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Showing posts with label Value Picks. Show all posts
Showing posts with label Value Picks. Show all posts

Sunday, June 18, 2023

Benefits & Concerns of Investing in Small Cap Stocks

Owning Multibagger Stocks which can multiply Investments in Future

The number of small-cap stocks is large and finding a quality stock that can give high returns over a long period is tough even for equity analysts. One reason is that such stocks usually have a short history and are not tracked by many analysts and brokerage houses. Then there are risks such as low liquidity, governance concerns and competition from larger players.

Scores of once small companies have over the years grown big, giving investors a 30-50 percent annual return over 10-15 years and creating fortunes for investors. However, more often than not, we find ourselves at the wrong side of the fence and regret our inability to spot such stocks on time.

Benefits of Investing in Small Caps

1. Huge growth potential: The first and the most important advantage that a small cap stock gives you is their high growth potential. Since these are small companies they have great scope to rise as opposed to already large companies.

2. Low Valuations: Usually small cap stocks are available at lower valuations compared to mid & large caps. Hence, if you invest in good small cap companies at initial stage and wait for couple of years,  you will see price appreciation not only because of growth in top line and bottom line but also due to rerating which happens with increase in market capital of the company.

3. Early Entrance Advantage: Most of the fund house and institutions do not own small caps with low market cap due to less liquidity which make it difficult for them to own sufficient no. of shares. This gives retail investors an opportunity to be an early entrant to accumulate such companies shares. When company grows in market cap by delivering consistent growth and becomes more liquid, entry of fund houses and institutions push the share prices up with re-rating of stock giving maximum gains to early entrants. 

4. Under–Researched: Small cap stocks are often given the least attention by the analysts who are more interested in the large companies. Hence, they are often under - recognized and could be under-priced thus giving the investor the opportunity to benefit from these low prices.

5. Emerging Sectors: In a developing economy where there are several new business models and sectors emerging, the opportunity to pick new leaders can be hugely beneficial. Also the disruptive models in the new age is leading to more churn and faster growth amongst the nimble footed smaller companies.

Buying Strategy for Small Caps

1. Go for companies with low debt ratio (preferably less than one)

2. A high interest coverage ratio (above 3x) and a high return on equity are big advantages

3. Avoid companies with huge liabilities in the form of foreign currency convertible bonds / external commercial borrowings

4. Look at the quality of the management, its governance standards and how investor-friendly the company is.

5. Mid-cap and small-cap companies can be future market leaders, so be patient with your investments

Those who wish to invest in small-cap stocks should do so only if they have a long investment horizon and tolerance for volatility. Small-cap stocks suffer the steepest falls in a bear market and rise the most in a bull market. An investor should stay invested for at least three-five years to allow their portfolio to gain from at least one bull run. If you are looking for multibaggers, stock must have high growth rates along with expanding PE ratios. The price we pay for the stock is important as it will determine whether there is enough scope left for a PE expansion to take place. 

Concerns while Investing in Small Caps

1. Risk: The first and the most important disadvantage a small cap stock is the high level of risk it exposes an investor to. If a small cap company has the potential to rise quickly, it even has the potential to fall. Owing to its small size, it may not be able to sustain itself thereby leading the investor into great loses. After all, the bigger the company, the harder it is for it to fall.

2. Volatility: Small cap stocks are also more volatile as compared to large cap stocks. This is mainly because they have limited reserves against hard times. Also, it in the event of an economic crisis or any change in the company administration could lead to investors dis-investing thereby leading to a fall in prices.

3. Liquidity: Since investing in small cap stocks is mainly a decision depending upon one’s ability to undertake risk, a small cap stock can often become illiquid. Hence, one should not depend upon them for an important life goal.

4. Lack of information: As opposed to a large cap company, the analysts do not spend enough time studying the small cap companies. Hence, there isn’t enough information available to the investor so that he can study the company and decide about it future prospects.

If these factors scare you but you still want to gain from the upside potential of such stocks, Saral Gyan  Nano ChampsHidden Gems & Value Picks is a great choice for you. At Saral Gyan, team of equity analysts keep on evaluating micro, small and mid cap stocks to explore the best Nano Champs and Hidden Gems of stock market. Saral Gyan - Nano Champs, Hidden Gems and Value Picks are the micro, small and mid cap stocks with high probability to become multi-bagger stocks in future and a path for our investors to create wealth through equity investments in a long run. Multibaggers evolve over time, many successful investors follow plenty of processes to identify these stocks early and continue to ride them till they evolve as multibaggers.

