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5 Hidden Gems - 5 Baggers in 5 years - Apr'14 Update


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Saral Gyan Special Report
5 Hidden Gems - 5 Baggers in 5 years - Apr'14 Update

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5 Hidden Gems - 5 Baggers in 5 years - Apr'14 Update

  2. 2. Saral Gyan Capital Services FROM THE DESK OF OUR RESEARCH TEAM Dear Member, We are pleased to share update of 5 Hidden Gems – Potential 5-Bagger in 5 Years report with performance summary along with our Buy, Sell and Hold recommendation. Report was released on 26th July’13 when there was lot of pessimism around the market and we find it as one of the best time to invest in some of the fundamentally strong small cap companies. This report includes company’s performance, recent updates with our views and recommendations. Today, there is a concern of downfall as broader indices Sensex and Nifty is at all time high levels. We expect market will be highly volatile with election results around the corner. As of now, stock market is in control of bulls with strong positive bias towards Ab ki Baar – Modi Sarkar (this time – Modi led BJP Government). In case of any negative surprises in election results, major indices may see a downfall of 10 – 15% or vice versa if it’s a majority win. However, any correction must be considered as a buying opportunity as long term outlook is bullish for equities. We believe that bear market of last 6 years (since Jan 2008) is over and equities will outperform all other asset class in coming years. You will agree that Investment decisions for long term can’t be taken by timing the market movement. It is important to understand the Industry potential, company’s fundamentals and valuations with a long term perspective. We evaluated these stocks with a long term view (2-5 years), we firmly believe that good quality businesses in India will continue to deliver strong double digit growth and its always logical to invest in those businesses which deliver better returns than any other asset class.
  3. 3. Saral Gyan Capital Services Our team published special report 5 Hidden Gems - Potential 5 Baggers within 5 Years (published on 26th July'13) and shared it with all our Hidden Gems and Wealth-Builder members. Objective was to achieve average annualized returns of 38% each year to achieve 5-Bagger returns in period of 5 years. As illustrated in table below, if all these companies generate returns on your investment @ 38% annually, your investment will be 5 fold in period of 5 years. Even if we take conservative scenario considering that only one out of five achieve CAGR of 38% and remaining four delivers CAGR of 20%, your investment will be trebled (3 times) in period of 5 years which is also good compared to returns from other asset classes or major indices - Sensex and Nifty. However, our team is confident enough to achieve 5 times returns in period of 5 years by monitoring performance of these companies and taking corrective measures in case any of them does not perform up to our expectations. 5 HIDDEN GEMS: POTENTIAL 5-BAGGER IN 5 YEARS
  4. 4. Saral Gyan Capital Services Few important parameters which has been looked by our equity analysts while finalizing the stock selection are as under: 1. Market leader in the business / any one segment in which the company is operating in. 2. Scalable business with significant moat (sustainable competitive advantage) 3. Prudent Management with promoters increasing their shares holding in the company 4. Zero or negligible debt on books with healthy cash flows. 5. CAGR of above 15% with increase in operating and net profit margins in last 5 years. 6. Consistent dividend payment with dividend yield above 2% in last 5 years 7. Increasing EPS, single digit PE ratio with ROE and ROCE above 20% in last 5 years. 8. Zero or negligible share holdings of Institutions (FIIs & DIIs) to get first mover advantage. Each parameter is equally important and plays a vital role to ensure that you get healthy returns on your investment with limited downside risk in long term. One of the important key to successful investing is to pick the right business at decent valuations. Once you buy shares, you own a part of company’s business. We at Saral Gyan recommend good businesses to buy with long term view and any change in our stock views will be based on strong structural trend and not on any short term movement. 5 HIDDEN GEMS: POTENTIAL 5-BAGGER IN 5 YEARS
