Basant Maheshwari’s Latest Stock Pick Is A Mega Multibagger

At one time in the not-so-distant past, Basant Maheshwari had the welfare of novice investors like you and me paramount in his heart. Basant would periodically hand-pick select top-quality stocks and hand them over on a platter to us.

This salutary exercise on Basant’s part helped us to latch on to winning stocks and we could effortlessly make ends meet.

To this day, we are beholden to Basant for giving us stocks like HDFC Bank, Page Industries, Gruh Finance, Repco Home Finance, Granules India etc. These stocks have contributed to the well-being of our portfolio.

Unfortunately, the slug fest over the Hawkins Cookers fiasco hurt Basant’s feelings to such an extent that he now views all novice investors as ingrates and has taken a vow never to make stock recommendations in public.

@safety2304 sorry, can't comment on individual stocks.

— Basant Maheshwari (@BMTheEquityDesk) June 13, 2016

The result of this sorry state of affairs is that we are now left high and dry and have to fend for ourselves.

Thankfully, there is no need to despair because our state-of-the-art surveillance mechanism helps us to keep a tab on what stocks the savvy investors are buying.

Basant Maheshwari’s latest stock pick

According to the latest information received from reliable sources, Basant Maheshwari has now taken a fancy for Cupid Ltd, the manufacturer of male and female condoms.

As of 31st March 2016, Basant holds 1,10,920 shares of Cupid Ltd while Pooja Maheshwari holds 56,800 shares. The holding of the duo is collectively worth Rs. 4.61 crore at the CMP of Rs. 275.

The holding of Basant and Pooja Maheshwari in Cupid Ltd as of date is not known. It is reasonable to assume that the holding would have remained unchanged since Basant prides himself on his long-term holding strategy and loathes the hop-in and hop-out strategy followed by traders.

Already a Mega Multibagger

Cupid Ltd enjoys the unique distinction of being a mega multibagger stock already. Over the past 24 months, the stock has given a mind-boggling return of 1264%.

However, thankfully, it is still a micro-cap with a market capitalisation of only Rs. 300 crore which implies that it has a long way to go.

Cupid discovered by anonymous blogger

Credit for discovering the potential of Cupid Ltd has to go to an anonymous blogger called aceinvestortrader. In a post of September 2014, when the micro-cap was available at a throwaway valuation of a few rupees, the blogger exhorted his followers to buy Cupid Ltd on the basis that it has “superb valuations for investment”. The blogger emphasized that Cupid Ltd is a “debt-free pharma company trading at a trailing PE of just 8 (and a forward PE of just 3) backed by ethical management (so rare in small caps) in a huge addressable market with hardly any competition”. It was also emphasized that Omprakash Garg, the Chairman of Cupid Ltd, had chosen not to draw any salary for the last few years.

Since that day, Cupid Ltd is up an eye-popping 1145%.

Repeat of Prima Plastics

It is worth recalling that the same blogger had also recommended a buy of Prima Plastics when it was still an unknown entity. Prima Plastics has also given super multibagger gains since then.

Red flags were a false alarm

Curiously, aceinvestortrader lost his nerve just a few months after his recommendation to buy Cupid Ltd. In December 2014, he advised his followers to “book profits” on the basis that there are a “lot of red flags here”.

Fortunately, the “red flags” turned out to be a false alarm. The concerns were misplaced. Cupid Ltd has stayed on the path that it was envisaged to travel on and went on to deliver the multibagger gains referred to earlier.

Controversy over suspension of trading by BSE

Investors in Cupid received a nasty shock when the BSE suddenly suspended trading in the stock due to alleged violations of guidelines relating to allotment of warrants. Fortunately, the issue was resolved soon. Om Garg maintained that the warrants were issued in a legal manner and that no SEBI or BSE regulations were violated.

[*C] Consolidated     [*S] Standalone

(Source: Business Standard)

Cupid fits into Basant’s template for finding multibagger stocks

Now, the all-important question is as to what it is about Cupid Ltd that has appealed to Basant Maheshwari.

The answer is that Cupid Ltd ticks all the boxes that Basant has outlined in the template for finding winning stocks in his bestseller “The Thoughtful Investor”.

It is this template that helped Basant identify winning stocks like HDFC Bank, Gruh Finance, Page Industries, Hawkins Cookers, Repco Home Finance when they were still in their infancy.

