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?
We believe one good way to screen for such stocks is as follows:
Look for Preferential allotment of warrants/shares to Insiders (Promoters) in companies in which there’s been a decent correction in stock price (40-50% or more) or going through a down phase business wise
Note: After working on several interesting case studies based on Preferential Allotment to Promoters, we launched Insider Bets stock recommendations subscription on 17th Nov’24
In Insider Bets subscription, stock recommendations will be based on Promoter taking a bet on his own company. You can read about it HERE
Let’s look at a case – Anant Raj
- In Jan 2018, the stock reached a high of 44. Thereafter, the stock kept trending downwards and reached a low of 8 in May 2020
- After recording a low of 8 in May 2020, the stock started trending upwards and was trading in the range of 40-50 in Feb’21
- In terms of financial performance, in FY 15, the company recorded Rs 484 crore sales, Rs 251 crore EBITDA, and Rs 175 crore PBT; however, by FY 21, the sales had halved to Rs 250 crore, EBITDA was down 86% to Rs 35 crore and PBT was down 95% to Rs 8 crore
- Thus, from FY 15 to FY 21, the business was going through a down phase
- However, something interesting happened on 3rd Mar’21. The Board of Directors approved the issue of 2.9 crore convertible warrants to Promoters and Non-promoters at Rs 50/- per warrant
- The purpose of the proposed issue was to fund the Company’s new vertical of Data Centres to be set-up in the IT Parks built by the Company
Source: BSEINDIA
- On 5th May’21, the company informed about the change in pricing of warrants from Rs 50/- per warrant to Rs 56.35/- per warrant with equal allotment to promoters and non-promoters
Source: BSEINDIA
- What’s interesting is the substantial improvement in operating performance of the company since warrants allotment to Promoters in May’21 at Rs 56.35
- In FY 22, the sales of the company improved by 85% YOY to Rs 462 crore, EBITDA improved by 117% to Rs 76 crore and PBT improved by 800% to Rs 72 crore.
- In FY 24, the sales increased to Rs 1,483 crore, EBITDA to Rs 334 crore, and PBT to Rs 319 crore. Thus, in only 3 years, sales increased by 500%, EBITDA by 850% and PBT by 3,900%
Source: Screener
- The stock has also become 16x since Mar’21 levels of around 50
I don’t think one could have predicted such a major turnaround in performance of the company back in Mar’21; however, tracking the action of Promoters could have helped take an early and small bet.
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.
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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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