Investment philosophy of Dolly Khanna and Anil Kumar Goel
Dolly Khanna and Anil Kumar Goel, both stock pickers of exceptional calibre, share a common investment philosophy. Both are fond of micro-cap stocks which are well established, with good business models, reputed managements, reasonable return ratios and with ambitious expansion plans.
At heart, both stalwarts are conservative. They keep an eye on the cash flows, dividend yield and valuations before entrusting their funds to a stock. Neither touches Banking and NBFC stocks. Even Pharma stocks are taboo for the duo.
There are as many as four top-quality stocks where Dolly Khanna and Anil Kumar Goel have both taken a stake. These stocks are TCPL Packaging, RSWM, Sterling Tools and PPAP Automotive.
Needless to say, all four stocks have put up a spirited performance and have rewarded shareholders with three-digit gains in the recent past.
Cosmo Films added to the portfolio
To this list of elite stocks which have won the confidence of Dolly Khanna and Anil Kumar Goel, we can now add the name of Cosmo Films, a micro-cap with a market capitalisation of Rs. 710 crore.
As of 31st March 2016, Anil Kumar Goel held 6,65,000 shares of Cosmo Films while Dolly Khanna held 145,193 shares. Seema Goel held 94,000 shares. The holding of the trio as of 30th June 2016 is not known.
Stealth buying by Dolly Khanna
We have seen in the past that Dolly Khanna’s modus operandi is to engage in stealth buying. Dolly likes to buy her quota in bits and pieces so that she is able to fly under the radar and mop up her quota before her fans learn of her purchase and throng the counter.
In the case of Cosmo Films, Dolly started her buying activity on 20th November 2015 (when the stock was at Rs. 270) by scooping up a chunk of 82,402 shares. Thereafter, she visited the counter on thirteen occasions. Her last purchase was on 22nd March 2016 when the stock was at Rs. 268. On each occasion, Dolly bought a small chunk. On 25th December 2015, Dolly had to be content with buying just one share.
At the CMP of Rs. 364, Dolly already has a hefty gain of 35% from her purchase of Cosmo Films. On a YoY basis, the stock has given a hefty return of 121%.
Cosmo Films is a play on the FMCG packaging sector
Cosmo Films is engaged in the manufacture of flexible packaging. It is said to be an “innovator in BOPP packaging”. It manufactures packaging films, lamination films, label films and industrial films for various packaging applications
| COSMO FILMS LTD – KEY FUNDAMENTALS | |||
| PARAMETER | VALUES | ||
| MARKET CAP | (Rs CR) | 709 | |
| EPS – TTM | (Rs) | [*C] | 53.07 |
| P/E RATIO | (X) | [*C] | 6.87 |
| FACE VALUE | (Rs) | 10 | |
| LATEST DIVIDEND | (%) | 100.00 | |
| LATEST DIVIDEND DATE | 21 MAR 2016 | ||
| DIVIDEND YIELD | (%) | 2.74 | |
| BOOK VALUE / SHARE | (Rs) | [*C] | 234.71 |
| P/B RATIO | (Rs) | [*C] | 1.55 |
[*C] Consolidated [*S] Standalone
| COSMO FILMS LTD – FINANCIAL RESULTS | |||
| PARTICULARS (Rs CR) | JUN 2016 | JUN 2015 | % CHG |
| NET SALES | 382.53 | 408.94 | -6.46 |
| OTHER INCOME | 0.5 | 0.7 | -28.57 |
| TOTAL INCOME | 383.03 | 409.64 | -6.5 |
| TOTAL EXPENSES | 341.35 | 363.01 | -5.97 |
| OPERATING PROFIT | 41.68 | 46.63 | -10.62 |
| NET PROFIT | 18.92 | 18.42 | 2.71 |
| EQUITY CAPITAL | 19.44 | 19.44 | – |
(Source: Business Standard)
Huge prospects for packaging companies with 18% CAGR growth
According to a report by Systematix Shares, the packaging industry in India stands at US$32bn and is expected to grow at 18% CAGR to reach US$73bn by 2020. It is stated that the rapid rise in the use of packaging products will be on account of the following factors:
(1) rise of organised retail chains,
(2) increase in smaller packages due to more nuclear families,
(3) higher e-commerce penetration necessitating multilayer, durable packaging,
(4) increase in purchasing power, middle class and demand for better packaged products,
(5) emerging tool for brand building and
(6) high growth from packaged food market, US$18bn by 2020 (US$12bn now).
It is also stated that innovations would play a prominent role to drive future demand by the use of see-through packaging, customised packaging for millennials, single-serve packaging, meals-for-two, multi-packs of single portions, resealable packaging and selfie packaging. It is also stated that perishable products that were never packed before (fruits, vegetables) are changing the trends of buying, thereby utilising the untapped potential of the packaging industry.
