We seem to be going through interesting times in market.
Barring some 10 stocks, the entire market is down. The demand has definitely slowed down; however, there are a lot of positives to cheer about: lower corporate tax rates (25%), lower crude prices (Brent crude around 60$), water reservoirs across the country holding 21% more water than 10-year average, etc.
While it’s difficult to predict as to when the demand will pick up…however, the Govt. seems to be doing its bit and the factors like lower crude prices and good monsoon are likely to help the cause.
As we have been maintaining, it looks like a great time to be an investor in stocks and we have been adding companies with strong balance sheets, no major foreseeable CAPEX and performing much better financially in an otherwise tough environment.
Most importantly, despite their strong track record, because of overall dullness in market, we are getting them at much more reasonable valuations like 6-9 times earnings against 20-30 times a year or 2 back.
Recently, we added a New stock to our Model portfolio and shared the details with our Premium members for the purpose of their investment.
Some important points about the company and the industry are as below:
- The company operates in an Industry dominated by India and frankly no other major country can compete with India
- Most of the listed companies in the segment are over-leveraged and facing difficulties
- The company chosen by us has been following a differentiated approach of asset light balance sheet and as a result it is almost debt free and has been generating superior rates of return in excess of 15-20% on consistent basis
- The company commands ~2% market share in the industry, though the same has increased over the years from around 0.7% a few years back to around 2% in FY 19
- Going forward, we expect the market share to improve further as a lot of companies have gone down under on the back of excessive debt on their balance sheet
- The Promoters of the company have been involved in the business since more than 40 years now
- Promoter’s interests are directly aligned with those of minority shareholders as they hold more than 65% stake in the company and don’t seem to have any other company in the same line of business
- The company has been consistently paying dividends since more than 15 years now
- On the front of financial performance, the company has performed as below:
- 15% + CAGR in sales for the last 10 years
- 20% + CAGR in profits for the last 10 years
- 20% + average return on equity for the last 10 years
- Working capital days at less than ½ and sometimes less than 1/3rd of other listed companies
- Debt equity ratio of less than 0.3 on average annual basis
- Last, but not the least, despite much superior performance, the stock is currently available at less than 7 times earnings (adjusted for new tax rate).
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.
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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