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Tuesday, October 29, 2019

Small Cap with 5-Bagger Potential - A Secular Growth Stock!

Dear Reader,

Wealth creation through Secular Growth Investing
The small and mid cap rally ended in Jan 2018 amid concerns over high valuations, waning domestic flows after re-categorisation of mutual fund schemes by SEBI and corporate governance issues followed by extreme pessimism in market due to IL&FS default, squeeze of liquidity, NBFC crisis and collapse of well known companies like DHFL, Cox & King, Sintex Plastics, ADAG companies etc due to excessive over leveraging & high debt on books. From peak levels of Jan 2018, mid cap and small cap stocks have witnessed severe correction over the past 20 months in spite of many small and mid size companies delivering better bottom line compared to large caps.

While major indices Sensex & Nifty is hovering near to at all time high delivering returns of 16.1% (33,813 to 39,250) and 11.4% (10,435 to 11,627) respectively since 1st Jan 2018, BSE Mid Cap and Small Cap index is down delivering negative returns of -19% (17,836 to 14,441) and -31% (19,280 to 13,310) respectively during the same period. With divergence of ~47% since Jan 2018 between small caps and Sensex large cap stocks, its very likely that we can see strong out performance from small and mid-caps delivering significantly higher returns over next 12 to 24 months compared to large caps.

Economic Revival will lead to Outperformance of Mid & Small Caps in FY 2020-21

With GDP growth falling to 6 years low of 5% in the June quarter, equity funds continue to shift their preference towards selected large / mega caps where there is certainty of earnings & growth, also termed as quality by market experts.

Fund flows in equity market over last 2 years have taken risk off mode where certainty matters the most irrespective of expensive valuations of these companies. Hence, we have seen Nifty / Sensex touching new highs this year (due to the rise in stock prices of handful of companies having high contribution in index) where as broader indices i.e. BSE Mid & Small Cap Index sliding down further making new 52 week lows this year.

Due to fear and extreme pessimism in the stock market, we have seen money chasing quality stocks since Jan 2018. However, once we see the economic revival, market will turn quickly to risk on mode and we will see funds flowing back to mid and small caps available at historically low valuations. We believe underpriced moderate growth stocks will deliver far superior returns than overvalued high growth stocks in coming years. Current undervaluation of many of our recommended stocks give us further comfort to keep on holding & accumulating them during these painful period.

Investors participation in broader market is expected to improve significantly with initial signs of revival in GDP growth. That spells opportunity, as many good stocks from the mid and small cap segments are still ruling at multi-year low valuations, offering buying opportunities. Hence, this is the best time to build up equity portfolio gradually by investing in high quality small and mid caps backed by strong business fundamentals.

Small Size Company with 5-Bagger Potential - A Secular Growth Stock

We are pleased to inform you that during these opportune times, we picked one of a small cap company which offers unique investment opportunity with potential of delivering 5-Bagger returns over period of next 5 years. Below are some of the reasons considering which we believe the company offers multibagger investment opportunity currently available at attractive valuations with huge upside potential.

1. The company operates in non-cyclical business, has a moat with well established brands, and strong growth potential with rising demand of its products. Being in B2C business, rising disposable income and consumer preference shifting towards premium products will support company to achieve robust revenue growth and profitability over next 3 to 5 years.

2. Favourable developments in the sector, recession proof business catering to domestic demand, significant capacity addition in past, thrust on becoming a pan India player from regional player and launch of new products with focus on end consumer are some of the reasons which make this company a right investment opportunity for medium to long term investors.

3. The company has made significant investments increasing its capacity over last couple of years and continue to do so during this year as well. By end of FY19-20, the company will have nearly 3 times capacity of its FY18-19 annual sales with current debt to equity ratio of 0.5.

4. The company has robust fundamentals as it enjoys strong cash flow from operationIts revenue and profitability has grown by more than 15% in the last 3 years, company’s bottom line is expected to grow well above 25% in coming years considering recent capacity addition and ongoing expansion with entry into new geographies. It has strong financials with ROE and ROCE of more than 15%. The balance sheet is strong with comfortable debt to equity ratio to support future growth.

