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?
Before that: After working on several interesting case studies based on Preferential Allotment to Promoters, we have 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
Coming back to turnaround opportunities, 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.
Let’s look at a case – Jindal Stainless
- In Jan 2018, the stock reached a high of 122. Thereafter, the stock kept trending downwards and reached a low of 24 in Mar 2020
- After recording a low of 24 in Mar 2020, the stock started trending upwards and was trading in the range of 40-50 in Aug-Sep 2020; though it was still more than 50% down from Jan 2018 levels
- In terms of financial performance, in FY 18, the company recorded Rs 1,343 crore EBITDA and Rs 520 crore PBT; however, by FY 20, the EBITDA had dropped to Rs 1,132 crore and PBT was down 68% to Rs 165 crore
- Thus, from FY 18 to FY 20, both the stock price and the profits were down by more than 50%
- However, something interesting happened on 17th Sep’20. The shareholders approved the issue of 3.82 crore convertible warrants to Promoters and Non-Promoters at Rs 42.55/- per warrant
- The interesting bit was that out of 3.82 crore warrants, 3.52 crore were being allotted to Promoters, i.e., Promoters were taking up more than 90% share of the allotment
Source: BSEINDIA
- What’s also interesting is the substantial improvement in operating performance of the company since warrants allotment to Promoters in Sep’20 at Rs 42.55
- In FY 21, the EBITDA of the company improved by 25% on YOY basis to Rs 1,424 crore and the PBT improved by 318% to Rs 690 crore
- In FY 22, the sales increased to Rs 32,733 crore, EBITDA to Rs 5,090 crore and PBT to Rs 4,159 crore. Thus, in only 2 years PBT became 25 times
Source: Screener
- The stock also became 5x by Feb’22 as it appreciated to 215 odd levels. Post that, the stock corrected by 50% + to 100 odd levels in Jun’22 and is 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.
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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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