Stock market is peculiar…sometimes it is too exuberant and offers an asset worth Rs 100 at Rs 120-150 and sometimes it becomes too despondent and offers the same asset worth Rs 100 at Rs 40-60.
Our returns on investments are therefore determined by when we buy the stock: at 40-50 when the market is depressed or 120-150 when the market is elated.
Fortunately for us, the small and mid-cap stocks are in depressed state and a lot of good companies worth 100 are available at 40-50-60 odd levels i.e. really low valuations. What is another good point is that with stable government in place for next 5 years, investor’s confidence is getting restored and small and mid-cap stocks should start outperforming.
Recently, we found one such opportunity wherein a very good asset worth more than Rs 1000 crore is selling at Rs 370 crore in the market. In our view that’s hugely undervalued and we have shared a detailed report with our premium members. The new recommendation is also part of our Model portfolio of stocks.
If you understand the fact that market movements are cyclical and it’s always good to invest during bad times, you shouldn’t miss out on the latest pick and make the most of it by subscribing to Premium Membership. Please register HERE
Its during times like these one sows the seeds of multibagger opportunities in one’s portfolio and we are glad to have identified an investment opportunity which is available at dirt cheap valuations and can deliver 25% + annualized return (with re-rating) over the next 3-4 years.
As on date, we like several points about the company and they are as below:
Expected upturn in cycle – We see the company as a cyclical business and therefore in the case of cyclical businesses it becomes important to buy them when the valuations are actually low and not optically low.
Similarly, if one is able to buy a cyclical stock during low business cycle, then the probability of buying a cyclical stock at high valuation goes down further.
As far as the company is concerned, the last two years were not been so good for the industry with higher input costs and companies finding it difficult to pass on the prices on account of lower capacity utilization.
However, it seems that cycle is turning around as the demand has been improving, utilization rates are improving and the end prices have also started rising.
Debt Free – Even in a cyclical industry, there are efficient capital allocators and we like such companies because when the good times return, they capitalize on the opportunities better.
The company under consideration is debt free with decent free cash flows and has some surplus capacity available to participate in the growth cycle. It has also started trading in goods through its existing distributor network and that could deliver operating leverage for the company.
Cyclically low valuations – As mentioned above, based on peer comparison and industry estimates, the replacement cost of the assets of the company is Rs 1000 crore +; however, the stock is currently available at only around Rs 370 crore.
We have done a peer comparison in our report and as per the same the valuations of the company are the lowest in the industry and this despite the fact that it is backwardly integrated (good assets), debt free and has been growing year on year.
We believe, as the good times return (there are already signs of the same), the stock could end up delivering 25% + annualized return (with re-rating) over the next 3-4 years.
Get access to our latest pick by subscribing to one of our Premium Memberships before 15th Jun’19. The new recommendation is also part of our Model Portfolio.
SEBI Registration No. INH100001690
Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Analyst ownership of the stock: No
Details of Associates: Not Applicable
Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
Disclaimer: www.katalystwealth.com (here in referred to as Katalyst Wealth) is the domain owned by Ekansh Mittal. Mr. Ekansh Mittal is the sole proprietor of Mittal Consulting and offers independent equity research services to retail clients on subscription basis. SEBI (Research Analyst) Regulations 2014, Registration No. INH100001690
The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision
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This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.
We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.
Disclosure (SEBI RA Regulations)
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – No
Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No
Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No
Whether it or its associates have received any compensation from the subject company in the past twelve months – No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No
Whether the research analyst has served as an officer, director or employee of the subject company – No
Whether the research analyst or research entity has been engaged in market making activity for the subject company – No