Grow your Wealth by Investing in Potential Multibagger Small Caps

Multibagger Hidden Gems Stocks
Its a fact that 74 Hidden Gems stocks out of 102 released during last 11 years have given more than 100% returns to our members. Moreover, 27 stocks out of these 74 are giving returns in the range of 400% to 7000%. Stocks like Cera Sanitaryware, Camlin Fine Sciences, Acrysil, Balaji Amines, Kovai Medical, Wim Plast, Mayur Uniquoter, Dynemic Products, Roto Pumps, TCPL Packaging, Globus Spirits, Rajratan Global Wires etc are some of our multibagger stocks which have given whopping returns in the range of 900% to 7000%.

We do update our members in terms of profit booking / exits depending upon various factors like overall Industry / Sector outlook, fundamentals of the company, management action plan and annual performance in terms of top line, bottom line, operating margins and other important parameters.

Its appreciation and support of our readers that one of our most admired service - Hidden Gems ranks on top not only in performance but also on Google search engine. Try it out yourself by searching "Hidden Gems SIP" or "Unexplored Multibagger Small Caps" or "Best Hidden Gems Micro Caps" on Google, you will find our website featuring on top in search results. Its your appreciation and word of mouth publicity which make our website featuring on 1st page in Google.

Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price.

Start investing in Nano Champs, Hidden Gems & Value Picks of stock market to get rewarded by creating a Wealth-Builder portfolio in long run. Remember, "If you want your Money to Grow, Equities is the only Way to Go" in long term. If you think to invest in stocks for period of 6 months or say 12 months, we suggest you to stay out of stock market because you are not investing, you are betting on volatility of stock market which could be risky.

The stocks we reveal through Nano ChampsHidden 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.
Do contact us in case of any queries, we will be delighted to assist you.
Wish you happy & safe Investing.
Team - Saral Gyan.

Saturday, May 27, 2023

Special Report - 5 Stocks - Potential 5-Baggers in 5 Years

Dear Member,

Last year on 29 May 2022, our equity analysts finalized the best investment opportunities from small cap segment which have the potential to deliver excellent returns during next 5 years. We released our Special Report - 5 Stocks - Potential 5-Baggers in 5 Years on 29th May 2022 and shared the report with our Hidden Gems and Wealth-Builder members. The objective of this report is to achieve average annualized returns of 38% each year to achieve 5x returns in period of next 5 years by investing in 5 small caps.

As illustrated in the table below, if these 5 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 any other asset classes like Fixed Deposits, Real Estate, Metals – Gold / Silver or even major indices - Sensex and Nifty.

Investment of 5 lakhs in 5 Years at CAGR of 38%
We are confident to achieve 5 times returns in period of 5 years by monitoring performance of these five small size companies and taking corrective measures in case any of them does not perform up to our expectations. 

Few important parameters which have been looked by our equity analysts while finalizing the stock selection are as under: 
  • Market leader in the business / any one segment in which the company is operating in.
  • Scalable business with significant moat (sustainable competitive advantage)
  • Prudent Management with promoters increasing their shares holding in the company 
  • Low / manageable debt on books with healthy cash flows.
  • CAGR of above 15% with increase in operating and net profit margins in last 3 / 5 years.
  • Consistent dividend payment with expected increase in dividend payouts in coming years.
  • Growing EPS, low PE ratio with increasing ROE and ROCE over last 5 years.
  • Low 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.

While determining which stocks to consider as a long term investment opportunity for generating 5-Bagger returns, we looked into below 5 value drivers:

i) Does the company offer a product or service that has broad acceptability in a large, growing market?
ii) Does the company have healthy margins, and are they sustainable over a longer period of time?
iii) Can company generate significant amounts of cash without resorting to expensive debt?
iv) Can company return the cash generated to its shareholders by declaring generous dividends?
v) Is the company’s management honest and competent, with hunger to grow business at a faster pace?

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.

As mentioned above, we released last issue of our report - 5 Stocks - Potential 5-Bagger in 5 Years on 29 May 2022. The 5 Stocks covered in this report were small cap companies with a market capital of less than 600 crores. Our research team included Hidden Gems stocks released in past having potential to multiply your investment by 5 times within 5 years.

