As a general rule, when we spot Vijay Kedia on a shopping mission at Dalal Street, we must tag along because more often than not, there is a good chance for reaping hefty gains.
Not doing so in the case of Apcotex Industries has cost us dearly. After Vijay Kedia bought the stock on 6th August 2014, the Company announced a 1:1 bonus and also took over another company called Omnova. The result is that the stock took off like a rocket. As of date, Kedia is richer by a fabulous 180%.
Some of these gains would have fallen into our pockets as well if we had followed Vijay Kedia’s illustrious footsteps.
Luckily, Daljeet Kohli bailed us out by recommending a buy on 27th May 2016 on the basis that the Company is on a “game changer” path and has a monopoly product.
People who followed Daljeet’s advice are richer by 37% (in just 4 weeks).
Fortunately, Daljeet is not deterred by the steep surge in the stock price. Instead, he has reiterated a buy on the basis that the Company is immune to the adverse implications of Brexit. Let’s listen to Daljeet’s advice:
“”We are looking at bottoms up approach and market on a whole, can do a lot many things. There will be a lot many issues to rattle with. But most important is ultimately, we make money when we choose the right stock. So, we have tried to find those stocks where the impact of Brexit is minimal or which can be taken care of by doing something on the domestic front where you will be able to make up more than what you would lose there.
With that theme we are continuing with the bottoms up approach with the stocks selection. Apcotex Industries, which is purely nothing to do at all with any export markets, because they are 100 percent domestic oriented. They are entire business comes from India. They are a specialised chemical player. They are into rubber chemical and latex basically and have taken over a company called Omnova Solutions.
By taking this over, they are actually going double their revenue this year itself. The company that they have taken over was making a loss at the operating level. Within two months of integration, they have brought it to 4 percent plus. So, that is the kind of leverage that they have. So, we are expecting that in the end of FY17, the merged entity will also have a similar margin which they had in the prior to merger. That means an upside of almost 10-12 percent in the new business that they have acquired. That is the theme of buying Apcotex.
In terms of valuations, the stock is trading at around 20 times and then 14-15 times of FY18 which again is reasonable. So, there is a track record of company integrating good things in the past also. There is a big synergy coming from the new business acquired and the valuation in your favour. It makes sense to look at the company even though market may do whatever, but the stock will perform. So, we have give a target of Rs 444 and a buy rating.”
There is a ring of truth in Daljeet’s advice. The point that “even though market may do whatever, but the stock will perform” is very comforting. Considering the pedigree of the promoters (Asian Paints), the strong demand for its products and its stranglehold on the market place, Apcotex does look like a stock to be held for the long haul!