Best Midcap Stocks with High ROE: If an Investor were given a choice to pick just One Ratio, when picking a stock, What do you think is the best ratio? The ratio, of course, has to be more specific to the returns generated to the shareholder, than anything else. If you haven’t guessed it already, the ratio is none other than the Return on Equity.
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Best Midcap Stocks with High ROE
In today’s article, we will be looking at some fundamentally strong stocks maintaining a lean balance of shareholder’s equity & consistently growing profits. We will be picking out high ROE stocks from the mid-cap category, so you can discover Companies with proven track records coupled with exceptional returns.
Best Midcap Stocks with High ROE #1 – Angel One
Angel One (previously known as Angel Broking Ltd) was established in 1996. The Company is predominantly a broker registered with the NSE, BSE & MCX. It has a very easy-to-use fintech platform that, facilitates investing & trading activities for its clients. Customers can trade in cash-delivery, intraday, Futures, and options in Equity, Commodity, and currency.
Angel also offers an API platform called Smart API, which helps users (Startups and advisory Firms) to execute real-time trading activities and develop end-to-end services for their clients. It also has NXT, which is a digital partner platform designed for Authorized Persons (Sub-Brokers) to acquire clients and help them in their trading activities.
As of FY23, Angel One has a 12% market dominance in terms of client demat accounts. In terms of active clients, it has a 13.1% active market share. The Company is majorly dependent on its Brokerage & Depository Service platform, which generates ~81% of its revenues.
The Company also earns a bit from its third-party product offering by partnering with Smallcase, Streak, Sensibull, and Vested.
- Smallcase: A platform that offers thematic investment options to its clients with a portfolio of stocks or ETFs.
- Streak: The Platform offers clients the tools to create trading strategies and backtest them on the Angel One platform.
- Sensibull: This platform offers simple strategies in Options Trading for newbies to trade with.
- Vested: It is a Registered Investment Adviser (RIA) with the US SEC, which creates a platform for Indian Investors to invest in US Equities.
Angel One grew its revenue by over 32% from Rs. 2297 Cr in FY22 to Rs. 3021 Cr in FY23. Interest Income and Income from Brokerage & Commission increased by 42% & 31% respectively. Net Profits of the Company soared by 42%, from 625 Cr in FY22 to Rs. 890 Cr in FY23.
The Company reported a Return on Equity of 47.5% in FY23. Due to the nature of its business, the Company has higher fixed costs than variable expenses. This leads it to increase its Operating Margins Year-on-Year as it continues to expand its market share.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹3,071.85 | Market Cap (Cr.) | 25,744 |
| EPS | ₹106.88 | Stock P/E | 21.00 |
| RoE | 48.45% | RoCE | 44.00% |
| Promoter Holding (%) | 38.30% | FII Holding (%) | 16.80% |
| Debt to Equity | 0.37 | Price to Book Value | 8.22 |
| Operating Profit Margin (%) | 39.71% | Net Profit Margin (%) | 29.66% |
Best Midcap Stocks with High ROE #2 – Page Industries
Page Industries Ltd was founded in 1994, in Bengaluru. The Company is an exclusive franchisee of Jockey International in India, Sri Lanka, Nepal, Bangladesh, United Arab Emirates, and other Middle Eastern countries. In 2011, it partnered up with Speedo to sell its products in India & Sri Lanka.
The Company currently retains the spot as a leader in the Premium Innerwear and Athleisure market. It has 1289 Exclusive brand outlets (EBO) & 3062 Large Format Stores (Large stores where multiple brands are retailed).
Under the Jockey brand, the Company sells Men, women & kids in Innerwear. It also sells Thermals as well as outerwear athleisure and fitness clothing. Apart from clothing, they also sell accessories like caps, face masks, towels & handkerchiefs.
The Speedo brand is the leading player in swimwear apparel. Page sells all forms of swimwear, swim active apparel as well as other swimming equipment such as goggles, caps & floaters. The brand has 180+ EBOs and 1230 stores present across the Page Industry network.
Page Industries saw its revenue soar by over 23%, from Rs. 3907 Cr in FY22 to Rs. 4803 Cr in FY23. However, Net Profits failed to maintain the rate of revenue growth, increasing by just 6% from Rs. 537 Cr in FY22 to Rs. 571 Cr in FY23. The fall in profits was due to a 140 Bps increase in raw material costs.
