Daljeet is a staunch believer in the principle that one must invest funds only in stocks which have top-quality management and a sound business model. These are classic ‘buy and forget’ stocks that can be trusted to compound gains slowly and steadily and become multibaggers by sheer passage of time.
JB Chemicals is one of Daljeet Kohli’s all-time favourite stocks. He first recommended the stock in December 2013 on the basis that the new pricing policy would benefit JB Chemical’s margins and that it will report healthy growth in exports business & domestic business going forward.
This prediction has come true. JB Chemicals has grown by leaps and bounds and the stock price has kept pace. The stock has surged from Rs. 110 to Rs. 376, resulting in fabulous gains of 217%.
It is notable that these hefty gains have come with absolutely no risk to the investors’ capital because JB Chem is, owing to its debt-free status, huge cash balance and established business, in a fail-proof status.
JB Chem is on the cusp of re-rating
Daljeet has reiterated a buy on the basis that the “stock is on the cusp of re-rating on back of US business”. The logic is as follows:
“This is second consecutive quarter of margin expansion with EBITDA margin firmly moving to 20% range from 16% range in previous years. Despite challenging environment on export markets JBCL has been maintaining marginal growth implying the strength of its product portfolio. We believe in near future as currency related issues in many of the EMs recede, JBCL will be back on better growth trajectory. Meantime the company has been steadily moving strengthening its DF franchisee as well as developing a few products for US markets. We believe the efforts on US front should start yielding results in next 1-2 quarters. Visibility on US shall be next trigger for stock re-rating. We remain positive on JBCL & maintain buy rating on the stock with upward revised target price of Rs 413 (15xFY18E EPS, unchanged). At CMP of Rs 337, the stock is trading at attractive valuation of 13.3x FY17E EPS of Rs25.3 &12.2.x FY18E EPS of Rs 27.50.”
CD Equisearch also recommends JB Chem
CD Equisearch has recommended a buy of JB Chemicals on the basis that the stock is presently quoting at reasonable valuations of 18.3x FY17e EPS of Rs. 18.73 and 15x FY18e EPS of 22.81 and has a strong liquidity position of Rs 392 crs ($ 58.6m). CD has also pointed out that there has been revenue growth and margin expansion in the last few quarters which has increased FY17e EPS estimate to Rs 18.73 vs. Rs. 15.35 earlier.
JB Chemicals is also favourite of G Chokkalingam
G Chokkalingam, the well-known value investor, is also known to be bullish about JB Chemicals. He recommended the stock in January 2015 when it was languishing at Rs. 184 and promised a target price of Rs. 256 which has been effortlessly breached. Recently, when the stock corrected despite good quarterly results, G Chokkalingam recommended investors to buy the stock “aggressively” on the basis that there is a “lot of comfort” in the balance sheet of the company.
L&T Finance Holdings is yet another blue-chip mid-cap NBFC stock that is “safe as a house”. The pedigree of the promoter ensures that our money is safe and sound and that the stock will continue to compound slowly and steadily without requiring any supervision from us.
On a YoY basis, L&T Finance Holdings has given a return of 39%. While the return is hefty, it has underperformed its peers like Capital First and Bajaj Finance which have given a YoY return of 86% and 112% respectively.
Incidentally, both Capital First and Bajaj Finance have also been recommended by Daljeet Kohli in the past when they were languishing at low valuations.
Daljeet has promised that “re-rating is on the cards” for L&T Finance Holdings and that it will soon catch up with its peers. His logic is as follows:
“L&T Finance Holdings (LTFH) has moved up by 23% in last 3 months due to better than expected Q1FY17 performance, long term strategy of improving ROEs significantly from current 13% and significant valuation discount compared to peers. Recently we had an interaction with management of LTFH to know the developments with regards to implementation of new strategy. Thereafter we have revisited our estimates and assumptions to capture in slightly longer view in our model and its likely impact on valuations. We note that LTFH’s management has taken right steps to improve its long term ROEs materially from current 13% which will be led by 1) decline in defocused portfolio where the risk is higher like Infra, CV, CE and long term SME financing 2) significantly improving cost to income by closing the overlapped branches (like closing down a branch where there is a branch of L&T Finance and also of L&T Housing in same location / area), 3) reducing the risk in wholesale / infra business by focusing on only operational projects which is likely to limit provisioning and 4) stable consolidated NIMs. While there is upside risk to our margins assumption mainly due to 1) likely positive surprise from higher growth in Tractor book which is high yielding and 2) increase in Loan Against property and develop financing book which again is high yielding. Hence we upgrade rating to BUY with upwards revised target price of Rs 115, implying 2.8x FY18 ABV (3 years PT of Rs 155 based on 2.8x FY20 ABV).”
L&T Finance Holdings also recommended by Sandip Sabharwal
It is significant that Sandip Sabharwal has also recommended L&T Finance Holdings recently as one of his mid-cap stock recommendations. The other two stocks recommended by him, namely, Manappuram Finance and Jain Irrigation, are firing on all cylinders as of now and L&T Finance Holdings is also expected to join the party.