Below is the performance update of Potential 5-Bagger Stocks in 5 Years Report (released on 29 May 2022).
5 Stocks - Potential 5-Baggers in 5 Years Performance Update
We are glad to inform you that one stock out of these 5 potential 5-Bagger stocks have delivered 3.5X returns in period of one year, whereas other 4 stocks delivered returns of +56%, +13%, -2% and -13% respectively. The average returns delivered by these 5 stocks is 60% in period of one year.

Releasing Soon: Special Report - 5 Stocks - Potential 5-Baggers in 5 Years Update

Special Report - Potential 5-Bagger Stocks
As we review our Potential 5-Bagger Stocks every year, we will release the update on our Special Report - 5 Stocks - Potential 5-Baggers in 5 Years in the month of June 2023. Under this report, we will review the current valuations and future growth outlook of these companies and guide our members accordingly. We will update members with our current uptake on these companies (buy / sell / hold strategy). We may also suggest to exit some of the existing companies and cover new companies which offer better investment opportunities with potential to deliver 5X returns in period of 5 Years. If we find any major change in fundamentals in any of these 5 stocks which can impact their performance going forward, we will inform you to take corrective measures.

Note: If you wish to receive our Special Report 5 Stocks : Potential 5-Baggers in 5 Years Update (to be released in June 2023), simply subscribe to Hidden Gems or Wealth-Builder service, or any of our Hidden Gems combo packs and we will send you the report without any extra charges! Once the report is released, we will share this report with all our existing subscribers of Hidden Gems and Wealth-Builder service. Simply subscribe to our services and grab our Special Report - 5 Stocks - Potential 5-Baggers in 5 Years for Free!

Start building your equity portfolio by making educated investment decisions, subscribe to our Hidden GemsValue PicksWealth-BuilderNano Champs annual subscription services.


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Click here to know more about our services and discounts applicable on combo packs.

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

Team - Saral Gyan

Thursday, May 25, 2023

Value Pick - Technocraft Industries - ROI of 50% in 2 Months

Dear Member,

We are pleased to inform you that our Value Pick stock - Technocraft Industries Ltd (BSE Code: 532804, NSE Code:TIIL) which we recommended on 19 March 2023 at Rs. 1165 has achieved its target price of Rs. 1750 in just 2 months.

Technocraft Industries stock made its all time high of Rs. 1779.35 recently and closed at Rs. 1753 today giving absolute returns of 50% to our Value Picks members in period of 2 months. We have not suggested any profit booking in the stock to our members, as we expected the company to perform well in coming quarters. Technocraft Industries will report its March quarter results on 29 May 2023.

Below is the report of Technocraft Industries Ltd released by our team as Value Pick stock on 19 March 2023, the report was shared with all our Value Picks members.

1. Company Background:

Technocraft Industries Report
Technocraft Industries was established by two IIT Graduate brothers as a partnership firm in 1972 which later converted to a private company in 1991. Technocraft Industries India Limited was initially focused on manufacturing high precision and sophisticated Drum Closures products for domestic markets but later the focus shifted to exports. The company was recognized as an export house by the government of India in 1979 and that’s when the company started establishing its subsidiaries in USA and Europe to cater the local market. In the year 1994, the company started expanding the product portfolio by acquiring Maharashtra Steel Tubes Ltd which was into manufacturing of Steel Pipes. Steel Pipes were hugely imported in Europe and to cater the opportunity, the company opened an office in United Kingdom at that time. Following the path of diversification, the company entered into manufacturing of cotton yarn in 1997. The yarn division was focused on manufacturing and export of 100% cotton ring spun yarn and was accorded a 100% EOU status.

Today, the company operates its business activities broadly in 3 divisions:

  • Drum Closures
  • Scaffolding & Formwork
  • Textiles (Cotton Yarn & Garments)

i) Drum Closures - The company is one of the leading manufacturers of Drum Closures worldwide and has established a worldwide market share of around 36% excluding China. The company is reputed globally for its quality and range of products it offers for drum closures. The company supplies drum closures to most leading drum and drum part manufacturers in the world including - B-POL, Drum Parts Inc, Mauser Group worldwide, Schutz Group worldwide and August Berger Metallwarent Gmbh. The ultimate end-user industries predominantly include oil and gas, packaging, chemicals, and food and beverages.

