Three Stock Wizards, Prashant Jain, Kenneth Andrade & Ajay Relan, Team Up To Gorge On Small Cap Stock

Prashant Jain, whiz-kid with HDFC Mutual Fund, is buying the stock of APL Apollo Tubes like there is no tomorrow. He first bought a chunk of 5,68,500 shares on 3rd March 2015 at Rs. 350 each. Then, on 10th March 2015, he bought another chunk of 1,96,000 shares at Rs. 365 each. Today, he bought yet another chunk of 1,60,371 shares at Rs. 392 each.

It appears that Prashant Jain is buying in “SIP” mode to stay under the radar and avoid sending the stock price surging. However, nothing escapes our eagle eye!!

HDFC Mutual Fund’s total holding in APL Apollo Tubes stands at 924871 shares worth Rs. 37 crore at the CMP of Rs. 400.

APL Apollo Tubes has attracted a number of other savvy investors also.

Kenneth Andrade’s IDFC Mutual Fund holds 15,86,500 shares. Kenneth Andrade needs no introduction at all. His prowess in fishing out winning stocks like Page Industries, Kaveri Seeds etc, etc is legendary.

Ajay Relan, founder of CX Partners, holds 2,40,000 shares which he bought in March 2014 at rates ranging between Rs. 175 and Rs. 236 per share.

We are also very familiar with Ajay Relan’s stock picking skills. He recommended an investment in MPS in January 2014. Today, the stock is a 4-Bagger! Ajay Relan has also revealed his secret formula for finding multi-bagger stocks.

The fact that Ajay Relan has bought APL Apollo as his personal investment (and not for the CX Partners’ fund) is most significant.

APL Apollo Tubes is a small cap company with a market capitalisation of Rs. 940 crore. It is said to be the “the fastest growing manufacturer of ERW steel tubes, pipes and hollow sections in India”.

According to an Investors’ Presentation issued in June 2014, APL Apollo Tubes’ revenue has grown at a CAGR of 36% from FY12 to FY14. In 2013-14, the ROCE is about 24% while the RONW is 13.9. The debt – equity ratio is quite high at 1.12 though the management states that concerted efforts are on to reduce the debt – equity ratio to an optimum level of 1:1.

The Investors presentation also sets out the growth drivers for the Industry, namely, increase in the domestic steel consumption. The details of the business outlook is also given. “Vision 2015” is stated to be “to achieve 1MTPA production capacity by 2015 and volume growth of over 30% p.a.” Details are given as to how this will be achieved. There is also an interesting “SWOT analysis” prepared.

Another resource to get a grip on APL Apollo is the research report by Nirmal Bang, also dated June 2014. Nirmal Bang has expressed the opinion that strong volume growth may continue and that margin improvement is likely.

Interestingly, APL Apollo is in the same Industry as Ratnamani Metals and Tubes. There is an excellent Initiating Coverage report on Ratnamani Metals by Centrum which uses APL Apollo as a comparison metric for Ratnamani. Centrum points out that the revival in the industrial capex cycle will lead to an increase in spends in key industries like irrigation, oil & gas, nuclear and thermal power and that all of this will benefit Ratnamani. The same logic can be extended to APL Apollo Tubes.

So, I think we have to prepare oureslves to compliment the three stock wizards, Prashant Jain, Kenneth Andrade and Ajay Relay, for yet another winning stock pick.