The Company however enjoys a very high Return on Equity of 46.45%, due to its efficient Corporate Structure. This is possible as the Company pays out ~55% of its earnings as dividends to its shareholders.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | 37,795.3 | Market Cap (Cr.) | 41,510 |
| EPS | ₹512.15 | Stock P/E | 80.9 |
| RoE | 46.45% | RoCE | 50.00% |
| Promoter Holding (%) | 45.10% | FII Holding (%) | 22.00% |
| Debt to Equity | 0.18 | Price to Book Value | 30.9 |
| Operating Profit Margin (%) | 16.69% | Net Profit Margin (%) | 11.93% |
Best Midcap Stocks with High ROE #3 – ICICI Securities
ICICI Bank incorporated ICICI Securities in 1995, launching its electronic brokerage platform under the name ICICIdirect.com The Brokerage firm later ventured into offering Mutual Funds, Government of India Bonds, and the Buy Today Sell Tomorrow feature.
From 2005-2009, the Company ventured into Active Trader Services & also offered online currency derivates. It also set up its Private Wealth Management Services, catering to High Net-Worth Investors.
The Company remained a full-service brokerage until 2020 and only then, it converted itself into a discount brokerage offering via ICICI Direct neo – a zero Brokerage Plan. The Company also began to allow Indian Investors to trade in the US, UK, Germany, Japan, and Singapore markets.
As of FY23, the Company had a retail client base of 91 Lakh customers, out of which it had 23 Lakh active clients as per NSE. ICICI has also partnered up with over 39 AMC customers to sell their Mutual Fund Products.
The Company’s revenue remained muted last year, falling by 0.38% from Rs. 3438 Cr in FY22 to Rs. 3425 Cr in FY23. This was due to a fall in earnings from its Brokerage & other broker-related services which fell by 12.5%. Net Profits took a bigger hit, falling by 19%, from Rs. 1383 Cr in FY22 to Rs. 1118 Cr in FY23.
As of FY23, ICICI Securities reported a Return on Equity of 42%. This is due to the Company maintaining Net Profit margins at ~33%. However, Its RoCE does not look good when compared with RoE, coming around just 18.1%. This is because the broker is highly leveraged with a Debt to Equity of 3.26x.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹678.9 | Market Cap (Cr.) | ₹21,983 |
| EPS | ₹34.62 | Stock P/E | 16.7 |
| RoE | 42.93% | RoCE | 18.10% |
| Promoter Holding (%) | 74.80% | FII Holding (%) | 10.10% |
| Debt to Equity | 3.26 | Price to Book Value | 6.29 |
| Operating Profit Margin (%) | 43.95% | Net Profit Margin (%) | 32.72% |
Best Midcap Stocks with High ROE #4 – Tata Elxsi
Tata Elxsi is one of the largest Companies of the Tata Group, a global leader in design and technology services across industries like Automotive, Broadcast, Communications, Healthcare, and Transportation. The Company commenced its business in Bangalore on 5th May 1989.
Tata Elxsi works closely with its clients to create customized products for their digital transformation. These products integrate digital technologies such as IoT (Internet of Things), Cloud, Mobility, Virtual Reality, and Artificial Intelligence.
The Company has a geographical presence in over 16 countries, specializing in Automotive, Broadcast & Communication, and Healthcare verticals. It has over 30+ years of providing transformative solutions, employing around 11,000+ employees across the globe.
Tata Elxsi makes 42% of its revenues from the United States, while 36% are from the European markets. Collectively, the Company earns nearly 83% of its revenues from its international business.
