Dolly Khanna’s portfolio sparkles with specialty chemical stocks
I have earlier drawn attention to the performance of Dolly Khanna’s latest portfolio. The portfolio has given a magnificent return of 112% on a YoY basis and out-performed most other PMS and mutual funds.
I have also separately drawn attention to the four specialty chemical stocks in Dolly Khanna’s portfolio and explained the rationale as to why Dolly has bought these stocks:
|Specialty Chemical Stocks In Dolly Khanna Portfolio|
|Stock||Nos of shares||CMP (Rs)||Value (Rs Cr)||YoY Return (%)||Two Year Return (%)|
*As of 31.12.2016
Rajiv Khanna, Dolly’s alter ego, is a chemical engineer
Few are aware that Rajiv Khanna, Dolly’s illustrious alter ego, is a chemical engineer from IIT Madras. He passed out in 1968 and learnt the nuances of the chemicals business at Jagatjit Industries and ICI Ltd.
This specialist knowledge of chemicals coupled with mastery about the stock market has enabled Dolly and Rajiv to pick top-quality specialty chemical stocks, which have effortlessly turned into multibaggers.
Aggressive increase of stake in NOCIL
Dolly Khanna’s aggressive increase in stake in NOCIL is a clear giveaway of the immense confidence that she and Rajiv have in the Company.
As of 1st April 2015, Dolly Khanna held a mere 6,19,131 shares of NOCIL.
As of 1st April 2016, the holding stood at 21,80,801 shares.
As of 31st December 2016, the holding stands at 33,35,014 shares.
In other words, Dolly has quintupled her holding in NOCIL in about 18 months.
|NOCIL LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||1,314|
|EPS – TTM||(Rs)||[*S]||6.22|
|LATEST DIVIDEND DATE||19 JUL 2016|
|BOOK VALUE / SHARE||(Rs)||[*S]||33.07|
[*C] Consolidated [*S] Standalone
|NOCIL LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||DEC 2016||DEC 2015||% CHG|
(Source: Business Standard)
Other distinguished shareholders of NOCIL
Dolly gets to rub shoulders with other elite shareholders such as Madhuri Kela (related to Madhusudan Kela of Reliance Capital fame). Madhuri Kela held 10,00,000 shares as of 31st March 2016. Nirmal Bang Financial Services Pvt. Ltd and Edelweiss Securities held 11,40,000 shares and 6,24,576 shares respectively as of 31st March 2016. The present holding of the trio is not known.
NOCIL is a “wealth builder” stock with 50% upside: Stock Axis
Stock Axis, a well-known stock advisory firm, has recommended a buy of NOCIL on the logic that “increased capacity utilization and revival in commercial vehicle industry will lead to future growth”.
It is further explained that:
“With major tyre companies shifting their supplies to India from China, NOCIL stands at an advantageous position. Also the company has all the compliance in place which the Chinese companies lacked. With the anti-dumping duty levied globally and is in effect until CY19 and ramp up of Dahej facility in place, NOCIL is expected to be benefitted”.
Stock Axis has also pointed out that NOCIL is presently trading at attractive valuations of 13.30x FY17E and 12.50x FY18E EPS.
We have to agree that these valuations are quite reasonable in the present day and age where all sorts of stocks are flying at exorbitant valuations.
Stock Axis has foreseen a target price of Rs 126 (18.80x FY18E EPS) which works out to a hefty upside of 50% from the CMP.
NOCIL is a “value pick” with target price of Rs. 105: Avinash Gorakshakar
Avinash Gorakshakar, a leading stock market expert, has recommended a buy of NOCIL on the following logic:
(i) The operating results are quite encouraging with a steady increase in the top-line and the profitability;
(ii) The growth prospects are good because the demand for rubber chemicals in the domestic market is growing at about 12-13%.
(iii) The threat of Chinese imports have been mitigated due to the anti-dumping law which is in force till FY2019 and may be extended;
(iv) The Company is completely debt-free. The Return on Capital Employed (ROCE) is about 25-26%. The valuations are reasonable keeping these paramaters in mind.
(v) The stock has a target price of Rs. 105 (31% upside).
Buy recommendation of HDFC Securities
HDFC Securities has recommended a buy on the following investment rationale:
“Incorporated in 1961, Nocil is a part of Arvind Mafatlal Group, a well-known business house in India with diversified business interest. Nocil is the largest rubber chemical manufacturer in India with wide range of rubber chemicals for use in Tyre & other rubber application industries. Nocil has customer relationship with clients in around 40 countries. The company has two manufacturing units at Thane, Maharashtra and Dahej, Gujarat and dedicated ancillary unit with combined capacity of 55,000 MTPA. The company is planning a brownfield expansion at its Dahej facility at a cost ~Rs 150‐170 cr.
• Market leader in rubber chemicals
• Strong growth in automobile sector
• Dahej plant has been a game changer
• Encouraging financial parameters
• Continuous R&D initiatives leading to higher efficiency”.
HDFC Sec has foreseen a target price of Rs. 98 for Nocil.
Buy recommendation of ETIG
Jwalit Vyas of ETIG has analyzed the fundamentals of NOCIL and opined that the lower dependence on Chinese products and the wide range of rubber chemicals will help the company gain leverage in the local market. It is also stated that the stock is trading at valuations (about 10x FY17E EPS) which are attractive given the strong outlook and superior financials.
Other stock recommendations
The stock has earlier been recommended by DD Sharma, the veteran stock picker, and other experts.
Investors’ presentation explains the future gameplan
The investors’ presentation provides important information about the business plans of the Company.
It is pointed out that there are several “Growth Drivers” such as:
(i) Global demand for rubber processing chemicals forecasted to increase by 4.4% to 1.5milions MT till 2020;
(ii) Manufacture of Premium tires, High performance Automotive & Industrial products will increase rubber processing chemical loadings;
(iii) Expectations of Quality & Long service lives of the rubber products will also add to the demand;
(iv) Rising Income levels & increase in Motor vehicle ownership rates, especially in developing nations – thus additional consumption of rubber processing chemicals.
The Dahej plant has been described as a “game changer” on the basis that it is a “zero wastage plant” and will benefit from “significant cost reduction”. It is also emphasized that there is a “strong pipeline of new generation rubber chemicals (Speciality & High Value Chemicals)” which will be manufactured by the Company. There is also a reference to a change in revenue mix from generic to high-value added products and that “operating leverage” will play out.
Prima facie, we have to agree with Dolly and Rajiv Khanna that NOCIL does look like a good investment candidate given the high demand for its products, the quality of the management and the debt-free status. Now, we have to eagerly watch whether the lofty targets that have been projected by the experts are met and if so in within what period of time!