Novice investors like you and me make the mistake of looking at the past returns that a stock has given to decide whether it can give more returns in the future or not.
So, when I first talked about Camlin Fine Sciences in August 2014, based on Dharmesh Kant’s recommendation, a lot of people were repulsed at the fact that the stock had already given a 478% return by then. “Oh, that means the stock is overvalued and it has to correct severely” one could hear them mumble loudly in a disgruntled tone.
Yet, one year later, the stock has added another 100% to its value and we are left gaping in disappointment at the missed opportunity.
Today, there is still value in the stock if you go by what Ashish Kacholia and the leading experts are suggesting. The company is still a micro-cap with a market capitalisation of only Rs. 989 crore. It has recently announced the decision to set up a new manufacturing facility at Dehaj in Gujarat which will catapult it into the big league.
In the July to September 2015 quarter, Ashish Kacholia has scooped up a chunk of 11,89,529 shares of Camlin Fine Sciences. The holding is worth Rs. 13.68 crore at the CMP of Rs. 115.
Daljeet Kohli has carefully analyzed the prospects of Camlin Fine Sciences. In a report dated 06.10.2015 he has summed up his analysis in crisp words:
“Camlin Fine Sciences Ltd (CFSL) is one of the India’s leading manufacturers & exporters of Food antioxidant, Fine Chemicals, and Food Grades Products. The company has emerged as niche specialty chemical company with global market leadership in key food antioxidants like TBHQ and BHA. Additionally, its breakthrough into water based synthetic (Solvent Free) technology to manufacture GUAIACOL (Raw Material for Vanillin) gathered attention of many MNC blenders and key manufacturer. The products portfolio offered by CFSL is not available with any domestic player and globally also very few competitors exist. We recommend BUY with target price of Rs.136 on CFSL.”
Daljeet also came on CNBC TV18 to explain why he is so gung-ho about Camlin. He said:
“Camlin Fine Sciences is actually a story for two to three years. The chemicals that they make, they hardly have any competition in India. There is only one major company which is called Rhodia that is major competitor to them. They are into food preservative products basically, hydroquinone. One and half years back, they bought a company called Boehringer in Europe which actually gave them this technology and that was the game changer for the company.
The trigger point is also coming from there only because of that technology now being available, the company is going for an expansion in Dahej for which the project has started which will come up in second half of FY18 and then full ramp up will happen in FY19. They have to import everything from this European subsidy. As a result, 55 percent of the European subsidiaries business is internally consumed. So, it is not showing up in the numbers.
Both these triggers will work in FY’18. Now from here till FY’18, the trigger will be the launch of new products. They have something like 30 odd products in the pipeline which will keep on coming like four or five products which are already in the trial stage. They have already started giving it out to the customers. They will try for the next three to six months. So, those numbers will start coming in. So, there are a few continuous triggers till three years and then in the next three years, there is a big trigger which will be from the new facility. Once that comes in, from FY’17 to FY’18, revenue growth projection for our model is 50 percent and from FY’19, it will be another 50 percent. So, that means, in FY18-FY19, from current level, we will be at least three to four times higher. So, that is the difference the new project will make.
In terms of valuation, there is actually no comparable, but if you still compare with other chemical companies, you will find that this actually has a return equity of almost 20-25 percent and return on capital of almost 30 percent but still trading at half the valuation. We believe that once those numbers will start coming in, there will be more visibility, this gap will narrow down. Therefore, the stock can actually appreciate to a much larger extent. As of now, for FY’17, we have given a target of Rs 136, but this can be definitely revised upwards.”
In my earlier piece, I have already referred to the opinion of the other experts, being Vineeta Mahnot of Hem Securities, Manish Ostwal of Nirmal Bang, Chiraj Shah & Bhupendra Tiwary of ICICI-Direct, G. Chokkalingam of Equinomics Research and D. D. Sharma of Risk Capital Advisors, all of whom have recommended a buy of Camlin Fine Sciences.
Now the onus is on each of us to carefully read up all the research reports and take an appropriate decision in the matter.