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.
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
|EPS – TTM
|LATEST DIVIDEND DATE
|21 MAR 2016
|BOOK VALUE / SHARE
[*C] Consolidated [*S] Standalone
|COSMO FILMS LTD – FINANCIAL RESULTS
|PARTICULARS (Rs CR)
(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.
— 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.
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!