ii) Scaffolding & Formwork - Next big division of the company is Scaffolding and Formwork. Scaffolding is a temporary structure used to support people and material in the construction industries, real estate and any other large structures. It is usually a modular system of metal pipes or tubes, although it can be from other materials also. Formwork is the term given to either temporary or permanent molds into which concrete or similar materials are poured. This segment earns around 70% of it’s revenue from the overseas market. Scaffolding division is the second highest profit generator for the company, next to only drum closures.

iii) Textiles (Cotton Yarn & Garments) - The company has a State-of-the-art cotton yarn spinning mill equipped with fully automatic sophisticated technology from Germany, Switzerland, Japan and Spain near Mumbai. The plant is producing 30000 kgs of yarn per day on 61000 spindles installed and exporting to markets like South East Asia, China, Far East, Africa, Europe and Latin American countries.

Technocraft industries also deals in Fabric and Garments production. This division is moving towards a turnaround resulting from structural changes undertaken by the company to improve operating efficiencies. Being part of a diverse group, the Company has access to the latest trends in the European markets, thus enabling it to offer high quality products and latest fashions with Indian prices in a very short lead-time. As a result of this, 56% of total garments produced is exported to European, Asian and Latin American market.


The company is equipped with various certificates obtained for various divisions which ensures quality of products. Following are listed to name a few:

  • IS/ISO 9001:2015 Certificate of Pipe division
  • EN 1090-2:2018 Welding certificate for Steel products
  • EN 1090-3:2019 Welding certificate for Aluminum products
  • EN ISO 3834-2:2006 Welding certificate for Metallic materials
  • TechEuro-II props certified as per EN 1065:1998
  • TechEuro-III props certified as per EN 1065:1998
  • Certificate of Approval for Japanese Industrial Standards
  • TUV Austria OHSAS 18001:2007 certificate for Garment division
  • TUV Austria EN ISO 9001:2015 certificate for Garment division
  • TUV Austria EN ISO 14001:2015 certificate for Garment division
  • OEKO-TEX Standard 100 certificate for Garment division

Management Profile:

Mr. Sharad Kumar Saraf (Chairman cum Managing Director) - Mr. Sharad Kumar Saraf holds a degree in Electronics Engineering from IIT Bombay, graduated in 1969. Before founding the company, Mr. Sharad underwent one year industrial training in Germany in 1970 and returned to form Technocraft. Mr. Sharad has held various positions in different public organizations like Federation of Indian Export Organisations (FIEO), Confederation of Exporting Units (CEU), Indo-Romanian Chamber of Commerce, The Council of EU Chambers of Commerce in India etc.

Mr. Sudarshan Kumar Saraf (Co-Chairman cum Managing Director) - Mr. Sudarshan too is a IIT Bombay graduate holding a degree in Mechanical Engineering is responsible for directing all the engineering operations of the group. He was conferred the distinguished service award for the year 1999 by the Institute of Technology, Bombay. He pioneered the development of interval thread rolling process and built tools which were introduced in America which enabled the customer to save on labor cost and gain better yield.

Mr. Naveen Kumar Saraf (Director and CEO) - Mr. Naveen holds a degree from University of Manchester in Mechanical Engineering. He led the diversification of group into value added scaffolding and formwork which now holds a valuation of USD 80 million by the firm. He envisioned the diversification into engineering services outsourcing segment which is run through a subsidiary and employs more than 500 engineers in India, USA, Canada, UK and Germany. He is an active member of Young Presidents organization (YPO) and The Indus Entrepreneurs (TIE).

Mr. Ashish Kumar Saraf (Director) - Mr. Ashish Kumar Saraf holds a bachelor degree in commerce from University of Mumbai and a Masters in Textile Technology degree from Manchester University. He also completed a course on Cotton Management from Rhodes Institute, Memphis, USA.

2. Recent Developments / Market Outlook: (as on 19 March 2023)

i) Technocraft Industries Board of Directors approved the Buyback Proposal

The Board of Directors of the company at its meeting on November 14, 2022, has inter-alia approved the proposal of Buyback.

The proposal to buyback not exceeding 15,00,000 (Fifty Fifteen Lakh) equity shares of face value of Rs. 10 of the Company (representing 6.13% of the total number of equity shares in the paid-up share capital of the Company) at a price of ~1000 (Rupees One Thousand Only) per equity share payable in cash for an aggregate consideration not exceeding 150 Cr (Rupees One Hundred Fifty Crore Only). The buyback opened on 1 February 2023 and closed on 14 February 2023.