  5. 5. Saral Gyan Capital Services 5 HIDDEN GEMS: PERFORMANCE AT A GLANCE SCRIP REITERATE BUY (26TH JULY) BUY PRICE (26TH JUL'13) C.M.P 20TH APR'14 RETURN AT C.M.P ORIGINAL RECOMMEND -ATION DATE RECOMMEND -ATION PRICE RETURNS AT C.M.P WIM PLAST BUY 335.0 612.0 82.67% 30-Aug-11 185.0 230.78% MAYUR UNIQUOTERS* BUY 107.5 301.0 179.95% 31-Mar-12 56.0 437.89% ROTO PUMPS BUY 95.0 171.2 80.16% 5-Aug-12 94.5 81.11% ACRYSIL INDIA BUY 100.0 242.5 142.50% 25-Nov-12 113.5 113.66% ADOR FONTECH BUY 62.5 67.4 7.84% 25-Jul-13 62.5 7.84% AVERAGE RETURNS (AS ON DATE) 98.62% 174.26% * Indicates Bonus/Split adjusted price We are glad to share that 4 out of 5 Hidden Gems have given returns in the range of 80% to 180% in matter of just 9 months. Mayur Uniquoters have given fabulous returns of 180% followed by Acrysil returns of 142.5% where as Ador Fontech has not performed up to our expectations giving marginal gains of 8%. Average returns of our 5 Hidden Gems as on date is 98.6% compared to Sensex returns of 14.6% and Small Cap index returns of 34.6% since 26th July’13, outperformed small cap index by whopping 62%.
  6. 6. 1. WIM PLAST Returns at CMP: +83% Saral Gyan Capital Services 1ST HIDDEN GEM: POTENTIAL 5-BAGGER IN 5 YEARS Wim Plast is a zero debt company with maximum promoters holding of 75%. Company is posting good results every quarter and is maintaining revenue growth of 20% YoY. Company is maintaining operating margins above 17% since last 5 years and is taking all right steps to deliver consistent growth. ROE is above 23% since last 5 years, which is good for such a small cap company. Company has strengthened its brand equity of ‘cello’ branded products throughout country and has been continuously increasing the ad spend. Company is launching new models for its product range including various new designs. Another prominent brand of the company ‘Cello Bubble Guard Sheets’ has gained rich response from the users for applications like Tile Protector, False Ceiling, Wall Panel and Packaging materials. Moreover, company has recently purchased around 1 (one) acre of Lase hold Land at Sipcot Industrial Complex, Gummidipoondi, Tamilnadu for further expansions. The commercial production of the new manufacturing unit is expected by the end of the 2nd quarter of this financial year. We suggest our members to continue holding Wim Plast in their equity portfolio. In case if you missed to enter in this stock, and not holding Wim Plast in your equity portfolio, kindly initiate your investment with 2% allocation which can be increased to 5% only if stock price corrects and available in the range of 475 - 525 during any future market correction. RECENT UPDATES & DEVELOPMENTS SARAL GYAN VIEWS & RECOMMENDATION
  7. 7. 2. MAYUR UNIQUOTER Returns at CMP: +180% Saral Gyan Capital Services Mayur Uniquoters is our 5-Bagger stock. We recommended this stock 2 years back at price of Rs. 56 (adjusted price after 2 bonus issues and stock split in last 2 years, actual recommended price was Rs. 448) and today it’s at Rs. 300. In fact, its a 100-Bagger stock for investors who invested in it 5 years back. Company has posted strong growth YoY and rewarded share holders in big way, Company was trading at Rs. 3 (bonus / split adjusted price) with market cap of merely 13 crores, today market cap of the company is 1,300 crores and company has paid total dividend of Rs. 9.25 during 2013 which is 3 times of its share price in 2009. Well, that was the past, what make us to believe that company is still a great value stock is the consistent growth of the company and robust demand for its products by esteemed clients from auto and footwear industry. Moreover, company is witnessing institutional interest, FIIs share holding is increased to 2.18% in Dec'13 from 0.13% in Dec 2012. We believe that Mayur Uniquoter is a great company to own, valuations now seems to be fairly priced but still one can expect returns of 20-25% annually going forward considering leadership position of the company in artificial leather industry and good demand of its products in India and abroad. Mayur