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Tuesday, November 12, 2013

Hidden Gem - Nov'13: Expected Returns @ 100% in 12 months

Dear Reader,

We are pleased to inform you that Hidden Gem - Nov'13 is released by our equity analysts. The complete research report will be emailed to our members shortly with complete update of 2nd quarter results.

We would like to inform our members that this stock was recommended by our team almost 3 years back but stock has not performed so far in terms of giving returns on investment where as total revenue and net profit has been doubled during the same period. Our team believes that stock is currently available at dirt cheap valuations and can reward medium to long term investors in big way.

Below is the Company Background and Investment Rationale:

Company Background:

Its an India-based company and was incorporated in the year 1994. Company set up a new plant for the manufacture of  its product, and later doubled their plant capacity in year 2002-2003.

Till end of FY07, company was operating in single segment and was largely a loss making company. In FY08, company diversified its business and started operating into 2 segments. In this year, the company made a net profit of just Rs 1.2 crores. At the end of FY08 the company had around 27 crores capital work in progress, as they were expanding their manufacturing facility. Since 2009, company is making profits and paying regular dividends to its share holders.

Investment Rationale: 

i) Looking at valuations, we find stock of the company is extremely cheap and currently available below its intrinsic value. More than 50% of its profit in FY 2012-13 is generated from the business in which company ventured  in 2008 and is consistently growing with higher operating margins.

ii) Company is making profits since last couple of years and has paid regular dividend to share holders, dividend payout for FY 2012 is 10% and dividend yield at current market price is above 4% which adds on safety with limited down side risk.

iii) Our team believes that management can declare 20% dividend for current financial year based on strong earnings posted in first quarter results and similar performance in next 3 quarters, dividend yield in such a case at current price will be 8% which can bring good price appreciation in stock price within next 12 months.

iv) Promoters share holding is above 70%, promoters have increased their share holding aggressively in last couple of years at higher price which shows the confidence and commitment of promoters in their business.

v) At current market price, stock price to book value is 0.59 and the scrip is trading at 1.7 X FY 2013-14 estimated earnings which make it an excellent value buy at current market price.

vi) We have interacted with management and believe that results will meet our expectations for FY 2013-14. In last financial year, market cap to sales ratio stands at merely 0.17. We expect company will continue to deliver similar growth in top line and bottom line like that of last 2 quarters which will bring good appreciation in stock price in near future.

Saral Gyan Recommendation: We have suggested our members to accumulate and hold this stock for time period of 12-15 months to get 100% returns.

Suggested Allocation: 4% of your Equity Portfolio

IMP Note: Stock trades with less liquidity and is under Call Auction. We suggested our members to place a limit order to buy this stock.

Call Auction: In a move to curb share price manipulation, SEBI has shifted illiquid stocks from the normal trading platform to 'call auctions' — a system where deals happen on an hourly session. Compared to the continuous order matching system in the normal market, in call auction orders are aggregated every hour, of which 45 minutes will be for order entry, modification and cancellation, 8 minutes for order-matching and trade confirmation and the remaining 7 minutes will be a buffer period for closing the current session and facilitating the transition to next session.

Do write to us in case of any queries.


Team - Saral Gyan,
Saral Gyan Capital Services