For Apr’14 we have released long/medium term investment recommendation for our Alpha and Alpha + members and would like to share with you details on the same especially if you like to invest in high quality leading companies run by good management.
We believe some high quality stocks (from diverse segments) that can grow at 20-25% on annualized basis should be part of one’s long term core portfolio and as you will realize on reading the below details, this (Name of the company – D*****a) is one of those companies.
Details on Apr’14 alpha recommendation
The company that has been chosen for Apr’14 recommendation is the leading company in India in its area of operations and commands more than 60% market share in India. Globally too, the company commands more than 10% market share, a feat very few Indian companies have been able to achieve.
We like companies that have leadership position or are amongst the top 3 in their respective industries as it is reflective of the quality of management, their ability to outgrow competition and do things differently. With leadership position the companies also get advantages of scale, brand recognition, customer stickiness, etc.
Our stock picks like Cera (445% return), Acrysil (210% return), Amara Raja (175% return), Bajaj Corp (80% return), Supreme Industries (72% return), Symphony (110%), etc are the leading companies in their respective industries and the stocks have delivered huge returns since recommendation.
What is the growth outlook for the Apr’14 recommendation? In the last 2-3 years the company has made in-roads into a new segment of customers where the size of the opportunity is more than 4 times the size of the market it is currently catering to.
As a result, the company is experiencing very good demand for its products and has therefore started with the process of expanding its capacity by more than 100%. The first phase of the expansion has already been completed and the same has resulted in 30% expansion in capacity and the next two phases are expected to be completed by end of 2015.
The above expansion is being funded largely out of internal accruals as at the moment the company is debt free with very good reserves of surplus cash.
Operating performance – In the above sections we have mentioned about Apr’14 recommendation being the largest company in its area of operations and also talked about the advantages enjoyed by the leading companies. Well, let’s look at if the same has transformed into operating performance or not:
- 6 years sales growth – 20% + CAGR
- 6 years profit growth – 19% + CAGR
- 6 years avg. Return on Equity – 20% +
- 6 years avg. CFO – In line with reported net profit
- Debt equity ratio – 0
- Surplus cash – 5% of the current market cap of the company
- Dividend payout – 15% +
- Promoter holding – 50% +
Despite such strong credentials and growth outlook the stock is available at reasonable valuations of 11.7 times profit before tax.