Dharmesh Kant Recommends “High Quality Proxy Play” Stock With Huge Upside Potential

When Dharmesh Kant was with IndiaNivesh, he distinguished himself by handing over several multi-bagger stocks to us on a platter. Let us take a quick look at his track record with IndiaNivesh.

*Adjusted for split

As one can see, out of eight stocks, only two are losers. One is flat and five have given handsome gains.

Assuming one had invested an equal amount in all stocks, the average return works out to 105% which is excellent by any standards.

In Motilal Oswal, Dharmesh Kant is walking on the same path of identifying top-quality companies which are quoting at reasonable valuations and which have a long growth trajectory ahead of them.

His latest stock pick is Aarti Industries, the small-cap company with a market capitalisation of Rs. 4,416 crore.

The logic for recommending Aarti Industries is quite convincing:

“Valuations & View: Aarti Industries is a high quality proxy play two key emerging trends: (1) rising demand for specialty chemicals in India (15% CAGR FY15-FY20E) and (2) eastward migration of global chemical manufacturing (Asia to have 70% production share by 2030). We expect EBIT/Ton to improve in Speciality Chemicals segments due to benefits of operating leverage and better product mix. The company is setting up capacities for different chemistries which gives us visibility of volume growth for the next three years. We expect the company to grow its profits at 21% CAGR over FY16-17E and improve its ROCE from 17% in FY15 to 19% in FY18E. We value the company at 15x FY18E EPS at INR 630 providing for an upside of 20%”.

It is worth noting that Aarti Industries’ sibling, Aarti Drugs, has already been recommended by Motilal Oswal as a “potential 100-bagger” stock. The stock was also an ex-favourite of Radhakishan Damani. Unfortunately, Aarti Drugs hasn’t quite lived upto the expectations reposed in it owing to circumstances beyond its control. The stock has lost 30% on a YoY basis.

Rajendra V Gogri, CMD, Aarti Industries: Expect operating margins to stand at 20% in FY17. pic.twitter.com/9tT0BCovqT

— CNBC-TV18 News (@CNBCTV18News) June 22, 2016

However, Aarti Industries has made up for this by giving a return of 56% on a YoY basis and 138% on a two year basis.

Rajendra V Gogri, CMD, Aarti Industries indicated that the company’s operating margins will continue to stand at 20 per cent in FY17. He also indicated that the new Plant at Dahej will contribute about Rs. 200-250 crore when it reaches full capacity utilization in the next couple of years.