Mastery in finding multibagger nano nivesh stocks
Prima facie, Porinju Veliyath and Shyam Sekhar appear to have a common investing philosophy. Both specialize in nano-nivesh or micro-cap stocks and have the talent to fish out stocks with multibagger potential.
Example 1: Balaji Amines (300%+ gains):
Balaji Amines is a good example of a stock where both stalwarts, Porinju Veliyath and Shyam Sekhar, hunted together and snared multibagger gains for their respective portfolios.
While Shyam Sekhar maintained his customary silence, Porinju made a public recommendation in March 2015 that Balaji Amines should be bought aggressively. Since that day, massive gains of 300% have been harvested by the duo.
Example 2: Sugar stocks (1,000%+ gains):
Another example of the stock picking wizardry of the duo is provided by the fact that they turned contrarian and bullish about sugar stocks at precisely the same time.
The two veterans have been richly rewarded for their proactive and contrarian stance. They have taken home gains in excess of 1,000% in just about than 24 months.
Linc Pen & Plastics
Now, all eyes are on Linc Pen & Plastics, a micro-cap with a market capitalisation of only Rs. 408 crore.
Linc Pen is a leading writing instrument company engaged in manufacturing and distribution of pens (ball point & gel), refills and pencils. It is also the sole distribution agent of Mitsubishi Pencils (Japan) in India and markets their popular brand Uniball.
|LINC PEN & PLASTICS LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||410|
|EPS – TTM||(Rs)||[*S]||12.23|
|LATEST DIVIDEND DATE||18 AUG 2016|
|BOOK VALUE / SHARE||(Rs)||[*S]||74.13|
[*C] Consolidated [*S] Standalone
|LINC PEN & PLASTICS LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||SEP 2016||SEP 2015||% CHG|
Ramesh Damani recommended investment in Linc Pen (315% gain)
Ramesh Damani recognized the potential of Linc Pen earlier than anyone else. In a chat session of April 2005, he called the company a “niche bet”.
Later, he recommended the stock in the following words:
“last week i spoke of LINC PEN (67)..they are building a credible brand and this business is valued by foreign majors …. would suggest a ezposure for long term invetors..”
Porinju Veliyath also recommended Linc Pen (175% gain)
Porinju, as is his habit, has been making recommendations on twitter.
Linc Pen @ 100 Rs. MktCap 140 Cr – to post 550 Cr revenue in 2 yrs with higher margins; could be valued at 1.5 times sales – not for traders
— Porinju Veliyath (@porinju) September 3, 2014
Linc Pen up 44% in two days:https://t.co/NOgyBY19kN
— Porinju Veliyath (@porinju) November 18, 2014
It is worth noting that since Porinju’s first recommendation, the stock is up 175%, which is a hefty gain by any standard.
Porinju’s holding in Linc Pen
As of 31st March 2016, Porinju held 50,000 shares in Linc Pen. His present holding is not known.
S. P. Tulsian recommends investment in Linc Pen
S. P. Tulsian is also bullish about the stock. In his customary style, he reeled out impressive facts and figures about the stock:
“The kind of performance that we have seen from Linc Pen is stupendous. For Q4, they have crossed Rs 100-105 crore turnover and if I compare this company with Cello Pens — Cello Pens have a 33 percent market share and French stationary major BIC were holding 75 percent stake, they have raised their stake to 100 percent in Cello Pen by paying Rs 540 crore. That means the valuation of Cello Pen is Rs 2,160 crore. Cello Pen is controlling 33 percent market with a topline of Rs 600 crore.
Linc Pen will be having an — or they had a turnover of Rs 350 crore for this FY16 if I take a comparable figures and they have a market share of maybe about 18-19 percent if you take by the volume, Rs 600 crore vis-a-vis this Rs 350 crore and the marketcap of Linc Pen is at Rs 277-280 crore and it is virtually a debt free company and the kind of growth, which we have seen in the performance of the company has been very good.”
Shyam Sekhar buys Linc Pen aggressively
Shyam Sekhar has been buying the stock in a systematic and aggressive manner. He started off on 20th November 2015 with a modest purchase of 16,502 shares. By 31st March 2016, he had increased his holding to 1,56,683 shares. As of 31st December 2016, Shyam has emerged as the largest individual shareholder with a holding of 175,662 shares. The investment is worth Rs. 4.88 crore at the CMP of Rs. 278.