5. The company is a small cap company with market capital to sales ratio below 1, where as other mid size players are commanding market cap to sales ratio of ~3. In last 8 years, the company used to command market cap to sales ratio of 2.5 to 3 with higher price to book and PE ratio but due to severe correction over last 20 months, the company is now available at decade low valuations. 

6. The company is paying dividend every year and dividend yield is maximum at current price compared to all other listed players in the Industry. The company has recently paid dividend for FY18-19. Moreover, possibility of higher dividend payout for current financial year cannot be ruled out considering increase in earning estimates compared to previous years.

Also, while looking at trading volumes and shareholding patterns, we find that stock is getting accumulated since last couple of quarters and is on the verge of giving strong upside in short to medium term with positive news flow / quarterly results.

1. The company has registered lowest trading volume in NSE over last few months in past two years, similarly volumes are significantly low in BSE also. In last few months, the company recorded lowest daily volumes in past 2 years. This indicates that buyers are waiting for lower prices to buy however there is no seller also to sell the stock at current price.

2. Some of the Institution / big investors have invested in the stock during last 12 months keeping a long-term view considering improved business fundamentals and higher earning visibility, hence availability of shares in market is decreased. In such a case, any positive news flow from company / management can bring significant upside in stock price in near term.

3 Total no. of shareholders continue to reduce over last few quarters indicating that weak hands (small retail investors) continue to exit selling their shares to strong hands (HNIs / Institutions) confirming accumulation of stock at current levels. 

To sum up, our recent recommendation under Potential 5-Bagger stock in 5 Years report is a great buy at current valuation and we presume it to be a wealth creator for our subscribers over next couple of years. The company not only offers significant upside in short term considering attractive valuations but also has the potential to create significant wealth by delivering upto 5x returns over next 3 to 5 years.

To receive our potential 5-Bagger stock along with the detailed research notes and relevant follow-up updates, you can subscribe to our Hidden Gems, Value Picks or Wealth-Builder service.

The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook. Wealth-Builder is our offline portfolio management service under which we suggest higher investment allocation in selective small & mid caps having strong fundamentals to build a robust and diversified portfolio.

Add power to your equity portfolio by investing your long term savings into best of small & mid cap stocks with our services Hidden GemsValue Picks and Wealth-Builder. During this festive season, we decided to pass on the maximum benefits to our readers by offering great savings and valuable freebies with our Dussehra - Diwali Offer 2019! Attractive discounts & valuable freebies which make this festive season special for our readers are as under:

1. Discount up to 30% on combo pack subscription (valid up to 31st Oct'19 only)
2. Rs. 1 Lakh Diwali Muhurat Portfolio (to be released on 27th Oct'19) - Read More
3. Special Report - Potential 5-Baggers in 5 Years (Released on 30th July'19) - Read More
4. Special Report - 6 Hidden Gems Stocks to Buy / Accumulate (to be released in Nov'19)
5. Special Report - 6 Value Picks Stocks to Buy / Accumulate (to be released in Nov'19)
6. Existing Portfolio Health Check Up under Wealth-Builder Subscription - Read More
7. Saral Gyan eBook - "How to Grow your Savings?" worth Rs. 599 for Free - Read More 

Below table indicates subscription services and discounted prices valid up to 31st Oct'19.

Saral Gyan Dussehra - Diwali Offer 2019
Hidden GemsRs. 10,000 9,000
Value PicksRs. 6,000 5,400
15% @ 90 DaysRs. 4,000 (No Discount)
Wealth-BuilderRs. 20,000 18,000
Combo 1: HG + VP + WB + 15%Rs. 40,000 28,000
Combo 2: HG + VP + 15%Rs. 20,000 15,000
Combo 3: HG + VPRs. 16,000 13,000
Combo 4: HG + 15%Rs. 14,000 11,500
Combo 5: VP + 15%Rs. 10,000 8,500

Simply choose the subscription service / combo subscription you would like to opt and click on SUBSCRIBE! link in above table to make online payment using your debit / credit card or net banking facility. In case you are not comfortable in subscribing online, click here to know about our other payment options and bank details.

