One of the mysteries of life is how the savvy investors are able to effortlessly find multibagger stocks even while novice investors like you and me spend a lifetime seeking them (and still cannot find any).
Somany Ceramics is a case in point. When Brahmal Vasudevan’s Latinia Ltd (an affiliate of Creador) bought a massive chunk of 11% of Somany’s equity in January 2014 at the throwaway price of Rs. 115 each, nobody paid much attention. Somany Ceramics was after all just another ceramics company competing with Kajaria Ceramics, Cera Sanitaryware and a host of other companies in the regulated and unregulated sector.
Yet today, barely 30 months later, Somany Ceramics is at Rs. 604, offering Latinia a fabulous gain of 400% on its investment.
It is notable that Somany has out-performed its peers, Kajaria Ceramics and Cera Sanitaryware, by a wide margin.
Somany Ceramics is not an isolated instance of Brahmal Vasudean’s wizardry. Of the five stocks invested in by Creador/ Latinia so far, three are multi-baggers with more than 300% gains. The average gain from the five stocks works out to 264%.
This clearly implies that Brahmal Vasudevan, Anand Narayan and his team have a secret technique which helps them unerringly home in on multibagger stocks.
|SOMANY CERAMICS LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||2,562|
|EPS – TTM||(Rs)||[*S]||15.11|
|LATEST DIVIDEND DATE||19 AUG 2016|
|BOOK VALUE / SHARE||(Rs)||[*S]||99.05|
[*C] Consolidated [*S] Standalone
|SOMANY CERAMICS LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs. CR)||MAR 2016||MAR 2015||% CHG|
(Source: Business Standard)
Anyway, the story in Somany Ceramics is far from over and there are a lot of gains that can still be harvested from the stock according to the considered opinion of Jehan Bhadha of Motilal Oswal.
Jehan Bhadha has issued a research report in which he has recommended a buy on sound logic:
“Multiple triggers to drive 12% CAGR in organized tile industry: (i) Government policy reforms like Swachh Bharat Abhiyaan, 100 smart cities, Housing for all by 2022, real estate bill, implementation of GST, (ii) Tile penetration is at just 11% in India with bulk of the houses having mud and cement flooring, (iii) shift towards value added vitrified tiles, (iv) Anti-dumping duty of USD 1.37/sq.m on imports from China, imposed in March 2016 is likely to get extended which shall translate to higher growth for domestic manufacturers. The growth of the tiles industry (size currently pegged at INR255bn) has decelerated from 20% CAGR in FY10-FY14 to 9% over FY14-16 largely due to the sustained slowdown in real estate, particularly in metros and tier-1 cities. However with structural drivers discussed above, we expect the organised tiles industry growth to accelerate to a CAGR of 12% over the next two years.”
Jehan Bhadha has also emphasized that Somany Ceramics’ revenue CAGR over FY16-18E will be close to 14% and that there will also be strong expansion in margins and lower interest costs which will give a strong boost to profitability. This will lead to PAT CAGR of 35% over FY16-FY18E, he says. He adds that the ROCE will improve by 730bp to 25% by FY18E. He also points out that the CMP, Somany Ceramics is trading at 19.6x its FY18E EPS, which is not unreasonable at all. He has valued Somany Ceramics at 24.2x FY18E earnings (a 15% discount to Kajaria) which means that the target price is INR 700. This translates to a 23% upside from the CMP.
In addition to Somany Ceramics, we also have to keep our eye on City Union Bank because that is Creador’s latest stock pick. With Brahmal’s luck, we shouldn’t be surprised if City Union Bank also effortlessly turns into a multibagger stock!