One of my favourite theories is that if more than one savvy investor has taken a liking for a stock, it is almost certain that the stock will shower hefty gains on its lucky shareholders.
This theory has been proved to be infallible time and again.
One recent instance is that of Sterling Tools. I diligently reported a few days ago that Dolly Khanna and Anil Kumar Goel have reposed great faith in the stock. Since then, the stock is surging like a rocket.
Yet another instance is GHCL, the small-cap engaged in the manufacture of specialty chemicals and textiles.
In an earlier piece, I pointed out that GHCL has a number of savvy investors rooting for it. In addition to heavyweights like Ashish Kacholia and Sanjoy Bhattacharyya’s Ocean Dial Gateway Fund, GHCL has attracted eminent stock pickers such as IndiaNivesh Securities, EOS Multi Strategy Fund and Morgan Stanley.
However, having eminent stock pickers expressing confidence in a stock is not enough. There must be a credible research report which explains the nuts and bolts of the stock and why it is a compelling buy.
GHCL satisfies this requirement as well. We noted earlier that Emkay has conducted a masterful analysis of the innards of GHCL and has explained what makes the stock tick.
When the stock was Rs. 171 on 22nd June 2016, Emkay confidently predicted that the stock would surge to Rs. 228 on the basis that GHCL is at “neglected valuations” which does not take into account the “strong fundamentals”.
What is appreciable is that Emkay was not deterred by the fact that GHCL had already (at that time) clocked in a magnificent return of 230% in 24 months and 131% over 12 months.
Today, the target price of Rs. 228 predicted by Emkay is history. The stock is standing tall at Rs. 259.
The reason for the euphoria is because GHCL reported block buster Q1FY17 results. The sales surged 17% while the operating profit surged 41%. The net profit surged an impressive 67%.
|GHCL LTD – Q1FY17 FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||JUN 2016||JUN 2015||% CHG|
The robust results have increased Emaky’s confidence that GHCL is on the right track and has the wherewithal to deliver more bumper gains to shareholders. They have again recommended a buy and increased the target price to Rs. 280.
As always, the logic is flawless:
“Upgrade FY17/18E EPS by 8%/5% respectively; Upgrade target price, maintain BUY
We have upgraded our FY17/18E EPS by 8%/5% respectively as we advance our revenues estimates on the back of improving volumes for soda ash and textiles business. Further, higher operating efficiency in organics chemicals segment and lower interest cost will result in higher PAT growth. We assign higher target multiple of 7xFY18E EPS (from earlier 6x) as we see strong visibility of earnings and improvement in return ratios supported by sustained reduction in debt. We reiterate BUY recommendation with revised TP of Rs 280 based on 7x FY18E EPS of Rs 40.”
Emkay’s prediction is like sweet music to the ears of Sanjoy Bhattacharyya, Ashish Kacholia and the other ace stock pickers as they prepare to welcome the massive gains that is effortlessly flowing into their coffers!