(i) High RoE:

This is a non-negotiable criterion. Basant has made it clear in “The Thoughtful Investor” that there is no point in backing stocks that are eking out a living themselves and barely making ends meet. Instead, we have to back stocks which are raking in mega bucks because the stock price is a function of the earnings.

Cupid Ltd boasts of a Return of Equity (RoE) of 36% and a Return on Investment (RoI) of 48% which is hefty by any standards.

(ii) Debt-Free/ low debt:

This is another non-negotiable criterion for finding winning stocks. Companies which are groaning under heavy debt are rarely able to lift themselves out of poverty.

Cupid Ltd is debt-free.

(iii) Insatiable demand for the product and huge scale of demand:

It is elementary that if a stock has to transition from a micro-cap to a mega-cap, the scale of opportunity must be infinite and there must be an insatiable demand for the product.

One’s imagination boggles at the size of the present and future demand for condoms and contraceptives in a Country like India with a vast population of young people.

In addition to India, there is an infinite demand from Countries in Africa which are grappling with problems of HIV and Aids.

(iv) Monopoly product:

Another elementary factor is that a product with great demand is bound to have competitors barging in to grab the loot. Here, the surprising revelation is that Cupid Ltd is stated to be the only manufacturer of “female condoms” in the Country. It is also stated to be the second manufacturer of condoms to have been pre-qualified by the WHO/ UNFPA (United Nations Population Fund) for worldwide public distribution.

(v) Valuations:

Basant is not a stickler for valuations. Basant is happy to pay a high price for the stock if he is assured that he is buying a quality company with predictable earnings. In fact, all of Basant’s stock picks like HDFC Bank, Page Industries, Hawkins Cookers etc are quoting at stiff valuations.

At the CMP of Rs. 274, Cupid Ltd is quoting at a P/E of 18x TTM EPS. This valuation may be high or low depending on one’s perspective. Basant’s perspective may be that given Cupid’s high RoE, debt-free status, scope for growth etc, the price is not unreasonable.

(vi) Dividend yield:

Another factor that requires to be borne in mind is that Cupid offers a dividend yield of 1.09%. This offers downside protection because if the price slumps, the dividend yield will increase and dividend hunters will move to buy the stock, thereby arresting a downward slide in the price.

Forbes Asia’s Best Under a Billion

Anu Raghunathan of Forbes has confirmed that Cupid Ltd has been awarded the prestigious title of “Forbes Asia’s Best Under a Billion” title. This title has been conferred on the basis that global condom sales are growing at a CAGR of 9% and are projected to hit 38.2 billion pieces by 2019. If Cupid manages to snare even a tiny fraction of the global market, it will effortlessly become a mega-cap.

Investors’ Presentation

To our good fortune, Cupid Ltd has provided an easy-to-understand investors’ presentation where all the core data about the Company together with the investment rationale is readily available:

Core facts:

(i) India’s Leading manufacturer of male and female condoms

(ii) Capacity of ~350 mn male (325mn) & female (25mn) condoms

(iii) In-house research and development centre

(iv) 18+ years of Industry experience

(v) Presence in 26+ countries

(vi) ~75% revenues from Direct exports

(vii) 1st Indian company to get WHO/UNFP prequalification for female condoms

(viii) Employs 100+ people with average experience of 10 years

(ix) Robust expansion plans and strong order book

(x) Debt Free balance Sheet

(xi) Low Equity Base

(xii) Long Term agreements with WHO/UNFPA

Investment Rationale

Strong Balance Sheet

Debt free and low equity base, potential to grow by multiple folds

Business Model

State of the art infrastructure with world class products and basket of new value added products

Competitive Advantage

Low cost of production considering global peers

Experience

Experienced management and production team

Initiating Coverage Research Report by BOB Capital

Akanksha Tripathi and Rishabh Mehta of BOB Capital have issued a detailed initiating coverage research report in which a professional analysis of the prospects of Cupid Ltd has been conducted. The duo has recommended a buy on the basis that lifestyle changes, huge potential target segment & quality product will drive Cupid’s revenue/earnings by ~44%/52% CAGR over FY15-18e. The duo has predicted a price target of Rs. 327 which implies an upside of about 20% (68% from the time the report was issued).

Conclusion

So, it does appear that Basant Maheshwari has got himself yet another winning stock which will sparkle in his portfolio as it turns into yet another multibagger!