It’s rare to find Market Leaders in a growing industry with huge scalability at almost single digit PE and that too in essential-products industries.
It normally happens when the company or the industry have had a few rough years or the investor’s perception about the industry or the company is that of commodity business.
Well, as investors our job is to unearth such companies, do a proper due-diligence, see if the company’s nature of business is truly commodity or if it has branding power (supported by 5-10 years’ performance), is diversifying and is on the growth path. If it is, then there’s no reason to not invest at such low valuations well before the other investors join the bandwagon.
Because by the time they do, the early investors would have already witnessed the benefit of both the earnings compounding and re-rating of valuations.
Just yesterday, we released our New Stock Recommendation for long term investment for our Premium Members and it is based on the same logic as described above.
We come out with 5-6 new stock ideas for long-medium term investment every year and would like to share with you details on the latest one.
- Segment – Essential Products
- Market Cap – < 5,000 crore
- Enterprise Value – < 5,000 crore
- Promoter Holding – > 50%
- Increase in Promoter Holding in the last 3 Years – Yes
- FY 10 – 9M FY 21 Sales Growth – > 14% CAGR
- FY 10 – 9M FY 21 Operating Profit Growth – > 17% CAGR
- FY 10 – 9M FY 21 PBT Growth – > 20% CAGR
- Debt – Reduced in the last 5 years on both absolute and relative basis
Key Reasons as to why we like the company:
- Company deals in essential products and its business was largely unaffected even during the first phase of the lock-down
- Company’s sales are well diversified geographically; thus, problems in one country/region (say India) do not impact the business significantly
- Company is diversifying revenue base with the launch of new products, which have higher growth and margin potential
- Over the last 5-6 years the balance sheet of the company has improved significantly
- Company has increased the dividend pay-out ratio by 4-5x
- With the expected improvement in margins, we expect the company to record 17%-20% CAGR in earnings over the next 3 years
- Last, but not the least, despite a decent track record, expectation of a 17%-20% year on year growth and improving balance sheet, the stock is still trading at less than 10 times pre-tax earnings
Thus, considering very low valuations, market leadership and very good potential for growth, we believe the stock is offering a good investment opportunity around current level. We have also added the stock in our Model Portfolio.
SEBI Research Analyst Registration No. INH100001690
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
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