A clear indication that a stock is likely to turn out to be a powerhouse winner comes when the stock wizards start scaling up their holdings in the company.
This trend is clearly visible in GHCL, the small-cap (market capitalisation of Rs. 1,778 crore) manufacturer of soda ash (chemical) and textiles.
IndiaNivesh Securities, which held 14,00,238 shares of GHCL as of 31st March 2015 has increased its holding to 25,20,058 shares as of 31st March 2016.
Not content with this, IndiaNivesh has bought another chunk of 12,25,000 shares in the name of IndiaNivesh Capitals Ltd.
EOS Multi Strategy Fund Ltd, which held 27,87,484 of GHCL as of 31st March 2015 has increased its holding to 28,52,484 shares as of 31st March 2016.
In addition to the existing investors scaling up their holdings, three heavy duty investors have made their presence felt in FY 2015-16.
(i) Morgan Stanley Asia (Singapore) bought 10,45,000 shares.
(ii) Ocean Dial Gateway To India Mauritius Ltd (which is advised by Sanjoy Bhattacharyya) bought 25,00,000 shares.
(iii) Ashish Kacholia, one of our favourite stock wizards, bought 14,80,100 shares.
Now, it is obvious that such super-savvy investors would not have made a beeline for GHCL if they are not convinced that mega gains can be harvested from the stock.
In an earlier piece, I have laboured hard to explain the virtues of GHCL by drawing heavily from a research report issued by NVS Wealth Managers as well from the investors’ presentation furnished by the Company.
Thankfully, GHCL has lived up to the expectations of the savvy investors by delivering fabulous returns of 230% over 24 months and 131% over 12 months. The three month return is itself a hefty 60%.
Now, the astonishing part is that despite these mind-boggling returns, Emkay has expressed the expert opinion in its Initiating Coverage report that GHCL is still quoting at “neglected valuations” which does not take into account its “strong business fundamentals”.
Emkay has made three core points to support its proposition:
(i) The soda ash business enjoys huge margins and contributes huge cash flows:
GHCL is one of the key soda ash players with market share of about 23%. Company enjoys margins in the range of 28-31%, which is 400-800bps higher than its peers driven by its cost leadership and backward integration. The segment contributes approximately Rs 4-4.5bn pa to cash flows and ongoing capex to boost it further to Rs5bn with RoCE of 36%
(ii) The margins in the textile business can expand significantly:
GHCL’s thrust on improving its product mix, changing customer profile and driving its capacity utilization is expected to improve its margins from 11% in FY16 to 13%/15% in FY17E/FY18E respectively.
(iii) The valuations are cheap at 4.4x FY18 EPS:
Valuations look attractive as at the CMP of Rs 171, the stock is trading at 4.4x FY18 EPS.
Emkay’s reasoning is quite convincing. It has valued GHCL at 6xFY18 and computed the fair value of the stock at Rs 228.
The target price of Rs. 228 offers an upside potential of 33% from the CMP of Rs. 171. This is quite a hefty upside by any standards and should bring a gentle smile to the lips of the savvy investors who are invested in the stock!
sir this is promoter holding r 18.47 18.47 18.37
Public 81.53 81.53 81.63 if stock is so great why promoter so low ?
With Brexit Fear Subsiding Markets can See a Gap Up Opening on Friday
Stock Market Today by Shailesh Saraf – 23rd June 2016
Indian Market Outlook:
Nifty is expected to open 14 points gap up at 8216, as per SGX at 8:30 am IST. Markets May Remain In A Small Trading Range Before The BREXIT Polling Tomorrow. The UK Referendum Results Would Be Out Early Morning On Friday. We Expect The Markets To Open Gap Up Since The BREXIT Fears Seem To Be Out Casted As Clearly Signaled By The Soaring GBP. Polling will be held between 12:30pm IST on 23rd of June and 3:30 am IST on the 24th of June. Fifty percent of the vote count results is expected to be released at 9am IST on the 24th of June and the final results are expected around 12:30 in the afternoon the same day.
International Market Outlook:
Markets have remained in a small range as the global markets await the outcome of the UK referendum to be declared early morning on Friday. GBP has gained momentum and is trading at its 5 month high of 1.4816 after making a high of 1.4844 today morning.
I may also mention that there is one more small cap where big investors have bet their money very recently. Good Luck Steel Tubes. An FII called ICG Q Limited, a subsidiary of India Capital Growth Fund has bought 4.5 lakh shares of the company. Also, just two months back another biggie, Reliance Mutual Fund bought a good chunk of 14.5 lakh shares or 6.59% of the company for a consideration of 13.5 crores. The company caters to industries like auto parts, solar, oil and gas, power, telecom, railways, etc. Its auto parts division exports highly specialised parts to Mercedes Benz, Volkswagen, Audi, Renault, Caterpillar, Toyota, General Motors, besides all Indian car manufacturers. Its Oil and gas division supplies to Reliance Industries, L&T, ONGC, Indian Oil, BPCL. Its Power transmission division supplies towers to Uttar Pradesh Government, Powergrid Corp, and many many more. One can have a look at their presentation material they provided to the stock exchanges. Its a 1000 crore topline company, with a market cap of only 227 crores. Also a constant dividend paying company. Its paid up capital is a tiny 4.4 crores with reserves of 206 crores. With ROCE and RONW of around 16%, this company seems like a very good bet for the future. Looks quite underpriced at present.
Ashish Kacholia.. are you sure he is holding shares in the company.. his name isnt there in the public shareholders list.. when do you think he bought the shares..??
Personally I feel entering such stocks at top valuations is like playing with Fire. One one side there is huge gains and on the other there is a huge drop.
Positions need to be undertaken considering favourable Risk/Reward. One won’t do a business where risk vs return are both equal.
What about management of GHCL. Just Google to find their past. Sacry.
Up to march 15, promoters have pledged 47% of shares. March 16 it is not clear, it is showing as — in every category of share holders. Can any one clarify this?
#Stock #Market #Tips ::GHCL is better placed as far as fundamentals are concerned. The revenue growth is decent over the years. Earnings are growth with double digit growth. Debt is on the recovering side. PE ratio is under valued too, trailing at 4.49x. Morgan Stanley recently have marked the presence in the stock while Ashish Kacholia also have added the stock in the portfolio. This can be a good buy with long term vision.
Source: http://goo.gl/UoyAOd