In accordance with the provisions of Regulation 24(iv) of the Buyback Regulations, the equity shares bought back by the company during the tendering period were extinguished. Post extinguishment of 15,00,000 equity shares of the company, the total number of shares were reduced from 2,44,61,687 (Prior to the Buyback - as of the Record Date, being December 30, 2022) to 2,29,61,687.

ii) Global Steel Drums market is expected to grow at CAGR of 4.5%

The global steel drums market is expected to hit USD 22.5 billion by 2029, expanding at a CAGR of 4.8% from 2022 to 2029. Increasing global trade and investment in efficient transport are expected to support the market growth in the forecasted period. Increasing global demand for food supplies and pharmaceutical segment produce is expected to take a major share in transport. With more demand for drums, closure’s demand will follow. Each drum requires one set of closure and may require gaskets and clamps for better fitting which are also produced by the company. With a variety of drum closures range according to the needs of the customer, the company is expected to strengthen its hold of the market.

iii) Global Scaffolding market is expected to grow at a CAGR of 6.3%

Global scaffolding market is expected to grow at a CAGR of approximately 6.3% from 2020 to 2027. Increasing FDI in construction in the Asia Pacific region and supportive government regulations and policies are driving the scaffolding market. The Indian government in its annual budget emphasized majorly on capital expenditure and development of infrastructure around the country. This construction will induce the demand for scaffolding and formwork division produce.

iv) The Indian Textile & Apparel Exports has a 4% share of the Global Trade

The Indian textile market is expected to be worth more than USD 209 billion by 2029. For perspective, the market stood at USD 152 billion in 2021.

India is the world’s largest producer of cotton. Estimated production stood at 362.18 lakh bales during cotton season 2021-22. Production for next crop year is expected to be around the same volume as it was in preceding crop year. Domestic consumption for the 2021-22 cotton season is estimated to be at 338 lakh bales. Cotton production in India is projected to reach 7.2 million tonnes (~43 million bales of 170 kg each) by 2030, driven by increasing demand from consumers. Also, export of textiles grew by a healthy rate of 9%. Hence the demand, revenue and profits are expected to grow in future.

The government has targets of raising the share of the manufacturing industry in Gross Domestic Product up to 25% by 2025. The introduction of PLI schemes is a way to push towards the goal. Currently, the sector contributes about 14.43% in 2021. The Indian manufacturing sector is steadily moving toward more automated and process-driven manufacturing, which is projected to improve efficiency and enhance productivity. Also, the push towards “Make in India” is expected to help the government achieve or reach close to the target.

3. Financial Performance: (as on 19 March 2023)

Technocraft Industries Operating Margin
i) Quarterly Results Analysis: Quarterly consolidated revenue and consolidated profits of the company are showing impressive results. The company managed to increase its quarterly revenue for the period ending June 2022 by 33% compared to last year and by 8% in September 2022. Although quarterly revenue for the period ending December 2022 dipped compared to same period last year, the company managed to improve profit by 33% mainly due to improved operating profit margins. The chart shows the improvement in operating margin over the quarters

In Dec’23 quarter, while the Drum Closure business saw pressure on the profit margin due to increased cost of materials, ocean freights and other inflationary impact on consumables & services along with pressure on demand, the Scaffolding business performance witnessed substantial improvement. The company is observing strong demand for its product and as a result there is substantial increase in Revenue and Margins.

The Textile segment of the company observed pressure on revenue as well as on margins due to increased cost of raw material (Cotton) & reduced price of finished product (Yarn)

Technocraft Industries Assets
ii) Balance Sheet Analysis: During the year, the company reduced its long term borrowings in order to reduce the interest costs and instead shifted towards more short term loans. On analyzing further, we can observe the nature of short-term loans are majorly in the nature of Packing Credit. Packing Credit is a short-term loan facility which a manufacturer can use to fulfil orders. This loan can be used to acquire raw materials required for a particular shipment and paid back when the amount is received from the customer, hence these are generally without security.

As illustrated in the chart above, there is a consistent increase in value of assets held by the company. Both fixed and current assets are following the same trend. The company has slightly improved debtor days and inventory days indicating efficient use of funds.

