Deepak Nitrite – firing on all cylinders
Ashish Kacholia has been quietly taking advantage of the alleged slowdown in the economy to tuck into top-quality stocks at bargain basement prices.
I reported a few weeks ago that he has bought a big consignment of Deepak Nitrite, a small-cap stock engaged in the production of specialty chemicals like Phenol and Acetone (see Ashish Kacholia’s Latest Stock Pick Has Strong Business Fundamentals & Will Prosper From US-China Trade War).
Sonal Bhutra, a CA, has studied the affairs of the company in great depth.
She has been regularly providing progress reports about the company in a succinct manner.
According to her latest update, the Company is firing on all cylinders with an impressive surge in revenue, EBITDA, OPM and PAT.
Very strong numbers, driven by the phenolics divisions
Sequentially there is some moderation due to planned shutdown for 14 days
Revenue up 117% at 1003cr vs 461cr
EBITDA up 292% at 251cr vs 64cr
OPM at 25% vs 13.8%
PAT up 525% at 150cr
— Sonal Bhutra (@sonalbhutra) October 24, 2019
Also, the promoter, Deepak C. Mehta, is buying the stock at the market price, which implies that future prospects are quite bright.
Deepak Nitrite promoter buys additional 3 lakh shares via open market on August 21 pic.twitter.com/aWtODEysOP
— CNBC-TV18 (@CNBCTV18Live) August 23, 2019
ICRA has also issued a clean chit and upgraded its ratings, which implies that the financials are in ship-shape condition and there is no hanky-panky for us to be worried about.
ICRA upgraded company's long-term rating from A+ to AA-; outlook stable
(One of the rare instances these days that a rating agency upgrades its rating on a company)
— Abhishek Kothari ?? (@kothariabhishek) August 20, 2019
Further, the stock has been given pride of place in the prestigious MSCI Small Cap Index, which implies that institutional investors will now make a beeline for it.
MSCI adds 13 & deletes 21 from MSCI Global Small Cap Index pic.twitter.com/xE55fae74A
— CNBC-TV18 (@CNBCTV18Live) November 8, 2019
Safari Industries – Turning investors into crorepatis with 11,600% gain
Safari Industries is the sort of stock that all investors in Dalal Street fantasize about.
In just the last 10 years, the stock has given an unbelievable gain of 11,600%.
According to Pranati Devi of CNBC TV18, a paltry sum of Rs. 1 lakh invested in Safari in 2009 has blossomed into a fortune of Rs. 1.17 crore as of date.
She has pointed out that these gains accrued because Safari Industries has been reporting a consistent improvement in its financial performance.
The net profit has risen nearly 1300 percent in the last 10 years from Rs 1.93 crore in March FY10 to Rs 27 crore in March 2019.
Sales also advanced 823 percent to Rs 572.63 crore for fiscal ended March 2019 compared to Rs 62.01 crore for fiscal ended March 2010.
The Earnings per share (EPS) almost doubled to Rs 12.20 for the March 2019 fiscal compared to Rs 6.46 for the fiscal ended March 2010.
She has also pointed out that Safari Industries is the third-largest branded player in the Indian luggage industry.
Post the management change in 2012, Safari has grown its revenue by six times in the last seven years.
This has been achieved by foraying in many new categories like backpack, school bags (via the acquisition of Genius and Genie) and improvement in distribution networks, she has stated.
Ashish Kacholia buys big chunk of Safari Industries
Safari Industries’ spectacular performance on the Bourses has obviously not escaped the attention of Ashish Kacholia.
When the stock experienced a dip owing to allegations of a slowdown in the economy, he decided the time was ripe to grab the stock.
He bought a chunk of 2.18 lakh shares of the Company by making an investment of Rs. 12 crore.
Ace investor Ashish Kacholia bought some 2.18 lakh shares in Safari Industries at Rs 550 apiece for a total value of Rs 12 crore on Friday.https://t.co/Cj5gnyZC0T
— ETMarkets (@ETMarkets) November 25, 2019
Why am I Bullish about Safari Industries? Sumeet Nagar of Malabar Fund explains rationale
Nobody knows more about Safari Industries than Sumeet Nagar, the illustrious founder of Malabar India Fund.
In fact, the Malabar Fund is one of the largest shareholders of Safari Industries.
As of 30th September 2019, Malabar India Fund holds 22,80,847 shares (10.21%) while Malabar Value Fund holds 4,03,781 shares (1.81%).
Amongst the other big investors, Tano India Private Equity Fund II holds 27,15,000 shares, comprising 12.15% of the equity capital.
Rohinton Soli Screwvala, the distinguished entrepreneur and philanthropist, holds 2,94,644 shares, comprising 1.32% of the equity capital.
Sumeet Nagar explained that Safari Industries is a proxy for the growth of the middle class in India.
He also pointed out that youngsters riding bikes and scooters have to perforce carry backpacks.
He also opined that GST will provide a tailwind in the form of a shift from the unorganized sector to the organized.
He also paid tribute to Sudhir Jatia, the CEO.
Sudhir Jatia learnt the ropes of the luggage industry when he was MD of VIP Industries from February 2007 to April 2010.
He has instituted various strategies, including rationalisation of product portfolios, foray into polycarbonate luggage manufacturing, setting up of offices in China for soft luggage imports, acquiring brands like Genius, Magnum and Egonauts and increasing ad spends, etc, which has led to the prosperity of Safari Industries.
Safari Ind up 40% in one month… Sumeet Nagar spoke about the rationale for owning Safari, and his bullishness on the luggage space exactly 40 days ago on #AlphaMoguls … worth listening to this https://t.co/cy2EScnAZ8
— Niraj Shah (@_nirajshah) April 19, 2018
— Outlook Business (@OutlookBusiness) June 28, 2018
Don’t look at historical P/Es. Look at the future prospects. The stock can give 20x gains even now
Sumeet Nagar advised that we should not shy away from investing in powerhouse stocks by looking at the historical P/Es.
Instead, we have to look into the future and evaluate the growth prospects.
“They are expensive if you just look at trailing numbers but if you see the level of growth and scalability, these companies can easily become 10 times, 15 times, 20 times the size of where they are today. Given that potential. they are still fairly small,” he said, with specific reference to Safari Industries.
It is worth recalling that similar advice has been offered to us recently by Saurabh Mukherjea in reply to the debate about whether the high-quality stocks are overvalued or not.
“If you invest even at 100 times PE in companies which have high RoE and earnings growth, you still make very healthy returns,” Saurabh has opined!