Dharmesh’s latest stock pick is Camlin Fine Science. Camlin is already a super-duper multi-bagger with an incredible 478% YOY return. In the last three years, the stock is up an incredible 620%.
Camlin Fine Science is a small cap company with a market capitalisation of only Rs. 500 crore.
The acquisition of Borregaard Italia Spa, in a brilliant strategic backward integration move, was a key game changer for the company because it assured itself of a regular supply of a raw material called Hydroquinone (HQ).
After that, there has been no looking back for Camlin Fine Sciences. It is today the world’s largest manufacturer and marketer of food grade antioxidants called ‘TBHQ’ and ‘BHA’ with ~50% and ~70-80% market share, respectively.
In his report, Dharmesh points out that Camlin seems to be poised at inflexion point for rapid growth in coming years. It has completed capacity enhancements for most of its existing and new products.
He also emphasizes that Camlin stands on strong financials. Its revenue grew at a CAGR of around 30% in the last 4 years, in an economically tough global environment. During the same period, the shareholders fund posted CAGR of 23% while that for fixed assets gross block came at 13%, depicting the management’s resolve to add on capacities despite challenging environment. The profit after tax delivered a CAGR of 45% and cash accruals had a CAGR of 34% from FY’10 to FY’14.
In FY 2014, Camlin posted a strong set of numbers. While the consolidated total income at Rs. 518.33 crores for FY’14 registered 35% Y-o-Y growth, the consolidated PAT at Rs. 28.71 crores posted 90% Y-o-Y growth.
Camlin continued its strong showing in Q1FY15 with a rise in revenue by 13.37% y-o-y and PAT by 10.30% y-o-y.
Dharmesh expresses confidence that going forward, one can expect Camlin Fine Sciences to capitalize on the benefits of capacity expansions leading to operating leverage along with higher operational efficiency on back drop of several new product launches.
Dharmesh recommends a buy with a price target of Rs. 150, which is a 50%+ upside from the CMP of Rs. 105.
Chirag Shah and Bhupendra Tiwary of ICICI-Direct have come to the same conclusion about Camlin Fine Sciences. They have also advised a buy of the stock on the premise that the strong revenue, PAT CAGR of 23%, 22%, respectively, (in FY14-16E) on the back of new product launches in Diphenol downstream segment, entry into blends business (forward integration for TBHQ, BHA business) and consistent margins (12.5-12.8%) are expected to lead to a re-rating of the investment multiples in the range of 12-14x on FY16E EPS of Rs. 9.1.