Hem Securities, which is powered by its research analysts Vineeta Mahnot and Astha Jain, has a good track record so far. Three of its stock picks, Vaibhav Global, Suven Life Science & Tata Elxsi, have given excellent returns to investors in the short run.
Now, let’s take a close look at their latest stock pick Fiem Industries.
FIEM Industries is a small cap company with a market capitalization of about Rs. 400 crore. It is an OEM supplier of automotive lighting and rear view mirrors.
FIEM has been growing at a steady pace. In the last 5 years, it has grown by a CAGR of more than 22 percent, which is quite commendable.
FIEM recorded good results for the quarter ending September 2013. The revenues from operations have increased 25% to Rs.179.12 crores as against Rs.143.29 crores on a YOY basis. The operating profit increased to Rs.21.14 crores as against Rs.16.07 crores in the same quarter of the previous year.
The net profit for the quarter has surged to Rs.9.08 crore as compared to Rs.6.26 crore for the same quarter of the last year. The contributory factor for this was the raw material cost which, as a percentage of total sales, declined to 57.99% in the September quarter as compared to 61.39 percent in Q2FY13.
In terms of business operations, Fiem is a strong contender in the automotive lighting and mirrors business. It has diversified into LED indoor and outdoor lighting business and manufactures a large range of LED products like LED Home Lighting, LED Bulbs and tubes, LED Solar Street Lighting, Multi-Functional Torches cum Flasher Lights, LED Solar Lanterns, LED Display panels for buses and trucks and LED display signal systems for Railways etc.
In terms of valuation, FIEM has a TTM EPS of Rs. 26. At that EPS, the PE ratio at the CMP of Rs. 337 comes to about 13 times, which is not cheap for a small cap stock.
The other issue to be noted is that Hem Securities is a little late to the party. In the past three months, FIEM has surged 82%. In the last one month itself, after FIEM announced its September 2013 quarterly results, the stock has surged 73%. In the past 6 trading sessions, the stock has surged 30%.
Of course, the fact that a stock has shot up so much does not mean that it cannot shoot up further if the fundamental performance backs it. Whether Hem Securities’ target price of Rs. 420 (28% appreciation from here) is achieved remains to be seen.