Everyone is looking for turnaround opportunities that can turn out to be multibaggers.
The question is – How does one screen for such stocks at an early stage?
We believe one good way to screen for such stocks is as follows:
Look for Preferential allotment of warrants/shares to Promoters/Insiders in companies in which there’s been a decent correction in stock price (40-50% or more) and the major or the entire allocation is to Promoters/Insiders.
Let’s look at a case study – Lloyds Engineering Works.
Important Update: On 11th Apr’25, we released a new recommendation under “Insider Bets” subscription.
What’s interesting about the stock is Promoters have been buying from open market around current levels and recently made preferential allotment only to themselves. Even more interesting part is that 3 other companies from the sector have also announced/made preferential allotment to promoters (entirely or majorly).
You can read about the stock in detail by clicking HERE
Lloyds Engineering case study
- From FY 16 till FY 21, the company’s sales and profits were quite bad
- Sales had decreased from Rs 117 crore to only Rs 70 crore, operating loss had increased from Rs 2 crore to Rs 10 crore and stock price had fallen from 4 odd levels in Jan’18 to 0.4 odd levels in Mar’20
- By Oct’21, the stock had risen back to 3-3.5 odd levels
- On 11th Oct’21, the company announced that a meeting of Board of Directors will be held on 14th Oct’21 to finalize proposal for Issue of Equity Shares/Convertible Warrants of the Company on a Preferential Basis to Promoters
- On 14th Oct’21, the Board approved the issue of 16.50 crore Convertible Warrants at an issue price of Rs 3.86/- each to Promoters on preferential basis
- At that time the stock was quoting around 4.5 odd levels
- At this time, while there was no sight of turnaround in business, it was still an interesting event as Promoters were willing to take a bet despite the business being down
Source: Screener
- While FY 21 ended with just Rs 70 crore sales and 10 crore operating loss, in FY 22, performance turned around with operating profit of 5 crore
- For FY 24, the company reported sales of Rs 624 crore, operating profit of Rs 101 crore and PBT of Rs 100 crore
- Probably, the promoters were anticipating a turnaround in the business and thus opted for convertible warrants at Rs 3.86/- each
- The markets also turned supportive and currently the stock is trading around 70 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.
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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.
Ekansh Mittal
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