I was recently looking at Bajaj Steel Industries. The stock came in our radar as the Promoter bought shares worth Rs 4 crore in Feb’24 around 300 odd levels.
While digging deeper in the company, I found some interesting details regarding actions taken by the promoters in Jul’20 and will share details below to understand how can one screen for stocks which may end up performing well in future.
Investing is probabilistic and the idea is to invest in stocks where the probability of good returns might be higher.
The question is – How does one screen for such stocks?
Before that: On 18th Jan’25, we released a new stock recommendation under “Insider Bets“ subscription which is again based on Promoters’ actions.
Promoter is basically infusing capital and increasing stake when the stock is down 60% from peak. You can check the details HERE
Coming back to turnaround or potential multi-bagger opportunities, we believe one good way to screen for such stocks is as follows:
Look for Preferential allotment of shares/warrants to Promoters in companies in which there’s been a decent correction in stock price (40-50% or more) and where major allocation is to Promoters
Let’s look at – Bajaj Steel Industries
- If we look at historical numbers, since FY 18, the company has been performing well
- In Jan’18, stock reached a high of 50-55 odd levels
- Thereafter, due to the correction in small-mid cap space and covid-19 correction in Mar’20, the stock reached a low of 20 odd levels in Mar’20
- While the stock was down 60% + between Jan’18 to Mar’20, company’s PBT increased from Rs 10 crore in FY 18 to Rs 32 crore in FY 20
- As the market started recovering, stock also recovered to around 25-30 odd levels by Jul’20
- On 22nd Jul’20, the company announced that a meeting of Board of Directors will be held on 25th Jul’20 to raise funds by issuance of equity shares through preferential allotment
- On 25th Jul’20, Board of Directors approved preferential issue of 6.5 lakh shares at a price of Rs 26.75/- (adjusted for 3:1 bonus) to promoters (very important promoter action in our view)
- On 31st Jul’20, the stock was still trading around 30-35 odd levels. Thus, one could have invested in the stock around the same levels the promoters were investing at
Source: BSEINDIA
- I believe, the entire allocation to Promoters was a significant event and probably indicated that Promoters were anticipating good performance ahead
- As mentioned above, Bajaj Steel was already performing quite well before the allocation and the performance improved further after the allocation
- In FY 20, i.e., before the allocation the company reported Rs 32 crore PBT and Rs 24 crore PAT
- In FY 21, the company reported Rs 87 crore PBT and Rs 66 crore PAT
Source: Screener
- On 25th Jul’20 when the Board approved the Preferential allotment to Promoters at Rs 26.75, the stock was trading around 30 odd levels and by Jul’21 it had run up to 360 odd levels
- It did correct massively after Jul’21 to 125 odd levels and currently trading around 750 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.
Hope you found the blog post useful and it added value to your investment decisions. Sign up for more interesting stock ideas and industry notes.
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.
Ekansh Mittal
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