4. Investment Rationale: (as on 19 March 2023)

i) Technocraft Industries has designed and developed the next generation technology for manufacturing of drum closures. It also manufactures all its gaskets and clamps and offers a full range of drum closure products to its clients. With patented technology, there has been substantial reduction in manufacturing costs, improvement in quality and this has helped the company to become the second largest global manufacturer of steel drum closures. Technocraft Industries is the second largest manufacturer of steel Drum Closures and continues to enjoy a worldwide market share of about 36% (excluding China). The company produces a wide variety of closures and related equipment ranging from fully automatic flange insertion systems to cap-sealing tools. The company caters to all leading steel drum manufacturing companies of the world.

ii) Technocraft Industries is also a leading Indian manufacturer and distributor of scaffoldings and formwork systems. The company has been supplying scaffoldings to global markets for over 20 years. Despite the volatile nature of construction and allied activities, the Scaffolding & Formwork (S&F) market is thriving in India and is expected to see brighter times ahead. With the demand rising in the wake of ongoing and future projects, S&F manufacturers are keeping pace with the construction industry. The company has strategically located state-of-the-art manufacturing facilities with installed capacities of 40,000 MT and 25,000 MT in India and China, respectively. The company is positioned as an end-to-end solution provider owing to its well-integrated manufacturing capability. The company supplies its products to a diversified set of end markets including oil & gas, power, refineries, petrochemical, infrastructure and commercial construction.

iii) Looking at the Indian government’s focus on rapid infrastructural development across the country by constructing railways, roads, bridges, dams, airports, power plants and many more, construction is expected to grow at a fast pace. Contractors have started adapting newer technologies, faster systems, advanced concrete techniques and better and established management tools. Engineered formwork systems are built out of prefabricated modules with a metal frame - usually of steel or aluminium - and covered on the application (concrete) side with material having the wanted surface structure (steel, aluminium, plastic, timber, etc)

iv) The company has entered into manufacturing of sophisticated engineered formwork systems for building, construction and infrastructure projects in India. The company has state-of-the-art manufacturing plants in India and is well placed to play a larger role in the construction growth in India and overseas, with a network of offices at Mumbai and overseas.  The company’s product ‘Mach One’ is a very lightweight Formwork system made of high quality aluminium extrusion with admirable strength to take on the site conditions. Mach One aluminium forms are best suited for construction of residential units and mass housing projects. As per industry reports, 80% of the total cost of scaffolding is attributed towards labor cost that is involved in loading and unloading and erection and dismantling of scaffolding. With Mach One, the company has made this cost more efficient by making the entire system lighter without compromising on the required strength.

v) The company has a yarn division having consolidated capacity of around 87,000 spindles. The company produces a variety of products ranging from NE 20 to NE 40, carded and combed varieties of cotton yarn. The spinning mill is equipped with world-class Swiss, Japanese, German, Spanish equipment.  Currently, the company exports around 55% of garment products mainly in Europe, Asia, Latin American countries etc. This company has made significant structural changes in this division like grey cotton yarn operations are now based in Amravati which is cotton growing area and has cost effective operations and has shown substantial improvements in revenue as well as profits. In Murbad, the company now produces only value- added high margin products like melange yarn and fabric. These are also generating substantially better revenue and profit. Overall, this division has now been re-engineered and all loss making products and locations has been plugged by the company.

vi) Technosoft Engineering Projects Limited is a subsidiary of the company. It is a global technology services company offering broad-based engineering, designing and IT services using a variety of client-partnership models for delivery. Technosoft Engineering Projects client base spans various industry verticals including heavy machinery, automotive, aerospace, manufacturing, oil & gas, high-tech, telecom, healthcare and financial services. The company’s client base is widely spread globally including many clients from US, Canada, UK and Germany. This subsidiary has a strong team of over 300 engineers and designers located worldwide. Its engineers and designers are equipped with state-of-the-art hardware and software tools, including tools for 3-D modeling, Finite Element Analysis and process simulation.

vii) The consolidated revenue of the company is consistently increasing over the years and the same trend is followed by the profits. As illustrated in the charts below, revenue has reached around 2000 crore in FY22 and is expected to surpass even that in FY23. The consolidated profit is also expected to grow with expected turnaround in the textile division. With improved operating profit margins in last few years, profit jump looks higher than the revenue.

