grow at over 20 per cent, at least over the next few years.

2. Clariant Chemicals

Clariant Chemicals (India), earlier Colour-Chem, now represents the merged operations of the five companies of Switzerland-based Clariant in India. A specialty chemicals company, Clariant Chemicals enjoys dominant positions in pigments (used by manufacturers of paints, printing inks, plastic, rubber, detergents and cosmetics, among others), dyes and speciality chemicals (used to manufacture textiles, leather, pape and, personal care products) and diketene-based intermediates.

Dyes and speciality chemicals account for 57 per cent of revenues, the other two categories 41 per cent and the balance comes from master-batches. The company's strategy of working closely with its customers and its ability to innovate and deliver new products that meet their requirements has helped it achieve a dominant position.

3. Dishman Pharmaceuticals

This Ahmedabad-based company manufactures intermediates, APIs (active pharmaceutical ingredient -- the ingredient with the curative property) and quaternary compounds (Quats, catalyst compounds).

Since 1998, Dishman has diversified its interests to the contract research and manufacturing (CRAM) sector. Within a span of five years, Dishman has achieved several CRAM projects and is a contract manufacture outsourcing organisation. As a business strategy, Dishman typically establishes relationships with MNCs through sales of low-margin Quats and later tries to move up the value chain by entering into high-margin CRAM for intermediates and APIs.

4. Kirloskar Oil Engines (KOE)

Even after 60 years KOE is going strong and figures among the largest manufacturers of engines in the country with a broad product portfolio -- engine capacity ranges from 3 horsepower (HP) to 1,100 HP.

The company's engine business can be categorised into three separate strategic business units that service different market segments. While the smaller engine segment (3 HP up to 30 HP) caters primarily to the agricultural segment, the medium engine segment (30 HP up to 600 HP) addresses the industrial, tractor and power generation industries.

5. Taj GVK

It is no secret that the Indian hospitality sector has been booming over the last two years, occupancy levels have been rising and room rates have been moving up year after year. For Taj GVK, which operates three hotels in the rapidly growing Hyderabad, the boom has been even better.

Revenues have grown at a scorching pace from Rs 70 crore in 2002-03 to Rs 188.7 crore (in 2005-06), while net profit has jumped from a measly Rs 9.2 crore to Rs 46.2 crore during the same period.

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