Sanjoy Bhattacharyya, the doyen amongst value investors, gave an illuminating talk a few days ago in which he explained that if we want to make large sums of money from the stock market, we should seek to buy companies that enjoy a specific advantage such as being a low-cost producer, a monopoly etc, etc, quoting at reasonable valuations. He explained that such companies are able to withstand the vagaries of the economy and are able to churn out huge returns, year after year.
Sanjoy Bhattacharyya is also the Principal Adviser to the ‘Gateway of India Fund’ run by Ocean Dial.
On an earlier occasion, I have analyzed in detail the stocks hand-picked by Sanjoy Bhattacharyya for the Gateway of India Fund. All the stocks are of top-quality and quoting at reasonable valuations. They are expected to do well for the several years to come.
Ocean Dial’s latest stock pick is Ramkrishna Forging. Today, it bought 162,439 shares of Ramkrishna Forging at Rs. 524 each, laying out an investment of Rs. 8.51 crore.
In a coincidence, Anik Das of Microsec has yesterday issued an “Initiating coverage” report on Ramkrishna Forging in which he has recommended a “Strong Buy”.
Anik Das’ analysis is succinct:
“We recommend Ramkrishna Forging Ltd (RKFL) a “STRONG BUY”. RKFL, is a medium sized forgings company, manufactures products for automobile (sales contribution ~75%) followed by railways (sales contribution ~10%), and mining sectors. Over the last 2 two years RKFL’s financial hit by worst-ever demand slumps, lacklustre industrial activity and elevated interest rates caused industry volumes to plummet more than 40% over FY12-FY14.In the midst of downturn, the company heavily invested in their heavy press forging vertical with a capex of INR700 crores which double its total capacity to 150,000 tonnes from 70,000 tonnes currently. The strong export growth, which is likely to be seen in FY15e from its capacity expansion to ~1,50,000 tonnes p.a., increased demand domestic MHCVs segment, higher capacity utilization in FY15e to enhance margins, bodes well for the RKFL’s fortune. Therefore we initiate coverage on RKFL with a “STRONG BUY” recommendation and a target price of INR 616.”
Anik Das has given several other reasons in support of his advice. He points out that Ramkrishna’s foray into the margin accretive heavy press forging vertical will be the key revenue driver over the next 3 years. He adds that the revenue is expected to grow at a CAGR of 54% over FY14‐17e on impressive export growth. He emphasizes that in the light of such strong performance Ramkrishna is bound to get re-rated and will command a higher multiple.
After a reading of Microsec’s research report, it does appear that Ramkrishna Forging fits in nicely into the specifications that Sanjoy Bhattacharyya specifies for a stock to be called a ‘value buy’.