Vineeta Mahnot’s stock picks are eagerly awaited by the investing community and rightly so because she has a remarkably consistent track record of finding winning stocks. Stellar picks like Vaibhav Global, Tata Elxsi, Fiem Industries, Va-Tech Vabag, AIA Industries, etc bear testimony to her superior stock picking skills.
Now, Vineeta Mahnot has issued a research report in which she has recommended an investment in Kwality Ltd (formerly known as Kwality Dairy (India) Ltd) with a target price of Rs. 75 (67% upside). Let’s take a quick note of Vineeta’s rationale:
“Kwality has registered robust results for the quarter ending March 2014. The revenues from operations grew by ~29% to Rs.1317.38 crores vs. Rs.1021.20 cr. in the corresponding quarter last year. Operating profit climbed sharply by ~69% at about Rs.77.60 crores as against Rs.45.88 crores in the previous year quarter. The adjusted net profit almost doubled at Rs.36.31 crore for the quarter as compared to Rs.15.02 crore. EPS for the quarter stood at Rs.1.79. On the margins front, operating margin climbed about 150 bps at 5.89% as against 4.49% while net profit margin expanded 129 bps at 2.76% from 1.47% y-o-y.
With strong brand equity; increasing market presence and customer reach; increasing product portfolio; expansion plans and strong financial performance; Kwality Ltd. growth prospects and profitability looks positive. We believe the company is trading at an attractive valuation at 4.49x and 3.29x of FY15EPS of Rs.10.02 and FY16EPS of Rs.13.68. We initiate a ‘BUY’ on the stock with a target price of Rs.75 (appreciation of about 67%) with the medium to long term investment horizon.”
So, there you have it. Clear & simple logic.
The one factor that you must bear in mind is that Kwality happens to be a favourite amongst operators. In October 2008, the operators drove the stock price from Rs. 1.50 (adjusted) to an all-time high of Rs. 190 by February 2010. Even the venerable BusinessToday got fooled and recommended a buy in October 2011. Then, when the average Raju gorged on the stock, the operators jettisoned it in December 2011, sending it plummeting, triggering several lower circuits along the way. Needless to say, Poor Raju was left holding the can.
The operators appear to be still active if you go by the recent news/ rumors that Kwality would sell a part of the stake to the Rabo Equity Advisors for Rs. 500 crore. Kwality clarified that there were no recent talks with Rabo Equity Advisors though it hinted that it was in talks with other strategic investors.
Of course, none of this detracts from the merits of Vineeta Mahnot’s stock pick, which is based purely on merits and fundamentals.
I am tempted to grab a chunk of the stock, once it comes off the upper circuit.