In an earlier piece, I profiled Rahul Saraogi of Atyant Capital. There, Rahul Saraogi explains that when he is evaluating a stock, he looks for “asymmetry” meaning that the gains that would accrue from the stock should be highly disproportionate to the risk that he is taking with the stock. He also pointed out that he has a rigorous screening process that ensures that only the best of the best stocks are given consideration.
So, when Rahul Saraogi has bought a stock, you can rest assured that the stock scores well on all parameters such as corporate governance, capital allocation, growth prospects, valuations etc. You can also be sure that the downside is limited and the upside potential is huge.
One stock to which Atyant Capital has entrusted its capital is Navin Fluorine International, a micro cap with a market capitalisation of only Rs. 634 crore.
As of 31st December 2014, Atyant Capital holds 315,988 shares in Navin Fluorine. At the CMP of Rs. 650, the investment is worth Rs. 20.53 crore.
What is now most significant is that Ashish Kacholia, who already has several multi-baggers to his credit, has also bought a chunk of 1,12,407 shares of Navin Fluorine in the December 2014 quarter. His holding is worth Rs. 7.30 crore.
To understand what it is about Navin Fluorine that has got these ace investors interested, we have to turn to the company’s “Investor’s Presentation”.
The Investors Presentation explains that Navin Fluorine has four segments, Refrigerants, Inorganic Fluorides, Specialty Chemicals and CRAMS. Navin is stated to be the “Largest Integrated Specialty Fluoro-chemical Company in India”. It is also pointed out that the global demand for Fluoro-chemicals in 2016 will reach 3.5 mn MT (Growth of 3.9% per annum), valued at USD 19.7 billion. This implies that there is immense potential for the products manufactured by the Company.
The Investors presentation also refers to the fact that a Greenfield facility is being created at Dahej for specialty chemicals in a joint venture with Piramal Enterprises Ltd. This facility is expected to come on stream by FY16. The presentation gives a lot of other important information on the future plans of the company and its financial affairs.
|Key Forecast of Navin Fluorine (source: CRISIL)|
|Adj net income||418||467||472||477||647|
|Adj EPS (₹)||42.9||47.9||48.4||48.9||66.3|
|EPS growth (%)||(72.1)||11.7||1.1||0.9||35.7|
|Dividend yield (%)||2.5||2.6||2.6||2.6||3.0|
CRISIL has also conducted a meticulous assessment of Navin Fluorine. CRISIL points out that while Navin’s core business revenues declined 4% in FY14 on weak domestic demand, the growth is expected to bounce back over the next three years due to demand recovery and the company’s efforts to expand its customer base across segments. It is also pointed out that Navin is also focusing on new opportunities in fluorine chemicals and that it is expanding its CRAMS facility and also set up a JV with Piramal Enterprises Ltd for manufacturing a specialty chemical for the healthcare industry. CRISL expects the higher-margin new forays to improve the company’s market position and profitability in the medium to long term, starting from FY16-17.
Way2Wealth has also issued an ‘initiating coverage’ report on Navin Fluorine (in April 2014, when the market price was Rs. 377) advising a buy on the basis that the “speciality Organic Fluorine Chemicals Intermediate & CRAMS are strong visible growth drivers of revenue and also command high margin”.
So, it does look like Rahul Saraogi and Ashish Kacholia have cleverly positioned themselves into Navin Fluorine at a time when the stock is in the doldrums. However, as and when the new forays start contributing to the revenue (by FY 16-17), one can be sure that investors’ interest will perk up and the stock will start surging.