Click here to know more about Saral Gyan Dussehra - Diwali Offer 2019.  

Best Selling Subscription Service
We also take this as an opportunity to inform our readers that our Combo - 1 (Annual subscription of Hidden Gems, Value Picks, 15% @ 90 Days & Wealth-Builder) is the best selling subscription service at Saral Gyan, we have registered maximum subscription of Combo 1 since beginning of this year followed by Wealth-Builder and Combo 2 subscription. We keep on updating our members on our past recommendations suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Below are the details of our services:

1. Hidden Gems (Unexplored Multibagger Small Cap Stocks): Based on fundamental analysis, our equity analysts release one Hidden Gem research report every month with buy recommendation and share it with all Hidden Gems members. Stock finalized as Hidden Gem belongs to small / micro caps space with market cap of less than 500 Crores, expected returns from Hidden Gems is above 100% in period of 12 - 24 months. Once target is achieved, we inform our members whether they should continue to hold the stock or need to do partial / full profit booking. If fundamentals are intact and valuations are reasonable, we suggest to continue to hold the stock for long term for multibagger returns. Annual subscription charge of Hidden Gems is INR 10,000 9,000 under which you will receive total 12 Hidden Gems research reports (one on monthly basis). Click here to read more about Hidden Gems.

2. Value Picks (Mid Caps with Plenty of Upside Potential): Our equity analysts team consider Warren Buffet approach to short list stocks from mid cap segment as Value Picks. Market cap of Value Pick will range from 1000 crores to 10,000 crores. Holding period of Value Picks is 12 - 24 months and one can expect returns of 40-50%. Annual subscription charge of Value Picks is INR 6,000 5,400 under which you will receive total 12 Value Picks research reports (one on monthly basis). Click here to read more about Value Picks.

3. 15% @ 90 Days (Buy to Sell Stocks for Short Term Gain): Based on technical analysis, our team recommends one stock every month to our members. It’s a short term call under which you can expect returns of 15% within period of 90 Days. Annual subscription charge of 15% @ 90 Days is INR 4,000 under which you will receive 12 stock recommendations. We suggest lower allocation in 15% @ 90 Days stocks and higher allocation in Hidden Gems and Value Picks which are our portfolio stocks based on fundamental analysis.​ 15% @ 90 Days stocks recommendations are based on buy to sell and gain strategy, hence we suggest our members to book complete profits once target is achieved and exit in case target is not achieved or stock has broken its 2nd support level as per report. Click here to read more about 15% @ 90 Days.

4. Wealth-Builder (An Offline Portfolio Management Service): Wealth-Builder is our model portfolio of Rs. 10 lakhs and currently we are holding 16 stocks in our portfolio. We suggest higher allocation in our Wealth-Builder stocks which includes best of our Hidden Gems and Value Picks released during last couple of years. Our team suggest all our Wealth-Builder members to invest in the stocks which are part of our Wealth-Builder portfolio. Every month our team updates our Wealth-Builder members which stocks they need to buy / sell / hold with % allocation of these stocks in their portfolio, the suggested changes need to be replicated in the same proportion. Annual subscription charge of Wealth-Builder is INR 20,000 18,000 under which you will receive total 12-18 portfolio updates. We also review existing equity portfolio of our members and advise them which stocks to hold and which to exit based of fundamental analysis. Moreover, we do look at sector wise / stock wise allocation in the portfolio and advise in case of any corrective measure needs to be taken by increasing or decreasing the stock specific allocation. Our Wealth-Builder service is suitable for those investors who have an existing portfolio of at least 2 to 3 lakhs or planning to invest similar amount or more in equity market. Click here to read more about Wealth-Builder.

Do contact us in case of any queries, we will be delighted to assist you.

Wish you happy & safe Investing. 

Team - Saral Gyan