Ashish Kacholia and Nirmal Bang are super-savvy investors with an incredible talent for fishing out winning stocks. Both stalwarts are also super-secretive about their stock picking and you will never find either of them bragging about their achievements.
Vishnu Chemicals, an unknown micro-cap with a market capitalisation of only Rs. 435 crore, is the object of attention of the two heavy-weight stock pickers.
In the period between July to September 2015, Ashish Kacholia has bought 398,523 shares (3.34%) of Vishnu Chemicals Ltd. Mindset Securities has kept pace by buying 131,573 shares (1.10%). Mindset Securities is an investment concern of Kishore Mishrilal Bang and Dilip Mishrilal Bang, the founders of Nirmal Bang. The investments are worth Rs. 14.50 crore and Rs. 4.78 crore respectively at the CMP of Rs. 364.
It is obvious that the two stalwarts would not have pumped in such large sums of money into an unknown micro-cap unless they are absolutely confident about the Company’s prospects.
A close study of Vishu Chemicals reveals top secrets on why the duo of Ashish Kacholia and Nirmal Bang are so gung-ho about it.
The most important aspect appears to be that in August 2015, Vishnu Chemicals acquired 100% control over a company called Solvay Vishnu Barium Ltd. Solvay Vishnu Barium was set up in collaboration with Solvay AG. It is the largest barium carbonate manufacturer in India since the year 2000 and employs around 120 employees. The acquisition is expected to lead to a quantum jump in Vishnu’s sales and profitability. Vishnu itself is engaged in the manufacture of chromium chemicals and other specialty chemicals;
Secondly, Vishnu has been delivering solid returns year after year. In FY 2014-15, the sales increased by 19% whereas the profitability increased by 67% and the earning per Equity share increased by almost 100%. It is notable that in the last three years, Vishnu Chemicals’ sales have grown at a CAGR of 8.27% while the profits have grown at a CAGR of 37%. The average three-year ROE is about 21%.
|Financial Overview Of Vishnu Chemicals|
|Particulars (Rs cr)||2015||2014||2013|
|Profit After Tax||21.91||13.12||7.33|
|Financial Ratios Of Vishnu Chemicals|
|Return on Capital Employed (%)||18.86||17.11||16.55|
|Return on Net Worth (%)||26.86||20.01||13.25|
|Operating Profit Margin (%)||19.14||18.48||17.95|
|Net Profit Margin (%)||5.24||3.73||2.26|
|Earning Per Share (Rs)||17.92||10.98||6.14|
The superlative performance has continued in Q1FY16 and Q2FY16 as well. In Q2FY16, Vishnu Chemicals’ net profit rose 67.42% to Rs 6.68 crore as against Rs 3.99 crore in Q2FY15. Sales rose 7.37% to Rs 117.63 crore in Q2FY16 as against Rs 109.56 crore in Q2FY15.
|Vishnu Chemcials Quarterly Results (Q2FY16)|
|Particulars (Rs cr)||Sep 2015||Sep 2014||% Chg|
Thirdly, the three promoters, namely, Krishna Murthy, Manjula and Siddartha, hold 75% of the equity capital. Ashish Kacholia and Nirmal Bang hold 4.44%. So, the stock available in the public domain, which is scattered amongst hundreds of individual shareholders, is only about 20%.
This reminds me of the advice offered by Sumir Chaddha of Westbridge Capital/ Jwalamukhi about how such stocks with a low floating capital enjoy a “scarcity” premium and are usually mispriced.
It is also notable that the remuneration drawn by the promoters in their capacity as MD and Joint MD aggregates Rs. 1.02 crore, which is lower than the ceiling of Rs. 3.42 crore permitted by the law. So, there appear to be no corporate governance issues.
We must also note the point made by Vijay Kedia when he explained why he is bullish about Sudarshan Chemicals. Kedia pointed out that companies which have already completed their capex enjoy an “operating leverage” when the demand improves. He also pointed out that a lot of business is shifting to India from the European countries and that all chemical companies will prosper as a result.
So, on an overall analysis, we have to compliment Ashish Kacholia and the promoters of Nirmal Bang for yet another stellar stock pick.