Uniquoter is a classic example of "Buy Right and Sit Tight". As per valuations, stock is trading at trailing PE of 25.5 and seems to be fairly priced. However, company deserves PE above 20 considering its past track record, future growth visibility and its leadership position in the industry. We suggest our members to keep holding Mayur Uniquoter in their equity portfolio. In case any of our member missed to enter in this stock and is not holding Mayur Uniquoter, kindly initiate your investment with 3% allocation at CMP which can be increased to 5% only if stock price corrects and available in the range of 200 - 225 during any future market correction RECENT UPDATES & DEVELOPMENTS SARAL GYAN VIEWS & RECOMMENDATION 2ND HIDDEN GEM: POTENTIAL 5-BAGGER IN 5 YEARS
  8. 8. 3. ROTO PUMPS Returns at CMP: +80% Saral Gyan Capital Services 3RD HIDDEN GEM: POTENTIAL 5-BAGGER IN 5 YEARS Looking at peer companies, Roto Pumps is performing well and regularly rewarding share holders by paying dividends. For such small companies, its very important to know whether management is taking care of minority share holders or not and Roto Pumps meet our expectation. Company is paying regular dividends since last 9 years and dividend payment has increased from Rs. 1 to Rs. 2.5 and dividend yield was 4% at the time of our recommendation. Operating profit margin of the company improved from 16% to 18% with sales growth of 17%, profit growth of 21% and ROE of 24% during last 5 years. Recently, company has announced setting-up of a joint venture company in Singapore. The joint venture company would further make strategic investments in the related field including business development of Company’s products in African continent. We suggest our members to hold this stock in their portfolio. Roto pumps is a micro cap company with market cap of 53 crores with small equity of 30.91 lakh shares, one can see high volatility in stock price movement. Trading volumes are low and hence we suggested our members to accumulate such stocks in small quantities and avoid buying big quantities in singe day. We suggest our members to hold Roto Pumps in their equity portfolio. One can add Roto Pumps in his portfolio at a price range of Rs. 140 – 150 with initial allocation of 2% which can be increased further to 5% at price range of Rs. 110 – 120. RECENT UPDATES & DEVELOPMENTS SARAL GYAN VIEWS & RECOMMENDATION
  9. 9. 4. ACRYSIL Returns at CMP: +142% Saral Gyan Capital Services 4TH HIDDEN GEM: POTENTIAL 5-BAGGER IN 5 YEARS Acrysil has given returns of 142% during last 9 months, we believe there is huge growth potential for the company considering increasing demand of premium house hold products in India. Recently, management have shared their plan to be no. 1 in kitchen segment and set target of becoming a 1000 crore company by 2020. It seems to be an over ambitious target to us considering yearly revenue of Rs. 78 crores in FY 2013, however high growth opportunities in this niche area of kitchen utility products in coming years can not be ruled out. This is one of the industry, which has the potential to grow at CAGR above 25% in coming years considering increase in urbanization and increasing interest of middle class families towards modular kitchen. Company is continuously increasing its total manufacturing capacity of granite sinks which is uniquely positioned by the company and sells under CARYSIL brand. Also to drive growth, company has entered into other kitchen utility product like chimneys, hobs and cooktops with increased focus on domestic market since last 2 years. Company has also entered into manufacturing of stainless steel sinks to cater to the domestic market through its subsidiary Acrysil Steel Pvt Ltd. Company is having aggressive plans of becoming Rs. 1000 crores. The sales growth, profit growth and ROE for company is 21%, 11% and 27% over the past 5 years. For FY 2014, company is expected to deliver EPS of Rs 20, trading at estimated PE of 12 and offers good upside potential. We suggest our members to continue to hold Acrysil in their equity portfolio. In case you are not holding Acrysil in your portfolio, kindly initiate investment with 3% equity allocation at price range of Rs. 190 – 210. RECENT UPDATES & DEVELOPMENTS SARAL GYAN VIEWS & RECOMMENDATION
