First, we must note that Daljeet Kohli has been enjoying great success with his recent stock picks. I have talked earlier of stocks like Mastek/ Majesco, OnMobile Global, SQS India BFSI etc which have delivered triple-digit gains in a short period of time.
Second, we must note that Daljeet and his colleague Prerna Jhunjhunwala have enjoyed success with textile stock picks. The duo recommended a buy of KPR Mills on 5th December 2014 when the stock was available at Rs. 370. Today, KPR Mills sells for Rs. 821, translating into mega gains of 121% in a year’s time.
Third, we must note that almost all the ace investors are bullish about textile stocks on the logic that even a small increase in India’s share in the global exports will translate into humungous gains for investors. It is for this reason that Billionaire Narayana Murthy, Dolly Khanna, Prof Sanjay Bakshi, Ashish Kacholia, Anil Kumar Goel, Porinju Veliyath, etc have commandeered huge quantities of textile stocks like Nandan Denim, RSWM, Welspun Syntex, Ambika Cotton, Kitex Garments, Himatsingka Seide etc.
Now, the duo of Daljeet and Prerna has trained its sights on Nitin Spinners, a micro-cap with a market capitalisation of only Rs. 320 crore. The duo claims that the stock, which is presently trading at Rs. 70 (P/E of 7x) is “cheap” owing to its high RoE and industry dynamics and that FY18 will be a “game changing” year owing to the aggressive expansion plans undertaken. The duo has predicted a target price of Rs. 112 for Nitin Spinners, which translates to a gain of nearly 75%.
Lets’ note the key investment rationale of Daljeet and Prerna:
“Nitin Spinners Ltd (NSL) is aggressively expanding its capacities to capitalise on the expected demand revival in textile sector. Catering to diversified textile segments including apparel, made‐ups, denim, intimate wear, among others, the company is well poised to take advantage of any improvement in demand world‐wide. We expect sales of the company to grow at 21.6% CAGR over FY15‐FY18E period. We expect the return ratios of the company to improve further post completion of capacity expansion plans. We initiate coverage on NSL with BUY rating and target price of Rs 112 with long term horizon.”
“Valuation: At CMP of Rs 64, the stock trades at PER of 6.2x, 5.9x and 3.8x its FY16E, FY17E and FY18E EPS of Rs 10.3, Rs 10.8 and Rs 16.8 respectively. The company has traded at average one year forward PE of 8.8x since FY10. Currently, peers are trading at average PE multiple of 7.5x FY17E earnings. However, this valuation is likely to improve going forward with demand improvement and stability in raw material scenario. We value Nitin Spinners Ltd at 6.7x (discount of 10% to peers due to high debt and lower PAT growth) its FY18E earnings arriving at target price of Rs 112 per share. FY18E is likely to be a game changing year for the company due to new capacities coming into operations. We recommend BUY rating on the stock with long term horizon.”
It is worth noting that Reliance Wealth Management, a Reliance Capital arm, bought 4.58 lakh shares of Nitin Spinners at an average price of Rs 73.04 on 23.06.2015.
Another interesting fact worth noting is that IndiaNivesh Securities, the employer of Daljeet and Prerna, held 154,335 shares of Nitin Spinners as of 01.04.2014. However, they systematically sold the shares throughout the year and reduced their holding to a paltry 9,713 shares as of 31.03.2015.
Why IndiaNivesh Securities sold off its holding is not known though it appears to be a tactical mistake because the stock is up a mind-boggling 324% since 01.04.2014 and 155% since 01.04.2015. IndiaNivesh lost out on huge gains from the stock by their premature selling. Maybe, IndiaNivesh should also consult Daljeet Kohli and Prerna Jhunjhunwala before making any buy/sell decisions!