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Hidden Gem - Jan 2013 research report is released by our equity analysts. Our 1st Hidden Gem stock of 2013 is the company which offer great investment opportunity for long term investors. Company is having good fundamentals and rewarded share holders by paying consistent dividend during last 10 years.
Here is a brief about company's business:
Company began its commercial production in April 1990. It is one of India's largest manufacturers and caters to companies like HUL, Glaxo, Nestle India, Colgate, Godrej etc and one of the few listed companies in India in its segment. Today, it operates with six manufacturing units, all the plants are ISO 9001: 2008, ISO 22000: 2005 certified.
Hidden Gem - Jan 2013 research report is released by our equity analysts. Our 1st Hidden Gem stock of 2013 is the company which offer great investment opportunity for long term investors. Company is having good fundamentals and rewarded share holders by paying consistent dividend during last 10 years.
Here is a brief about company's business:
Company began its commercial production in April 1990. It is one of India's largest manufacturers and caters to companies like HUL, Glaxo, Nestle India, Colgate, Godrej etc and one of the few listed companies in India in its segment. Today, it operates with six manufacturing units, all the plants are ISO 9001: 2008, ISO 22000: 2005 certified.
It is one of the largest exporters and regularly caters to consumers in countries like UK, The Netherlands, UAE, Bangladesh etc. Exports constitute about 17% of company's annual revenues.
Company has won several awards for excellence for serving various customers from different industries. It has core manufacturing business and enjoys reputation of a reliable company for supply of various types of products to large foreign and domestic companies. It is presently consolidating its operations and working on new product offerings.
Few facts which make this stock an excellent investment candidate for long term:
1. Company operates in one of the fastest growing industries, which has its influence on all industries directly or indirectly with domestic consumption. Industry is growing @ 15% per annum and offers great business opportunity for the company.
2. Sectors like food, beverage and pharmaceuticals are the key driving segments because of the huge domestic consumption. Company will be a direct beneficiary considering factors like urbanisation, increasing health consciousness, changing food habits, global cost advantage in India.
3. Company's market capital to sales turnover of last 4 quarters is below 0.2 and market cap to total sales of last quarter is below 0.7 whereas company net profits have grown by more than 50% in last 2 quarters.
4. Considering recent expansion and growth opportunities in the industry, we expect company to deliver annualized EPS of Rs. 16.2 & 24.9 in FY’12–13 and FY’13–14 respectively. Company has paid consistent dividend year after year and dividend yield at CMP is almost 3%.
5. Stock price to book value is 0.86. At current market price, share is trading at a P/E of 4.6X on FY 12–13 and 3.0X on FY 13–14 which makes stock valuations very attractive with a medium to long term view of 18-24 months.
6. Company’s debt to equity is high and interest coverage ratio is also low. This combination is generally not a good signal and doesn’t warrant a value investment. But we expect higher interest coverage ratio and lower debt over next 1/2 years which will strengthen balance sheet and rerate stock valuations in coming quarters.
The legendary Walter Schloss checked the stock on the following 4 criteria to determine if the stock merits a place in the portfolio:
• Zero or very low debt equity ratio
• High Promoter holding
• Dividend yield of at least 3%
• Stock purchase price lower than book value
This company satisfies 3 criteria, except for Zero or very low debt equity ratio. However, we believe that company now plans to consolidate its operations without doing any further expansion in its capacity in near future and reduces its debt going forward. This will strengthen the balance sheet of the company and rerate stock valuations significantly from current levels.
We believe that company can be a direct beneficiary of growing domestic consumption in India, stock at CMP offers a great opportunity and can become a 10 bagger in next 3-5 years. Hence, recommended our members to invest in this company at CMP with maximum portfolio allocation of 7% of their equity portfolio.
The legendary Walter Schloss checked the stock on the following 4 criteria to determine if the stock merits a place in the portfolio:
• Zero or very low debt equity ratio
• High Promoter holding
• Dividend yield of at least 3%
• Stock purchase price lower than book value
This company satisfies 3 criteria, except for Zero or very low debt equity ratio. However, we believe that company now plans to consolidate its operations without doing any further expansion in its capacity in near future and reduces its debt going forward. This will strengthen the balance sheet of the company and rerate stock valuations significantly from current levels.
We believe that company can be a direct beneficiary of growing domestic consumption in India, stock at CMP offers a great opportunity and can become a 10 bagger in next 3-5 years. Hence, recommended our members to invest in this company at CMP with maximum portfolio allocation of 7% of their equity portfolio.
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Regards,
Team - Saral Gyan,
Saral Gyan Capital Services.
