Novice investors like you and me have the tendency to look suspiciously at stock picks that are handed over to us on a platter by stock wizards. We suspect that the wizard has a hidden agenda in publicly recommending the stock and that he is seeking a backdoor exit from the stock.
This is a salutary habit on our part because there are a number of charlatans who are masquerading as Gurus and are seeking to hoodwink us. We have to watch our back against such impostors.
However, there are also a number of eminent Gurus of proven caliber who are motivated by the objective of sharing their learning and knowledge with us. We need to pay close attention to the sayings of these Gurus.
Vijay Kedia, one of our favourite stock wizards, belongs to the latter category. Kedia not only lectures us on the theoretical aspects of how to research and find winning stocks but he also occasionally hands over stock recommendations to us with a view to giving us a head start.
Sudarshan Chemicals is one of Vijay Kedia’s all-time favourite stocks and he never tires of telling us of its virtues. He has assured us time and again that the stock has great “operating leverage” owing to its production capacity, which will lead to higher margins. He has also comforted us that he knows the management well and trusts them to do the right thing. He has also soothed our nerves by emphasizing that the stock is a “safe” one, its valuations are reasonable and there is potential for hefty gains.
Kedia also revealed that he was amongst the first to buy Sudarshan Chemicals when specialty chemical stocks were not in fancy and that he paid a throwaway price of Rs. 42 for each.
Today, Sudarshan Chemicals towers at Rs. 252, giving Vijay Kedia a mind-boggling return of 530%. The YoY return is 140% while the 24 month return is 252%.
Fortunately, the stock is still a small-cap (Rs. 1,745 crore) with a lot of potential in it and it is not too late to tuck into the stock.
Edelweiss has issued an initiating coverage report in which it has recommended a buy on the basis that Sudarshan Chemcials has “Humungous growth opportunity” and that the “Capacity expansion and mix change to drive growth”.
The report explains the entire nuts and bolts of Sudarshan Chemicals. However, what is important from our perspective is the bottom line which reads as follows:
“Sudarshan Chemical Industries Ltd. (Sudarshan) is one of the leading global players in the pigment industry with dominant domestic market share of ~35% and presence across inorganic, classical azo, high performance pigment (HPP) and effect pigment segments. Tilt of product mix in favour of high-margin HPP & effect pigment segments, sharpening focus on global markets of Europe and North America, wide distribution footprint and capacity augmentation at Roha site are set to spur 40% earnings CAGR over FY16-18E. At CMP of INR 238, the stock is currently trading at 15x FY17E EPS of INR 15.7 and 12x FY18E EPS of INR 19.7. We initiate coverage with a target price of INR 335.”
At this stage, we must note that several others of Vijay Kedia’s favourite stocks are also firing on all cylinders.
Apcotex Limited, which is promoted by the illustrious Asian Paints promoters (Choksey family) and which is also recommended by Daljeet Kohli sprang nearly 9% today to rest at Rs. 402. The gains since Daljeet’s recommendation eight weeks ago is an impressive 40%. Daljeet has assured that Apcotex will remain unaffected from the effects of Brexit and continue to prosper. The stock is close to Daljeet’s target price and we will have to await an update from Daljeet on what should be done with the stock.
Heritage Foods, the Chandra Babu Naidu promoted small-cap, which Vijay Kedia recommended to us as a “Diwali Gift”, is also putting up a spirited performance. Kedia has the company of Dolly Khanna and Kamal Kabra, both eminent stock wizards in their own right, in Heritage Foods. Ventura Securities has recommended a buy of Heritage Foods with a target price of Rs. 910, which is an upside of nearly 80%.
We also have to keep a close eye on Repro which is also one of Vijay Kedia’s all-time favourite stocks. Whether Repro will also delight by giving massive gains requires to be seen!