  10. 10. 5. ADOR FONTECH Returns at CMP: +8% Saral Gyan Capital Services The major end user industries of Ador Fontech, especially mining, construction, energy, etc have witnessed much slower growth in comparison to the overall economy. However, as interest rates seem to have peaked out and with speedy regulatory approvals, the next 4-5 years can be much better for the end user industries of Ador Fontech and therefore also for the company. Ador Fontech has reported increase of 13.06% in net profit of to Rs 2.77 crore in the quarter ended December 2013 as against Rs 2.45 crore during the previous quarter ended December 2012. Sales rose 7.91% to Rs 32.88 crore in the quarter ended December 2013 as against Rs 30.47 crore during the previous quarter ended December 2012. Recently, company has issued 17,50,000 number of warrants convertible to equity to the promoter, J B Adwani and Company Pvt Ltd. Ador fontech top line has seen muted growth during first 9 months of FY 2014. Operating profit margins remained under pressure, it decreased to 14.84% in 3 quarter of FY 2014 compared to 22.1% in FY 2013. We believe that management is capable enough to turnaround performance, however we find better investment opportunities and hence suggest our members to completely exit from Ador Fontech at current levels with marginal profits of 8 to 10 percent. Any correction in stock market may take the price back to 55 – 60 levels, hence suggesting complete exit. RECENT UPDATES & DEVELOPMENTS SARAL GYAN VIEWS & RECOMMENDATION 5TH HIDDEN GEM: POTENTIAL 5-BAGGER IN 5 YEARS
  11. 11. Saral Gyan Capital Services As Sensex and Nifty are at all time high, we would not suggest aggressive buying in these companies at current levels. But to ensure that we do not miss good investment opportunities, we have suggested initial allocation of 2-3% which can be increased further in case of correction in stock prices. We would suggest our members to exit from Ador Fontech and take exposure in Atul Auto Ltd with initial allocation of 3% in your equity portfolio. Atul Auto Ltd is our Hidden Gem stock of Feb’14 and we recommended BUY on Atul Auto at price of Rs. 282, currently it is trading at Rs. 355 and is a good long term investment opportunity from small cap space. IMP Note: As these stocks are small caps with low liquidity (daily trading volume below 10,000), we suggest our members to buy/accumulate these stocks in small quantities. Ex: If you are planning to Buy 500 shares of Atul Auto, do not buy whole 500 in a single day, this may trigger your buy order at a higher price. We suggest you to buy 50 to 100 quantity on daily basis during next 5-10 days. We also take this as an opportunity to say a big "Thank You" to all our paid members for subscribing to our services and showing trust and faith on us. The journey of success was not possible without your support and appreciation. We will keep trying our level best to ensure that you continue to get rewarded in medium to long term by investing in fundamentally strong small and mid cap companies recommended by our equity analysts team. Wish you happy & Safe Investing! Team – Saral Gyan. 5 HIDDEN GEMS: POTENTIAL 5-BAGGER IN 5 YEARS
  12. 12. Saral Gyan Capital Services ABOUT SARAL GYAN CAPITAL SERVICES Saral Gyan Capital Services is an independent equity research firm. We publish unbiased thoroughly researched reports that enhance the visibility of innovative public companies in micro, small & mid cap space. Our reports, Hidden Gems & Value Picks, are distributed to our subscribers through our website. Hidden Gems & Value Picks are highly detailed reports that is written to be easily understood by the financial community. We also circulate articles via free email & mobile subscription which works as a guide and provide insights to equity market. We also offer 15% @ 90 Days, which works on buy to sell and gain strategy for short term profits. The stocks under 15% @ 90 DAYS are selected on the basis of technical analysis done by our equity analysts. Wealth-Builder is our offline portfolio management service which includes best of Hidden Gems, Value Picks & 15% @ 90 Days stocks. Our equity analysts will suggest you the best of Hidden Gems & Value Picks stocks which you can hold in your portfolio with minimum churning. This also helps you avoid