Hello Sir,
Hope you are doing well.
On 26th May’23, Friday evening, we released our new stock recommendation for our Alpha and Alpha + Members and would like to share with you details on the same.
We focus on growth oriented, owner operated small-mid cap companies that are trading at reasonable valuations and invest with a horizon of 3-4 years.
The one shared on Friday fits our framework as it’s a sub 5000 crore market cap stock, largest player in India in the Specialty chemicals it manufactures, introducing new import substitute products, has good operating performance track record, deleveraging balance sheet and available at only ~10 times pre-tax earnings.
Key points about the company:
- Growth – It has grown its sales at around 15% CAGR over the last 10 years and reported ~300% growth in PAT in the last few years
- Specialty Chemical – The company deals in 2 major product categories and in both it’s the leader in India with major market share
- Product Diversification – Since FY 16, the company has diversified its product mix which has enabled it to serve multiple industries and expand geographically
- Backward integration – Towards the end of FY 22 the company completed the backward integration for a key raw material which should help improve margins by 300-400 bps in comparison to before commissioning of the same
- New import substitute product – By the end of Q2 FY 24, the company will introduce a new product in its portfolio which is being completely imported in India now and the demand for the same is growing at a good pace
- Cash Flows – Since FY 17 the company has been reporting very good cash flows from operations which has enabled it to carry out capacity expansion, backward integration while maintaining same level of debt
- Debt – The company’s debt to equity ratio has reduced from 3 + to less than 1 now
- Promoter’s skin in the game – Promoter’s own a majority stake in the company and have not diluted once in more than 10 years. Further, they have also supported the company through interest free loans and waiver of preference dividends
What makes the stock interesting from the perspective of next 3-4 years is that the company has deleveraged the balance sheet, adding new valued added products which should be margin accretive.
Further, due to the correction in the small cap stocks in the last 1 year, the stock is down 25% + from the highs, while the business fundamentals have improved; thus, making the stock available at very reasonable valuations.
You can get this new recommendation along with other recommendations, by subscribing HERE
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Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
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