So, my simple pattern-seeking monkey brain has analyzed the recent bouts and concluded that small/micro caps are not done yet .Too many bad news in a short period made me buy some again! (I’ve become a habitual small/micro buyer in a red-hot market. Hopefully, someday, I’ll be saved.)

Most of the small/micro names I have or studied are already 2-3X. I still think the space has some steam left before the perceived “no gain” phase arrives (short or long, I’ve never experienced it). Now I’m dreaming of new names that can go 5X in a year (I know, I know, Mungerilal type dreams but I think that’s my salvation for the “no gain” phase).

I did BPL (comparatively cheaper in the EMS space) and Justdial (good reserves & surplus, good ROCE, and a “left out” name in the speeding market – nice logic from a new recruit ). These are moonshots by a new recruit, no qualified recommendations.

Any other new names that can rise well?

Anyone seeing sectoral changes? Industrials and power are still in favor, I think. I see some pipes especial PVC pipe names rising quickly past March 2024. Anyone with me, or am I just dreaming?

Jindal Stainless Q1 FY25 Analysis: Key takeaways!!

Jindal Stainless Limited maintains a positive outlook, expecting strong domestic demand across major segments. The company achieved its highest-ever sales in Q1 FY25, with a 5% year-on-year increase. Management remains confident about achieving 20% volume growth for the full year FY25, driven by infrastructure spending, railway expansion, and growth in new sectors like renewable energy and nuclear power.

Strategic Initiatives:

1. Acquisition of Chromeni Steels: JSL completed the acquisition of Chromeni Steels Private Limited for over INR 1,600 crores, adding 0.6 million tons per annum cold rolling capacity.
2. Co-branding schemes: The company is expanding its successful co-branding initiative beyond the Pipe & Tube segment to other consumer-facing segments like utensils and hollowware.
3. Capacity expansion: JSL is ramping up its nickel pig iron (NPI) plant and expects to start operations by Q3 FY25.
4. Channel financing and market research: The company is focusing on deeper tier market research and channel financing to extract better value from customers.

Trends and Themes:

1. Increasing domestic stainless steel consumption in line with GDP growth
2. Growing demand in infrastructure, railways, defense, and new-age industries
3. Focus on value-added and high-margin products
4. Emphasis on sustainability and environmentally responsible operations

Industry Tailwinds:

1. Government’s infrastructure push and increased capital expenditure
2. Growth in railways, nuclear power, and renewable energy sectors
3. Rising stainless steel demand in new applications like LNG terminals and desalination plants
4. Implementation of BIS certification norms to potentially curb low-quality imports

Industry Headwinds:

1. Red Sea issues affecting export logistics and freight costs
2. Volatile nickel prices impacting inventory valuation
3. Intense competition from imports in certain segments
4. Global economic uncertainties affecting export markets

Analyst Concerns and Management Response:

1. Export market challenges: Management expects improvement in H2 and is exploring new export markets like Japan, South Korea, and South America.
2. Debt levels: The company maintains its focus on prudent financial ratios and aims to keep net debt to EBITDA below 1.5x.
3. Management bandwidth for expansion: JSL is proactively working on developing leadership talent to handle growth.

Competitive Landscape:
JSL maintains its strong market position in India. The company is focusing on high-margin segments and value-added products to differentiate itself from competitors. The acquisition of Chromeni Steels enhances its competitive edge in cold-rolled products.

Guidance and Outlook:

• 20% volume growth for FY25
• EBITDA per ton guidance of INR 18,000-20,000
• Net debt to EBITDA ratio to remain below 1.5x

Capital Allocation Strategy:
JSL’s capital allocation focuses on growth investments, dividends, and maintaining a strong balance sheet. The company has taken an enabling resolution to raise up to INR 5,000 crores through equity-like instruments for future organic and inorganic growth opportunities.

Opportunities & Risks:

Opportunities:

1. Expansion into new export markets
2. Growth in domestic infrastructure and new-age industries
3. Potential for further value-added product development

Risks:

1. Volatile raw material prices, especially nickel
2. Geopolitical tensions affecting global trade
3. Potential economic slowdowns impacting demand

Regulatory Environment:
The implementation of BIS certification norms is seen as a positive step for the industry. JSL is actively engaging with the government on the proposed National Stainless Steel Policy, which could provide further support to the sector.

Customer Sentiment:
Customer sentiment remains positive, especially in domestic markets. The company’s co-branding initiatives are helping to build stronger relationships with customers and end-users.

Top 3 Takeaways:

1. JSL maintains strong growth momentum with 20% volume growth guidance for FY25, driven by robust domestic demand and strategic initiatives.
2. The acquisition of Chromeni Steels and ongoing capacity expansions position the company for future growth in value-added products.
3. Despite challenges in the export market, JSL is actively exploring new geographies and maintaining a focus on high-margin segments to sustain profitability.

heard concall fo SBDL for Q1. Company is doing well but management is not forthcoming with clear numbers – lots of confusion on call.

I feel Sanghvi has become a good value buy now. You are getting the largest crane rental company in India at 3500 cr mkt cap. With 500 cr+ orders in hand and extrapolating their order book to execution in FY 24 easily 800 cr top line is doable . Yes Q2 will also be sluggish ( As we are already in August and mgmt has a fair idea ) , but looking at the bigger picture of infra growth, Sanghvi exploring adjacencies etc , I think it’s a good value buy now.

Well, as of today and more importantly going forward, it will become even more difficult for active investors ( and fund managers ) to beat a basket of indexes. In the past, index investing meant investing in our primary broad based index ( Nifty ) but we now have a wider range of indexes that has now a better Ranking mechanism and scans through a bigger universe.

In my view, anyone actively deploying money in a basket of stocks will need to do something significantly out of the ordinary and at the same time will need some luck on his/her side. I honestly dont see a lot of fund managers outperforming a basket of indexes going forward.

A Sample basket of indexes that I think will be very difficult to beat →

• Nifty Large MidCap Index

• Nifty 200 Momentum 30 index

• Nifty Midcap Momentum 50 index

Having said this, the edge that investors like us have i think has narrowed down to either of the following 2 approaches

• Having an even better Ranking mechanism alongwith optimum exit criteria ( for those who want to have a basket of stocks ).

• Find the most lucrative steals in the market and go all out on those. Large allocations to a small group of hidden gems.

I will be keen to know if anyone can list out any other edge that individual investors might have in the current/future regime.