paying extra brokerage cost on your transactions. Our research reports are written by a team of equity analysts who recognize investor’s desire to understand a business in a way that supports an educated investment decision based on facts. Our reports contain meticulously researched facts on companies, their fundamentals, and their industries, validating a company's prospects and enabling the reader to objectively evaluate the company's value. At Saral Gyan, research is taken as a creative work by team of professionals on systematic basis in order to increase the wealth of knowledge. We believe that research is a necessity and forms the basic foundation upon which advice is made with reference to particular stocks with recommendations on buy or sell or hold. Saral Gyan Capital Services 159 B, Near Ganesh Square, Sadar Cantt, Jabalpur 482001
  13. 13. Saral Gyan Capital Services SARAL GYAN SUBSCRIPTION SERVICES SERVICE INVESTMENT HORIZON MARKET CAP / INDEX NUMBER OF RECOMMEND- ATIONS SELECTION CRITERIA SUGGESTED ALLOCATION * 1 YEAR SUBSCRIPTION PLAN Know More | Sample 1 - 3 Yrs Small / Micro Cap (BSE Small Cap) 12 per year Growth / Value (Mkt Cap < Rs. 500 Crs) 10% - 25% Rs. 7,500 ($155) Know More | Sample 1.5 - 3 Yrs Mid Cap (BSE Mid Cap) 12 per year Growth / Value (Mkt Cap: Rs. 1,000 - 10,000 Crs) 20% - 40% Rs. 5,000 ($105) Know More | Sample 3 Months Mid Cap (BSE - 500) 12 per year Technical Analysis / Recent Developments Not Applicable Rs. 2,500 ($55) Know More | Sample 3 - 7 Yrs Across Market Caps 12 - 18 Portfolio Updates per year Long Term Wealth Creation 10 - 15 Stocks Rs. 15,000 ($310) • Suggested allocation - This is the percentage of funds that you could allocate (out of your total equity portfolio) to each category of stocks. Please note that these allocations are purely indicative. Get in touch with us! Existing subscriber of Saral Gyan? We have a special renewal/upgrade offer for you! Looking for guidance on which service to opt for? Or have any other query? Please write to us, we will be delighted to assist you!
  14. 14. Saral Gyan Capital Services DISCLAIMER This document has been prepared by the equity analysts of Saral Gyan Capital Services for the use of recipient only and is not meant for public distribution and has been furnished to you solely for informational purposes and should not be construed as an offer or a solicitation of an offer to buy or sell any securities of the companies referred to herein. The material herein is based on the information obtained from sources that Saral Gyan Capital Services believe to be reliable, but neither Saral Gyan Capital Services nor any of their research analysts or affiliates represents or guarantees that the information contained herein is accurate or complete and it must not be relied upon as such. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision for or against the companies referred to in this report. The user assumes the entire risk of any use made of this information. The investment discussed or views expressed may not be suitable for all investors. Each recipient of this document should make such investigations, as it deems necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document and consult its own advisors to determine the merits and risks of such an investment. Opinions, estimates and projections in this report constitute the current judgment of the research analyst as on the date of the report and they do not necessarily reflect the opinions of Saral Gyan Capital Services. The recipient of the document is cautioned that any forward-looking statements are not predictions and are subject to change without notice. While Saral Gyan Capital Services would endeavor to update the information herein on reasonable basis, Saral Gyan Capital Services has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. Saral Gyan Capital Services, its affiliates, employees and their dependant family members may from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives thereof or may have a vested interest in the covered companies referred to in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this document. Our sales people, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this document. The recipient should take this into account before interpreting the document.