Hello Sir,
Hope you are doing well.
We have released our new stock recommendation for our Alpha and Alpha + Members and would like to share with you details on the same.
We focus on growth oriented, owner operated, leading companies in their respective segments that are trading at reasonable valuations and invest with a horizon of 3-4 years.
The one shared on Friday fits our framework as it’s a sub Rs 2,500 crore market cap stock, among the top 2 players in India in the building products it manufactures, introduced a new product line, completed a major CAPEX of over Rs 500 crore and available at only ~1.1 times sales.
Key points about the company:
- 30 years + old company and among the top 2 in its line of business
- Growth – Over the last 2 years the company has grown its sales by ~60% and PAT by ~50%
- Product diversification – The company has just added a new product line, and this could help it potentially double its profit in the next 3-4 years
- Capacity expansion – The company has spent Rs 500 crore + on adding a new product line. Further, in its existing product line, it has expanded capacity by 39% since Jun’22
- Margin expansion – The company has taken a few price hikes and can benefit from operating leverage as the volume growth is expected to be in double digits
- Expected reduction in debt – Recently, the company took some debt to set up the new product line. We believe, the debt may start reducing FY 25 onwards with strong cash flows
- Promoter’s skin in the game – Promoter’s hold more than 50% stake in the company and since Mar’19 their holding in the company has increased by more than 100 basis points
- Valuations – We do not like overpaying for a stock. Currently the stock is available around 1.1 times sales against the median value of 1.4 and on the higher end it also trades around 2.4 times sales
Normally, we don’t like to project numbers 3-4 years down the line. However, based on industry trends and some assumptions, we did some number crunching and believe there’s a high probability of company doubling its Profit to Rs 180 crore over the next 3-4 years from the current 80-90 crore PAT.
Company’s major peers trade around 15-30 times earnings and around 2-4 times sales.
You can get this new recommendation along with other recommendations, by subscribing HERE
Risks – Our investment thesis incorporates assumptions about growth; if the demand doesn’t grow at the expected rate or if the cut-throat competition results in price wars, the company might end up reporting lower numbers than our expectations.
We have assumed exit multiples in the range of 15-30. In case the market attributes lower valuations to the business, the returns can be lower than expectation.
(End)
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/
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