The problem with novice investors like you and me is that we cannot see opportunity even when it comes banging on our door.
This is best exemplified by the report that I posted on 24th August 2015 when I spotted Ocean Dial Gateway to India Fund buying a chunk of 924,034 shares of Gujarat Heavy Chemicals (GHCL). Instead of trying to seriously analyze the Company, I asked the frivolous question whether Sanjoy Bhattacharyya was being “foolhardy in aggressively buying stocks on day of gory carnage”. I also flippantly stated “Why Sanjoy Bhattacharyya preferred GHCL over all the other stocks in the market is a big mystery that will have to be solved on another day”.
Since that fateful day, GHCL has notched up handsome gains of 45%. The YoY return from the stock is a hefty 84%. Also, Ocean Dial Gateway To India Mauritius Ltd has increased its holding in the Company to 25,00,000 shares.
Luckily, it is not too late for us to make amends because GHCL is still undervalued and has a lot of potential. This is demonstrated by the fact that Ashish Kacholia stormed the counter today to scoop up a chunk of 14,80,100 shares at Rs. 164.50 each. His investment is worth Rs. 24.34 crore.
To understand what it is about GHCL that is attracting wizards of the caliber of Sanjoy Bhattacharyya and Ashish Kacholia, we have to turn to the investors’ presentation furnished by the Company and the research report by NVS Wealth Managers. The salient aspects of the reports are as follows:
|GHCL Profitability highlights (Rs in Cr)|
|Profit before Tax||150||258||378||59%|
|Profit After Tax||116||183||257||49%|
|EBITDA : Margin improved by 534 BPS over 2 years by higher capacity utilization and operating efficiencies|
(i) GHCL is engaged in the activities of chemicals and textiles, both of which are sunrise sectors as per experts;
(ii) GHCL is in the midst of growth and expansion of Soda Ash capacity by 1 lac MT with an estimated cost of Rs. 375 Crs which is likely to go on stream by first quarter of FY2017. Similarly, the capacity in home textile segment is also under expansion with capital outlay of Rs. 125 Crs and is likely to go on stream by March next year;
(iii) The Company has reported robust financial performance in FY16. The EBITDA was Rs. 635 cr. It increased by Rs. 101 cr reflecting 19% growth. The margins are higher at 24.8% and are up 242 bps. The operating cash profit has doubled in two years to Rs. 460 cr. The PAT is Rs. 257 crore. It has increased by Rs. 74 crore, which is a 40% growth. The PAT margins of 10% are up 233 bps;
(iv) The long-term debt to equity is reduced to 0.69 in FY16 from 1.02 in FY15;
(v) The ROCE has increased to 23% in FY16 from 20% in FY15 while the RoE has increased to 26% in FY16 from 24% in FY15;
(vi) The Company has a dividend distribution policy to maintain 15%-20% Gross Payout of Standalone Profit after Tax;
(vii) The best part is that the stock is presently quoting at a low P/E of 6.46. It offers a dividend yield of 1.32%. This implies that the downside risk is low.
NVS Wealth Managers deserve to be complimented because they first recommended GHCL in June 2014 when it was languishing at Rs. 42. Since then the stock is up a mind-boggling 277%. Even in their report of 12th December 2015, issued when GHCL was at Rs. 125, NVS implored investors to buy the stock on the logic that “government initiatives like Housing for all, SMART Cities and increase in per capita income of Rural and Urban masses should offer tremendous opportunities in Glass and Detergent industries, thereby increasing demand for Soda Ash and this should auger well for GHCL in coming years”.
Today, we can confidently say that there is a ring of truth in the prophetic utterances of NVS Wealth Managers and we will have to keep a look out for their future stock recommendations!