The Company was able to grow its revenue from Rs. 2525 Cr in FY22 to Rs. 3219 Cr in FY23, growing by 28%. At the same time, its Net Profits rose by an even better 37%, from Rs. 550 Cr in FY22 to Rs. 755 Cr in FY23. It reported a RoE of 40.97%, which was possible as the Company keeps Dividend payout as high as 50%, thereby maintaining lesser equity.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹8,362 | Market Cap (Cr.) | ₹47,579.00 |
| EPS | ₹121.26 | Stock P/E | 60.6 |
| RoE | 40.97% | RoCE | 42.05% |
| Promoter Holding (%) | 43.90% | FII Holding (%) | 13.80% |
| Debt to Equity | 0.09 | Price to Book Value | 22.7 |
| Operating Profit Margin (%) | 29.90% | Net Profit Margin (%) | 24.01% |
Best Midcap Stocks with High ROE #5 – Motherson Sumi Wiring (MSWI)
Motherson Sumi Wiring is one of India’s leading Auto Ancillary segment players, providing wiring harness solutions to Original Equipment Manufacturers (OEMs) like Maruti Suzuki. Headquartered in Noida, the Company has about 23 manufacturing facilities across the country, employing approximately 40K+ people.
MSWI was established because of a demerger of the wiring harness business from its parent company Samvardhana Motherson International (SAMIL). Before the demerger, the parent Company was called Motherson Sumi Systems Limited (MSSL). The demerger is meant to help the Company streamline operations specific to the wiring segment.
The parent company of MSWI was established as a Joint Venture with Sumitomo Wiring Systems (SWS), Japan in 1986. It began its journey manufacturing T-Coupler for Maruti’s cars. The Company listed itself on India’s stock Exchanges in 1993.
MSWI derives over 58% of its revenues from the Passenger Vehicles segment, followed by the Commercial Vehicles & 2-wheeler segment bringing in 12% each. Off-road vehicles like tractors bring in an additional 7% of revenue.
Motherson Sumi Wiring boosted its revenue by 25%, from Rs. 5635 in FY22 to Rs. 7057 Cr in FY23. At the same time, their Net Profits soared by 19%, from Rs. 410 Cr in FY22 to Rs. 387 Cr in FY23. The Company maintains a high Return on Equity of 40%.
| Particulars | Amount | Particulars | Amount |
|---|---|---|---|
| CMP | ₹60.60 | Market Cap (Cr.) | ₹26,814.00 |
| EPS | ₹1.10 | Stock P/E (TTM) | 55.5 |
| RoE | 39.9% | RoCE | 43.50% |
| Promoter Holding (%) | 61.70% | FII Holding (%) | 11.10% |
| Debt to Equity | 0.28 | Price to Book Value | 20.2 |
| Operating Profit Margin (%) | 10.50% | Net Profit Margin (%) | 6.90% |
List of Top Midcap Stocks with High ROE
The list below puts together 10 List of Midcap Stocks with high Return on Equity.
| Name | CMP | Mkt Cap | ROE (%) |
|---|---|---|---|
| Angel One | 3,067.05 | ₹25,744 | 48.45% |
| Page Industries | ₹37,800 | ₹41,510 | 46.45% |
| ICICI Securities | ₹679.4 | ₹21,983 | 42.93% |
| Tata Exlsi | ₹8,365.25 | ₹47,579.00 | 40.97% |
| Motherson Sumi Wiring India | ₹60.60 | ₹26,814.00 | 40.00% |
| Pfizer | ₹3,923.00 | ₹17,948.00 | 38.71% |
| Abott India | ₹22,543.00 | ₹47,903.00 | 37.45% |
| Solar Industries | ₹5,308.00 | ₹48,034.00 | 35.86% |
| Gillette India | ₹6,178.00 | ₹20,135.00 | 35.54% |
| Sanofi India | ₹7,410.00 | ₹7,065.00 | 35.45% |
Conclusion
The importance of Return on Equity can be understated by Investors. We get so involved with measuring the Margins of the business, its price, or its market cap that we forget to value what a shareholder might earn from this very business. This ratio has always remained Warren Buffet’s, who compared ROEs of Companies over 5-10-year periods.
Most Companies start strong, growing their earnings in the double-digit range, but as these earnings are retained by the business, they add up as Shareholder’s Equity. Now this money must be either used in the business or returned to investors in case the outlook does not look that strong.
Failing to do so is what causes a drop in Return on Equity. However, the Companies from today’s list have made sure to maintain the perfect balance between rewarding shareholders as well as retaining earnings.
So, do you give priority to Return on Equity? If not, then which is your favorite ratio when it comes to comparing Companies?
Written by Nasir Hussain
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