Hello Sir,
Hope you are doing well.
Everyone is looking for turnaround opportunities that can turn out to be multibaggers.
The question is – How does one screen for such stocks?
Before that: As on 26th Sep’24, 22 medium/long term stock recommendations are under coverage. Out of the same, 6 are both Positive rated and in the buy zone.
We are also working on few interesting stock investment opportunities for long-medium term investment and will likely share the new recommendation in the next few days. You can get it along with our premium Alpha and Alpha + Members by signing up HERE
Coming back to turnaround opportunities, we believe one good way to screen for such stocks is as follows:
Look for Preferential allotment of warrants to Promoters in companies in which there’s been a decent correction in stock price (40-50% or more)
Let’s look at a case – Himadri Specialty Chemical
- From FY 19 till FY 22, the company’s margins and profits were dropping year after year
- From Rs 560 crore EBITDA in FY 19, it came down to Rs 156 crore EBITDA in FY 22
- Similarly, PAT declined from Rs 324 crore in FY 19 to Rs 39 crore in FY 22
- Stock price also corrected from highs of 170-180 odd levels to around 45-55
- On 11th Jul’22, the company announced that a meeting of Board of Directors will be held on 14th Jul’22 to evaluate proposal for raising of funds
- On 14th Jul’22, Board of Directors approved preferential issue of 7.252 crore warrants at a price of Rs 70 to promoters and non-promoters. Out of 7.252 crore warrants, 6.365 crore warrants to promoters and remaining to others
- What’s interesting is that by then stock had risen to around 80-90 odd levels and the company had not announced its Jun’22 quarter results
- Also, the operating performance for the Mar’22 quarter wasn’t great
- On 11th Aug’22, the company announced its Jun’22 results and reported a substantial improvement in performance both on YOY and QOQ basis
- Probably, the promoters were anticipating a turnaround in the business and thus opted for convertible warrants at Rs 70/- each
- For FY 23, the company reported highest ever annual sales, 155% growth in operating profit in comparison FY 22 and a substantial jump in PAT from Rs 39 crore to Rs 215 crore
- The stock which was languishing around 80-90 odd levels at the time of preferential allotment announcement is currently trading around 650 odd levels
There might be many cases where the business and the stock may not have done well, post allotment of warrants to promoters during low phase. However, the idea is, screening for such stocks can be a good starting point for further research and to catch the turnaround stage early.
(End)
Disclaimer: This is not a recommendation to buy/sell any of the stocks mentioned above. The securities quoted are for illustration only and are not recommendatory.
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
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