S. Vijaya, who appears to be related to Shyam Sekhar, holds 79,366 shares as of 31st March 2016. Her present holding is not known.
Dearth of floating stock in view of hoarding by promoters and big-ticket investors
As of 31st December 2016, the promoters hold 60.47% of the equity. Of the balance 39.53%, Mitsubishi Pencil Co Ltd, the Japanese stationary behemoth, holds 13.53%. Shyam Sekhar, Porinju Veliyath and Ajanta Sales Pvt. Ltd have commandeered a big chunk in their respective names. The rest is spread out over several lakhs of mom and pop investors.
The upshot is that there is a severe dearth of floating stock available for sundry investors. This can lead to a ‘mis-pricing’ of the stock when deep-pocketed investors come looking for it and are willing to pay a premium.
Is Linc Pen undervalued in comparison to Cello Pens?
Some astute observers have noted that Linc Pen, which is presently quoting at about 1x market cap to sales, may be undervalued in comparison to the price of 3.6x market cap to sales paid by Bic, the French behemoth, to acquire 100% of Cello Pens.
— Jagdesh (@cjrsaaketa) December 27, 2016
@nooreshtech PAT growth was > 25% for last two years. Cello pens stake hike valuations hopefully will have rub off effect on Linc Pens too..
— Jagdesh (@cjrsaaketa) December 27, 2016
It is notable that BIC paid a premium to acquire 100% of Cello Pens on the basis that “India is one of the largest and fastest growing stationery markets in the world, driven by increasing consumer purchasing power and literacy rate.”
If so, Linc Pen is equally in a position to benefit given its own strong brands and dominance in the market place.
Buy recommendation of ICICI-Direct
Now, the important news is that the wizards at ICICI-Direct have conducted an expert analysis of Linc Pen and recommended a buy. The logic is as follows:
• Prominent player, innovation – key driver: Linc is a leading writing instrument player in India with domestic sales accounting for 74% of its gross sales in FY16. It is among the top five brands (Cello, Reynolds, Luxor, Linc, Flair) with a market share of ~10% of the organised segment (total industry ~Rs. 3300 crore, organised segment ~Rs. 2500 crore). It is particularly strong in East, North East & Northern India. Glycer (MRP: Rs. 7/unit) is the largest selling brand of Linc with new product innovation being Linc Twin (MRP: Rs. 10/unit) & Linc Touch (MRP: Rs. 20/unit). It has been continuously innovating across the years with five to six new product launches due in CY17E, thereby ensuring continuity in operations & climbing up the premiumisation ladder, going forward
• Impressive expansion on track; commissioning in Q1FY18: Linc currently has a capacity to manufacture 76 crore pens annually and is operating at 90%+ capacity utilisations levels. Sensing the same, it is setting up a greenfield project in Gujarat to cater to its export markets. The said plant will have a capacity of 15 crore pens annually and is intended to clock ~12% EBITDA margins. The peak turnover from the facility will be ~Rs. 60 crore with intended RoCE of ~20% on a total capex spend of ~Rs. 26 crore. The execution is on track with commissioning expected in Q1FY18. This will ensure volume led growth, with sales volume CAGR of 7.1% to 88 crore pens in FY19E (72 crore pens in FY16)
• Branded play, quality of earnings to improve: On the back of volume led growth and premiumisation of its product profile, profitability is on an uptrend at Linc. We expect EBITDA to grow at a CAGR of 16.5% in FY16-19E to Rs. 50 crore in FY19E (Rs. 31 crore in FY16). Corresponding improvement in EBITDA margins is expected at 190 bps. Consequent PAT growth is expected at 13.5% in FY16-19E. We have valued Linc at Rs. 300-315, i.e. 1.0x MCap/sales on FY18E-19E sales of Rs. 430-452 crore, respectively.
The optimism expressed by the expert investors with regard to the prospects of Linc Pen appears to be justified. The stock is indeed on an upward trajectory and is likely to reward its shareholders with hefty gains in the foreseeable future!