The problem with buying old-economy stocks (as opposed to secular growth stocks) is that the former are very sensitive to changes in the economy. If the economy remains in the doldrums, these stocks also remain in the doldrums. However, if the economy picks up, then these stocks outperform because they enjoy “operating leverage”.
The best part is that if you buy these stocks when they are in the doldrums, you get them at rock bottom prices. Then, when the economy improves, you can expect mega gains from these stocks.
Seasoned investors like Ashish Kacholia know that one cannot ignore old economy stocks. That is why his portfolio comprises of both, secular high growth stocks (like Kitex Garments, Shreyas Shipping) as well as old economy stocks.
Pennar Industries is an old favourite of Ashish Kacholia. He bought a chunk of the stock as far back as in July 2010. He bought another lot of 20 lakh shares in September 2014. He bought another 500,000 shares in the March quarter. His present holding stands at 25,00,000 shares as at 31st March 2015.
Daljeet Kohli recommended Pennar Industries on 4th September 2014 when the stock was at Rs. 47. Daljeet emphasized that the stock is cheap (P/E multiple of 8.8x FY15E and 5.9x FY16E earnings estimate, which is well below its 14.3x – three year historical average), it does not have much long-term debt, it has good ROE (average ROE for the past 3 year is 12.9%) etc.
The stock touched a 52 week high of Rs. 68 in January 2015, giving mega gains to all of Daljeet’s followers. However, after that, the correction in the market and the sluggishness in the economy has dragged Pennar Industries back to where it all started.
In his latest update, Daljeet has again reiterated a buy call. He has pointed out that Pennar Industries and its subsidiaries Pennar Enviro have received orders worth Rs 760 mn from Hindustan Dorr Oliver, United Spirits Limited, Sterling and Wilson, Integral Coach Factory, Southern Railway and East Central Railway. Daljeet has emphasized that this is a “positive and large order intake” for the Company. He also points out that the key triggers that will play out are (i) High growth business of Pre-engineered buildings (ii) Separate listing of PEBS (74% subsidiary), (iii) company’s gradual transition from pure Commodity player to value added player-which is helpful in margin expansion and (iv) Company’s presence in diverse sector of Economy like automobile, infrastructure, railways etc.
Daljeet has promised a target price of Rs. 81 for Pennar Industries which translates to a gain of nearly 70% from the CMP of Rs. 46.
If you want to read more about Pennar Industries, you must check out the detailed analysis by Manish Bhandari of Vallum Capital.