In my piece of May 2014 (Dolly Khanna Rakes In Big Bucks In NAMO Rally), I had stated that the most sensible thing any investor can do is to clone Dolly Khanna’s portfolio instead of running around in circles trying to find good stocks.
I was perfectly justified in my statement.
If you look at the performance of Dolly Khanna’s stock picks yesterday alone, you will be astonished. Premier Explosives was up 20%, Dai-Ichi Karkaria was up 18% and Cera Sanitaryware was up 15%.
I haven’t computed the YOY returns of Dolly Khanna’s stock picks but you can take it that it will be mind-boggling. At the very least, Dolly’s stock picks will outperform the Indices by a wide margin.
Dolly’s latest stock pick is RSWM Limited, a micro cap with a market capitalisation of Rs. 752 crore. RSWM is engaged in the manufacture of yarn, fabrics, garments and denim. It is one of the largest producers and exporters of polyester viscose blended yarn in the country. It markets its products under the brand name Mayur Suitings for which it roped in Salman Khan as its brand ambassador.
|RSWM Ltd. (RSWM) – Financial Overview|
|Figures in Rs crore||2014||2013||2012|
|Profit After Tax||102.28||73.31||-53.47|
|Earning Per Share (Rs)||41.36||29.27||0.00|
In the April to June 2015 quarter, Dolly bought 2,87,542 shares of RSWM Ltd.
The best part is that Anil Kumar Goel, an ace investor in his own right, has also bought 2,44,374 shares in the same quarter.
Anil Kumar Goel has a long and distinguished track record for finding winning stocks. You can judge the level of his wizardry from the fact that two stocks that he bought a few months ago (TCPL Packaging on 06.02.2015 at Rs. 414 and Samtex Fashions on 21.04.2015 at Rs. 50) are up by 44% and 72% respectively.
The holding of the two ace investors is worth about Rs. 7.94 crore each at the CMP of Rs. 325.
Even more inspiring is the fact that IDFC Premier Equity Fund, which was managed by the redoubtable Kenneth Andrade, holds 15,60,000 shares of RSWM. Kenneth Andrade is known to be very strict in his stock selection. He doesn’t touch a stock if the fundamentals and valuations are not in place.
Now, it is obvious that if three ace investors have simultaneously homed in on RSWM, there must be something special going on with the stock.
Surprisingly, there are no recent analyst reports about RSWM. The only source which can throw some light about RSWM’s activities is the annual report for FY 2013-14 (pdf).
The annual report reveals that RSWM has clocked in an impressive performance in FY 2013-14 and that the performance in FY 2014-15 will be better.
The following are the salient facts of RSWM:
(i) The management adopted a contrarian strategy during the lean period between 2007-08 to 2013-14 to invest Rs. 1,187 in capacity creation and modernization;
(ii) The result of the contrarian strategy is that RSWM has reinforced its scale to be among the largest Indian producers of synthetic yarn with an estimated market share (organised) of 7.5% and reinforced its position as India’s largest producer of value-added melange yarn. It also strengthened its competitiveness by reducing the average per spindle capital cost to an attractive Rs. 28,707 (gross) against the industry average of Rs. 30,000;
(iii) RSWM focuses on value-added products which has led its EBIDTA margin to grow from 8.05% in 2011-12 to 13.48% in 2013-14;
(iv) RSWM’s facilities and processes were progressively aligned with international operational standards; Its facilities were certified in line with ISO9001:2000, ISO 14001, Oeko-Tex, Control Union Certification and SA-8000:2001 (BSI Management Systems) and Fair Trade (FLO-CERT), resulting in enhanced operational control, consistency and efficiency;
(v) RSWM’s yarn factories operated at a 98% capacity utilisation, higher than the industry average;
(vi) The operational dependability has translated into enduring relationships; It was approved as a yarn supplier for IKEA’s global operations; It has partnered Decathlon, a respected European brand, as its exclusive melange yarn supplier; Its denim division’s Quality Assurance cell was accredited by Levi’s, among the few units in India with this recognition;
(vii) The results for 2013-14 was the best performance in five years, a number of challenges notwithstanding. The topline grew by 16.72%, while EBIDTA and net profit accelerated faster at 17.40% and 45.57% respectively. The ROCE jumped to 14.99% while the net cash from operations increased by 40.55%. The debt was moderated and the gearing Improved from 2.17 to 1.53;
|RSWM Ltd Quarterly Results|
|Particulars (Rs cr)||Mar 2015||Mar 2014||%Chg|
RSWM’s financial highlights for FY 2013-14 are as follows:
– Topline grew by 16.72% over 2012-13
– EBIDTA increased by 17.40% over 2012-13
– Profit after tax bettered by 45.57% over 2012-13
– EBIDTA margin improved to 13.55% in 2013-14 against
13.50% in 2012-13
– Net Profit margin improved to 3.44% in 2013-14 against
2.77% in 2012-13
– Return on Net worth improved to 24.99% in 2013-14 against 20.66% in 2012-13
|RSWM Ltd. (RSWM) – Ratios|
|Figures in Rs crore||2014||2013||2012|
|Operating Margin (%)||13.16||14.02||7.01|
|Net Profit Margin (%)||3.25||3.26||-2.48|
|Return on Capital Employed (%)||17.44||15.50||3.33|
|Return on Net Worth (%)||30.67||31.58||-19.33|
There are a couple of important points that require to be borne in mind:
(i) The entire textile sector appears to be greatly in demand owing to a softness in cotton prices (the major raw material) and growing affluence of the middle class;
(ii) This is borne out by the fact that Prof Sanjay Bakshi’s ValueQuest India Moat Fund as well as Kenneth Andrade’s IDFC MF has bought large stakes in Ambika Cotton. Both stalwarts are sitting on sizeable gains at present;
(iii) Even Dolly Khanna had earlier made a foray into the textile sector with her purchase of 5,06,754 of Nandan Denim in the Jan-March 2015 quarter. That investment has already yielded Dolly an incredible return of 68%;
(iv) RSWM currently offers a dividend yield of 3.86%. This is quite a hefty dividend in today’s times. This will protect the downside for the stock.
So, it does appear that RSWM is a very sound stock to have in the portfolio. We have to compliment Dolly Khanna, Anil Kumar Goel and Kenneth Andrade for yet another brilliant stock pick.