In general it’s difficult to find companies from sectors where the sector itself is growing at 20% + on annualized basis and if you are able to find the right company from the concerned sector, then you probably have a long-term winner at hand.
Recently we shared details on one such good company with our Alpha and Alpha + members and would like to share with you details on the same.
As mentioned above, the sector has been growing at 20% since the last 5-6 years and most importantly the company we are referring to has reported ~30% CAGR over the last 3, 5 and 10 years cycles. Further, the company operates in a simple sector which is not prone to major technological innovations and thus we expect the growth rate to be maintained over the foreseeable future.
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Details on Latest Alpha stock
In general we look for the following traits in the stocks of companies we invest and recommend: Companies that have the ability to generate high returns on capital employed because of the presence of a sustainable moat; can grow earnings at a rapid pace without requiring access to outside capital markets and are run by able, honest, and owner-oriented managers. Also, the company should have a very simple structure and should be easy to understand.
For the month of Apr’15 we have been able to recommend to our members one such stock that incorporates all of the above mentioned traits.
Product profile – The stock that has been chosen for recommendation deals in products that we are likely to find ourselves in contact with on almost daily basis. The products of the company are very affordable and do not hurt the wallets of the consumers while the strong brand equity of the company enables it to command certain degree of pricing power.
In order to make the most of its strong brand recall, the management is also planning to launch a wider range of products to cater to different set of customers outside its current target group.
Geographical expansion – The smaller companies have the advantage of small base and wide scope for geographical expansion. As was witnessed in the case of Atul Auto, we expect strong growth momentum to continue in the case of our Apr’15 recommendation as its distribution penetration on pan-India basis is still low and the management has already been working on gradual expansion into unchartered territories along with deeper penetration of existing strongholds.
Industry Outlook – The Company operates in a fast growing sector with more than 40-45% of the market being accounted for by unregulated players which are gradually losing market share to branded players.
As per one of the reports by CRISIL, the Tier-2 players (including our Apr’15 recommendation) are growing at a much faster pace in comparison to Tier-1 companies and have already increased their market share by 1000 basis points and another 1000 basis points increase in market share is expected over the next few years.
Operating Performance – A company may operate in a fast growing sector, it may have high brand re-call and may have strong future outlook, however we strongly believe in the consistency of the past performance and the current strength of the balance sheet to support the future growth.
As far as Apr’15 recommendation is concerned, the performance of the company has been excellent over the last 5 and 10 years cycles. The company has consistently delivered sales and profits growth in excess of 25% and has also maintained return on investments in the range of 22-25%.
10 years Sales growth – ~31% + CAGR
10 years PAT growth – ~30% + CAGR
5 years Sales growth – ~30% + CAGR
5 years PAT growth – ~35% + CAGR
Avg. Return on equity – 25% +
Net Debt equity ratio – < 0.5
Cash flows from operations – Better than reported profits
Dividend payout – 20% +
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Use of the information herein is at one’s own risk. This is not an offer to sell or solicitation to buy any securities and Mittal Consulting/Katalyst Wealth will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Before acting on any recommendation, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. All content and information is provided on an “As is” basis by Mittal Consulting/Katalyst Wealth. Information herein is believed to be reliable but Mittal Consulting/Katalyst Wealth does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Mittal Consulting, its proprietor may hold shares in the company/ies discussed herein. The performance data quoted represents past performance and does not guarantee future results