MK Exim (India) gets the smallest allocation in my portfolio. It is a micro cap bet for the future. My investment in this is based on:
Management Change: The new management since 2019 has turned around the financial health of the company. For instance:
- Working capital days have gone down from 410 days to 170 days
- The return on capital employed (debt free) has gone from 3-4% to 30%+
- OPM has improved significantly from single digits to 20%+
And many such metrics of improvement.
The company is looking to grow its Moroccan oil business and its textile business with priority focus. The promoters have aggressively ramped up their stake in the company ever since 2019 (management change) which also gives me enough confidence to hold the stock. However, I am monitoring the cash position of the company very closely. I personally think that the EBITDA/CFO conversion is not up to the mark. This certainly is a risk as on the CMP/FCF front, the company might look slightly overvalued. Although for micro cap investing, these standardised valuation ratios are almost never used.
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