Addition to a packaging stock which is already in the portfolio
Dolly Khanna and Anil Kumar Goel already have TCPL Packaging in the portfolio. In fact, TCPL Packaging has also attracted the attention of Vijay Kedia and Ramesh Damani.
We earlier saw an illuminating research report by Sharekhan on why TCPL Packaging will prosper immensely as a result of the battle for market share between Patanjali and the FMCG majors like HLL, Dabur, Colgate etc.
The fact that Dolly Khanna and Anil Kumar Goel chose to add another packaging stock to their portfolios gives an indication about their bullishness for the sector.
Research report by Nirmal Bang
Manish Oswal of Nirmal Bang has issued a detailed initiating coverage report on Cosmo Films where the entire facts relating to Cosmo Films are set out.
The recommendation to buy Cosmo Films is given in succinct terms:
“Valuation & Recommendation: Healthy volume growth, improving margins and strong operating cash flows are key positives from recent earnings. We believe capacity addition, expansion in EBITDA margin, marked improvement in return ratio and strong earnings growth outlook will re-rate the stock over the medium term. We expect Cosmo Films to deliver 76.8 per cent CAGR in net profit aided by healthy volume growth and expansion in EBITDA margin over FY15-FY18. Return on capital employed and Return on equity will also expand to 19.7 per cent and 23.2 per cent respectively by FY18. At Rs275, the stock is trading at 4.0x FY17 EV/EBITDA and 3.0x FY18 EV / EBITDA, an attractive risk-reward proposition. We have valued the company 3.9x FY18 EBITDA translating into a price target of Rs 400.”
58% gains in just two months
Nirmal Bang’s timing was perfect. The stock shot up from Rs. 257 to Rs. 408 on 10th May 2016 giving a fabulous return of 58% in just two months. Even at the CMP of Rs. 364, there are hefty gains of 41% in just six months.
Buy recommendation of Mudar Patherya
Mudar Patherya has provided a masterful analysis of the virtues of Cosmo Films. He claims that the “big story” is the projected capacity growth and corresponding cost.
“Cosmo is today a 136,000 TPA (tonnes per annum) company, with an investment of around Rs 900 crore; in 14 months, this will be a 200,000-TPA company, with an aggregate investment of Rs 1,100 crore, the incremental capacity being funded with a capital cost per tonne considerably lower than its retrospective average (what an inflation-beater!). Cosmo’s new manufacturing lines will be cheaper its lowest cost lines, giving even the most competitive lines in China a run for their money.
For this year and the next, Cosmo expects to grow from moderate top line increase derived from Kaizen-driven throughput increase, but the years to watch will be 2017-18 onwards when the benefit of its expansion will be on show. That’s when a Rs 1,700-crore top line company could grow revenues to a peak (as visualised today) to Rs 3,000 crore – at higher margins.”
Buy recommendation of Sanjiv Bhasin of IIFL
Sanjiv Bhasin of IIFL recommended a buy of Cosmo Films on cogent logic:
“The stock trades at around 8 times its forward earnings, which is not expensive. Uflex, which has less market shares compared to Cosmo Films, is trading at 12 times forward earnings. Cosmo Films will benefit from the implementation of GST. Management of the company is very bullish on growth. Its US business is also doing very well. We have a target of Rs 450.”
“Major Trigger” for Cosmo Films In March 2017
Ashok Jaipuria, CMD, Cosmo Films: Expansion will be a major trigger for the company in coming days. pic.twitter.com/WI2OqJf1c6
— CNBC-TV18 News (@CNBCTV18News) August 24, 2016
Ashok Jaipuria, the CMD of Cosmo Films, pointed out that a “major trigger” will occur when the ambitious expansion plans get commissioned in January 2017 or latest by March 2017.
In FY16, the PAT was Rs. 96 crore. Ashok Jaipuria said that the expansion will add about Rs. 60 to 70 crore to the bottomline.
He added that the Company has more ambitious expansion plans in store for which a capex of Rs. 500 crore is planned.
New venture by Cosmo Films Ltd at Waluj #MIDC wth 800crs of #investment. As a result of State's Ind.friendly policy https://t.co/qqnRFzno1e
— MAHARASHTRA DGIPR (@MahaDGIPR) July 28, 2016
“I am fairly confident that in the next 24 months, you will see at least doubling of our revenues which will obviously mean a productive bottom line,” Jaipuria said.
Ambition is to become a “Billion Dollar Company”
Ashok Jaipuria made the sensational declaration that the Company is also planning to ramp up its operations in the USA in addition to those in India.
“In the next 4-5 years, I certainly look forward to Cosmo becoming a billion dollar company”, he said.
High Dividend yield
Another aspect of Cosmos Films that must have attracted Dolly Khanna and Anil Kumar Goel is the fact that Cosmos Films offers a hefty dividend yield of 2.74%.
Such a high dividend yield, and that after a 121% YoY gain, is unheard of in the present day and age. The high dividend yield provides the much desired “margin of safety” that the stock price will not plunge all of a sudden.
