Hello Sir,
Hope you are doing well.
Recently I came across Som Distilleries & Breweries. It’s been an 8+ bagger since Mar’21.
8 bagger is fine. The question is how could one have picked the stock in Mar’21 for the subsequent gains?
The company reported one of its worst performance in FY 21 with both operating and net losses. Despite the poor performance in FY 21, let’s check out, how could one have picked the stock in Mar’21 before the performance started improving in FY 22 and thereafter.
If you remember, we have been saying, look for what the Promoter is doing. Promoter knows better than most about the company, industry and if he is picking up stake during the downturn, it becomes even more interesting.
So, in the case of Som Distilleries, I came across this Preferential warrant announcement to Promoters and non-promoters on 15th Mar’21 at Rs 14/- each (adjusted for stock split from Rs 5/- to Rs 2/-). Just for context, CMP – 106.
This was after the stock had corrected from the highs of 55-60 odd levels in May 2018 and the company had the worst year in terms of the business performance.
In our view, in general, it indicates that Promoters are finding value at such low prices or are expecting improvement in performance going ahead.
While this preferential allotment didn’t materialize as the proposed allotees did not subscribe to the warrants within the prescribe timelines, on 14th Jul’22, the company announced another board meeting to issue convertible warrants to Promoters and other prospective investors.
Around that time, the stock was still quoting around 28-30 odd levels.
Eventually, on 20th Jul’22, the board approved issue of convertible warrants to Promoters and other investors at Rs 28.8/- each (adjusted for stock split from Rs 5/- to Rs 2/-).
This time, promoters took a larger share of warrants at 25 lakhs out of total 40 lakhs, indicating their confidence in the prospects of the company.
As it turns out, FY 23 was a bumper year for the company with 120% jump in sales, 400% jump in operating profit and a turnaround in net profit from loss of 10 crore in FY 22 to 60 crore PAT in FY 23.
Thus, preferential allotment announcement to promoters in Mar’21 could have been a good trigger point for a deep dive into the company or to start with a minor allocation.
You can find curated Preferential allotment announcements under Alpha + subscription @ https://katalystwealth.com/
Update: As on 25th Aug’24, 22 medium/long term stock recommendations are under coverage. Out of the same, 7 are both Positive rated and in the buy zone.
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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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