Technocraft Industries Revenue & Profits

viii) Infrastructure projects have taken pace globally after a slowdown during the pandemic period. Infrastructure industry growth will induce the demand for scaffolding and formworks. The innovative scaff shelter product recently introduced by the company which erects temporary labor shelters within a few hours will be in demand with new projects. The company claims to set up an on-site facility for 100 workers in 7 days with its scaff shelter facility. The scaffolding and formwork made by the company is considered to be a premium product due to its quality. In recent years, the market has seen a shift towards premium and more reliable products, especially in long term projects. Hence, the company has an advantageous position with a reputation of being a manufacturer of high-quality products.

ix) Technocraft Industries is upgrading and expanding its capacity in the textile division. As mentioned earlier in the report, the company has implemented structural changes in the textile division to improve operating efficiency. The company expects a turnaround in this segment in future and if turned profitable, it will bring big boost towards margins and overall profitability of the company. Moreover, through the textiles business the company has diversified its business operations by reducing its dependence on other divisions.

x) Technocraft Industries has a strong track record, the company has achieved sales CAGR of 15%, profit CAGR of 21% with ROE of 16% over the last 5 years. At current price of Rs. 1165, the company is available at price to book value of 1.94 and is commanding PE multiple of 9.4 on trailing 12 months basis. The company has improved debtor days, inventory days and creditor days in FY22. These ratios indicate better utilization of funds and efficiency in operations. Moreover, current ratio over 2 times, interest coverage ratio over 16 times and comfortable debt to equity of 0.34 times indicates fundamental strength of the company.

xi) Post completion of buyback, the promoters shareholding in the company is at 74.61 percent. As on Dec’22, institution shareholding in the company is 4.79 percent, out of which alternate investment funds hold 4.02 percent stake (Aequitas Equity Scheme holds 1.05 percent and Abakkus Emerging Opportunities fund hold 2.97 percent) and foreign portfolio investors hold 0.77 percent stake in the company.

5. Key Concerns & Risks: (as on 19 March 2023)

i) Global recession concerns: As per the world bank, economies around the world will be facing challenging times in the coming period. The world bank predicts the US economy to grow by only 0.5% and Europe market growth to remain flat or zero. The company’s majority revenue is earned by exports and US and Europe are considered to be their largest markets. Slowdown in these economies is going to affect Technocraft’s performance.

ii) Weakening of INR: Indian rupee has touched an all time low against US Dollar in October 2022. 70% of the revenue of Technocraft comes from export sales and the US Dollar is considered to be the predominant currency in global trade. This weakening of INR can impact the operating margins of the company in large competitive markets.

iii) Loss in Fabric segment: The company has been constantly reporting losses in Fabric segment. Garment industry is considered to be one of the most populous industries in the world and this is affecting the overall profitability and overall operating margins of the company. Although the company has almost halved the losses in FY22 compared to FY21 with increased turnover by 64% in the same period, the losses are expected to widen in FY23 based on the limited segment wise information provided by the company in December quarter results.

6. Saral Gyan Recommendation: (as on 19 March 2023)

The company focus is to grow its position in each of its core businesses which is Drum Closures, Scaffolding, Engineering & designing Services and Textiles. The company sees the Drum Closure division growing at a robust pace and is one of its core focus areas. The company is working strongly and increasing the sales and profitability in China which is one of the main growing markets for Drum Closures division. Scaffolding business is also expected to do well considering Government initiatives such as RERA, Affordable housing, Smart Cities etc. which is expected to bring a transformational shift and boost growth of the Indian real estate industry. The company believes that this division has strong future prospects due to anticipated growth in infrastructure and affordable housing construction demand in India as well as globally. Moreover, the company has implemented structural changes in the textile division to improve operating efficiency. The company expects a turnaround in this segment in future and if turned profitable, it will bring a big boost towards margins and overall profitability of the company.

Considering consistent increase in profits and margins in the past with significant increase in net worth of the company (net worth as at 31 March 2016 was Rs. 553 crores which has substantially increased to Rs. 1330 crores as at 31 March 2022), planned capacity expansions in the textile division and diversifying into plastic drum closures to drive future growth, expected volume growth in the scaffolding division with increasing thrust on infrastructure development and reasonable to attractive valuations of the company, Saral Gyan team recommends “Buy” on Technocraft Industries (India) Limited at a price of Rs. 1164.55 for a target of Rs. 1750 over a period of 12 to 24 months.

Buying Strategy:

  • 60% at current market price of 1164.55
  • 40% at price range of 900 – 1000 (in case of correction in stock price)

Portfolio Allocation: 3% of your equity portfolio.

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