Conclusion
We have to once again tip our hat to the collective wisdom of Dolly Khanna and Anil Kumar Goel for having homed in on a stock which provides the ideal combination of growth with safety of capital. It is quite clear that the stock will enrich the portfolios of the duo with mega gains!
Porinju bought cosyn on Wednesday. Check under block / bulk deal disclosure on base website and confirm from your side.
RIL controls the raw material and now Relince is coming in all forward integration products one by one, where it is sitting on raw material. RIL is full of cash and in dearth of ideas. Already many players in texturising were wiped out in similar moves, similar was case in Lab, pay. So just wait for big bang entry of Big Boss RIL and see the effects of cat among pigeons. All forward integration products of RIL are at greater risk ever than before, as Lion is on move.
Dear, RIL is only expert in making money for themselves, their relatives and friends. You are not included.
Dear Venky, but now RIL is making new multi-year highs, so other than relatives are also benefiting including me, and party has just started.
I have seen the kind of money friends and others have made by participating in their incredibly big projects. This share price increase (even in the future) is not even a molecule, if we compare the returns, compared to the former. Just wait for the next world beating trillion dollar project, possibly takeover of a Fortune 500 company. It will be a slap on the face of the company’s shareholders.
Looks a great buy considering the moat it has. Available at great price and very limited downside.
Thanks for bringing it to the notice. I too had this on my radar. Seems a cheap bargain!!!!!!!!
Its definitely a better buy than the dairy products buy the other day. Those stocks were trading at 50-60 P/E. This is trading at 6 P/E with a prospect of doubling top line and profitability in short span of time.
As the packaging guidelines will be more stringent for instance in case of food processing industry the demand will definitely grow. I think stickiness is there in this industry so will not be easy to change vendors. Margin will improve as capacity increases. Billion dollar company would be 7000 crores and even a net profit margin of 5% would mean 350 crores profit. Its available at 600-700 crore of market cap. I think it was a no brainier for Dolly as he would have seen their packaging day in and out.
Just buy and hold tight… 2017 would be a good year for Cosmo!Coming quarters should push the prices up due to improved perfromance.
Just had a quick look at the management. Apart from Mr. Ashok Jaipuria even the second level of leaders seem pretty experienced and should be able to execute the plan for 2017. Valuations looks cheap. Do not think the BOPP is a commodities-ed business. Looks like COSMO had some advantages over other players. Will dig deep into the balance sheet… Long term chart definitely looks positive.
I think some of the other prominent value investors have TCPL. Compared to TCPL Cosmo looks a better bet as its having the similar market cap . Its ROE and ROCE is improving. Better debt ratio than TCPL . Trading at half the P/E than TCPL and has better competitive advantage than TCPL. So really makes better sense to buy COSMO at current valuation than TCPL. It definately requires re-rating
BOPP seems to have been a game changer for COSMO since 2015. Looks like it will continue for some more years. It seems to be reaping the benefit of first mover advantage>
very interesting read, definitely seems like a good buy
yes i was also contemplating between tcpl and cosmo films, but given the capacity expansion planned by cosmo it definitely stands better chance to win , its incremental cost of expansion seems very low and benefits of expansion should be on platter shortly.
#Nivezareview – Cosmo Films is a manufacturer of flexible packaging products. For FY16, the company recorded sales of INR 1,620 Cr. and PAT of INR 96 Cr. The overall demand for packaging solutions and products in domestic market of India is increasing rapidly and further in next 2-3 years, due to increasing consumption of FMCG and related products it will further increase. The current CAGR for packaging products expected in India is more than 15% and upto 17-18% for next few years. The companies such as Comso Films and Uflex are good bets from this sector, both are undervalued and trade around 6-7 time of PE multiple and going ahead for 2 years, have good scope for improving earnings along with PE multiple re rating.
Is uflex out of the scams/ controvery done by its Chairman earlier?
how did you get your information that dolly khanna bought this stock.. there has been no mention of either dolly khanna or seema goel holding any stock in the company share holding report.. I have checked out the shareholding patter of the company in the company official website . Are you misleading investors????
sorry.. it does show in their annual report ..i take back what i just said
hi,nice information and im regular follower of this blog.When you have pointed dolly picked up shares starting 2015,and other brokers recommendation,is it not possible that you could have posted us ,so that we little investors also gained in and now after 40% seems bit on higher side..
Great pick… A must buy n hold for next 3 Years
I have to agree, this is really convincing. Its a pretty good bargain i terms of quality and price. Dolly has again found a diamond.
Ashok Jaipuriya’s name is in the black money list…will stay away
http://www.dnaindia.com/india/report-black-money-government-makes-18-names-public-1983462
The news item is dated April 2014. Any update on this. The people listed in the news item are Who -Is-Who of Indian Corp Sector. There seem to be that the news is already discounted.