Fav Nano-Cap Stock Of Eminent Wizards Will Yield Bumper Gains: Experts

Shyam Sekhar’s Portfolio sparkles with Prima Plastics

Shyam Sekhar, the noted value investor, is known to be very strict when it comes to buying stocks. He has a clear idea of what stocks to buy and what to avoid.

While Shyam Sekhar is known for his allergy to micro-finance and housing finance stocks, he does have a number of mega multibagger stocks in his portfolio.

Stocks like La Opala, Jayant Agro, Hatsun Agro, HDFC Bank etc readily come to mind as being the bulwark of the value investor’s portfolio.

However, Prima Plastics is one stock that deserves special mention because Shyam Sekhar has shown his mastery by aggressively ramping up his holding in the micro-cap.

From a holding of 71,173 shares as of 31st March 2015 to a holding of 2,35,816 shares as of 30th September 2016, Shyam Sekhar has emerged as one of the largest shareholders of Prima Plastics and is in the position to call the shots.

Prima Plastics has richly rewarded the intrepid value investor by surging a massive 1475% since 1st April 2014 and 280% since 1st April 2015. The YoY return is itself a hefty 58%.

Prima Plastics is another feather in the cap of aceinvestortrader

While Shyam Sekhar may have pocketed big bucks from Prima Plastics, credit for putting the micro-cap in our radar has to go to the mysterious and anonymous blogger called ‘aceinvestortrader’.

Aceinvestortrader has a tendency to be ballistic about his stock recommendations.

He described Prima Plastics as a “Mega Multibagger in Making” and said that he was “awe struck the moment I realized what a great brand I was missing in my core portfolio”. The blogger assured his followers that the stock “will not just double or triple and stop. It will go wayyyy beyond” and advised them to “grab the opportunity while the big guys are busy analyzing messed up big businesses”.

Of course, the praise heaped on Prima Plastics was well deserved, and the advice to buy was invaluable, because Prima Plastics has surged like a rocket from the then throwaway price of Rs. 41 to the CMP of Rs. 208, giving eye-popping gain of 400% in just 25 months.

It is also worth remembering that Prima Plastics is not a flash-in-the-pan recommendation by aceinvestortrader. Instead, the mysterious blogger has several ten-baggers and multi-baggers to his credit such as V2Retail, Cupid, Garware Wall Ropes etc.

Prima Plastics is “riding on the fast track”: IDBI Capital

IDBI Capital has recommended a buy on the basis that Prima Plastics is “riding on the fast track”. The rationale is as follows:

“Prima Plastics (Prima) is the fourth largest moulded plastic furniture player in India, operating in Western & Southern area through strong distribution (425) and dealers network (5000+). It also exports (16% of Consolidated revenues) to US, Africa and Middle East (ME). During FY12-15, it reported revenues and earnings CAGR of 19% and 22%, respectively while debt level brought down to negligible level (from 0.4x in FY12) and ROE improved from 9% (FY12) to 12.4% (FY15). Going forward, the company would be on a fast growth track due to (1) Shut down of its loss making Aluminium Composite Panel (ACP) business in FY15 (2) Capacity expansion in India and African JV (3) Entry in Central America (JV; 4,000MT capacity) (4) Improving working capital cycle. Given its strong future prospect led by robust earnings growth & uptick in return ratios, FCF generation capability and robust balance-sheet, we assign a P/E multiple of 12x on FY18E EPS (v/s 1 year forward industry average P/E of 16x), translating a price target of Rs235 (63% upside). Initiate with a BUY.”

It is worth noting that IDBI Capital issued the buy recommendation in April 2016 when the stock was languishing at Rs. 144. At the CMP of Rs. 208, handsome gains of 45% are already on the table.

Capacity expansion will drive growth and margins: Nirmal Bang

Nirmal Bang has issued a management meet update note in which it has systematically set out all the salient features of Prima Plastics:

“Capacity expansion to drive medium-term growth and margins:

PPL is almost a debt-free company with cash and cash equivalent of Rs105mn despite expanding its capacity from 14,500mt to 22,500mt. PPL has steadily increased its sales at a CAGR of 17% over FY12-FY16 while EBITDA/PAT grew 29%/33% each. Declining crude oil prices helped improve PPL’s EBITDA margin to 15.7% (11.7% in FY15) and RoC and RoE to 16.8% and 20.4% (11.1% and 12.3% in FY15), respectively.”

Nano Nivesh Buy Recommendation By ICICI-Direct

Now, the big news is that the wizards at ICICI-Direct have recommended a buy of Prima Plastics with the solemn assurance that it has a target price of Rs. 267 to Rs. 283, which translates to a hefty upside potential of nearly 35% from the CMP of Rs. 208.

As always, the logic is simple and indisputable:

“Aggressive expansion plans:

• Strong balance sheet, attractive margin: Debt free status, benign raw material prices, rising contribution of higher margin business and efficient working capital management have helped PPL to produce strong RoCE & RoE of 26% & 19%, respectively. Going forward, we expect consolidated revenue, earnings CAGR of 21%, 19% supported by EBITDA margin expansion of ~83 bps in FY16- 19E. We value PPL at Rs 267- Rs 283 i.e. 17x-18x P/E of FY18E.”

Expansion & cost gains will add shine to Prima Plastics: ET

Ashutosh R Shyam of ETIG has studied the fundamentals of Prima Plastics in a meticulous manner and concluded that it is likely to “reap rich dividends thanks to its capacity expansion, improving cost efficiency and increasing reach in high-growth markets”.

He has also opined that the present valuations, about 10x FY18E, is “reasonable” owing to the company’s potential earnings growth and improving return ratio. Prima’s peers, namely, Wimplast, Nilkamal, and Supreme Industries, are demanding exorbitant average valuations of up to 16x, he says.

(Image Credit: ET)

Conclusion

Prima facie, the bullishness of the experts with regard to the prospects of Prima Plastics appears to be justified. The Company’s debt-free status and high growth trajectory will hopefully soon propel it from the status of a nano cap into that of a small/mid-cap and lead to multibagger gains for its shareholders!