There is an unwritten law which solemnly states that when Dolly Khanna comes to Dalal Street to buy a stock, novice investors like you and me must follow her illustrious footsteps and ask questions later.
This is all the more so when Dolly Khanna is accompanied on her shopping expeditions by Anil Kumar Goel and Vallabh Bhanshali, both of whom are known to be wizards of exceptional caliber.
Sadly, this rule is honoured more in the breach than in the observance. The result is that hefty gains which ought to have effortlessly come into our pocket have evaporated into thin air and left us in an impoverished state.
Sterling Tools is a case in point. A red alert was flashed a few days ago that Dolly Khanna has taken affection to the micro-cap (Rs. 426 crore) manufacturer of automobile accessories (fasteners) and has scooped us a chunk of 82,824 shares.
What is noteworthy is that Dolly is not hunting alone here. She is accompanied by Anil Kumar Goel (3,67,247 shares), Seema Goel (1,35,000 shares) and the legendary Vallabh Bhanshali of Enam fame (77,217 shares). Another stock wizard named Jagdish Kumar Aggrawal, whose profile is not familiar to us, towers above the rest with a massive holding of 3,67,247 shares.
While we sat twiddling our thumbs, Sterling Tools reported blockbuster Q1FY17 results today which sent its stock price soaring 12%. In just the last month, since the news emerged of Dolly’s stake, the stock is up 22%.
|STERLING TOOLS LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||426|
|EPS – TTM||(Rs)||[*C]||41.56|
|LATEST DIVIDEND DATE||21 MAR 2016|
|BOOK VALUE / SHARE||(Rs)||[*C]||188.74|
[*C] Consolidated [*S] Standalone
|STERLING TOOLS LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||JUN 2016||JUN 2015||% CHG|
(Source: Business Standard)
Even to my untrained eye, the virtues of Sterling Tools are apparent:
(i) The Company enjoys an operating margin of 14%, a net margin of 6.17%, a ROE of 19.48 and a ROCE of 20.30;
(ii) The stock is trading at a PE of 15x while Sundaram Fasteners, its larger peer (market cap of Rs. 4,000 crore), is quoting at a PE of 32.86;
(iii) While Sundaram Fasteners commands a higher PE, it has a lower ROE of 13.48 as compared to Sterling Tools’ ROE of 19.48;
(iv) Sterling Tools has been maintaining a healthy dividend payout of 21.50%;
(v) The debt:equity ratio is low/ reasonable at 0.52x;
(vi) The promoters hold 70.15% of the equity. The four wizards collectively hold 13.51%. The floating stock is low;
(vii) The Q1FY17 results are blockbuster because the operating profit is up 37% while the net profit is up 54%.
Based on this, one can prima facie say that the apparent undervaluation of Sterling Tools coupled with its superior fundamentals is what has enamoured the eminent wizards to aggressively corner the stock.
This also implies that these are early days for Sterling Tools and that it has a lot of ground to cover.
So, there may be still be an opportunity for us to quietly tuck into the stock someday and make amends for our carelessness!
Ha ha ha. That great feeling, when you are there earlier for the big party.
My tweet below. Tweeter handle @megabaggers
#Sterlingtools great result. Unsustainable valuation gap with #Sundram Fasteners makes it a interesting stock to watchout
#Nivezareview on Top Quality MicroCap Stock ::
Looking at the past performance of the company, it has delivered better returns and up coming plans are looking better as well. The stock is trailing at PE of 8.91x which is reasonable. The valuation is attractive as well. Revenues are growing at better pace and so as the earnings. Huge buying is still on. Volume is too low for the company.
Multibagger stock Ideas
Fundamentally it is strong but I feel it is a bit expensive at these levels