Vijay Kedia, one of our favourite stock wizards, has a penchant for buying so-called “safe” stocks where the downside is low and the upside potential is high. This way, if the stock does not perform, Vijay Kedia is assured of getting his money back. But if the stock pick succeeds, Kedia is assured of mega bucks flowing into his coffers. Kedia has made a massive fortune for himself by following this sensible strategy.
Astec Lifesciences, a micro-cap worth Rs. 450 crore, is one of Vijay Kedia’s latest stock picks. Kedia Securities Pvt. Ltd, his investment arm, holds 200,000 shares as of 31st March 2016.
In August 2015, Godrej Agrovet, a subsidiary of Godrej Industries, bought 45.29 per cent stake in Astec LifeSciences from the promoters for Rs 167 crore. Pursuant to the open offer, Godrej Agrovet has acquired an additional 6.99 per cent equity stake in Astec for Rs 33.54 crore. The result is that Godrej Agrovet now has a controlling stake of 52.28% in Astec LifeSciences.
Godrej Agrovet’s interest in Astec LifeSciences is because the latter is engaged in the manufacture of agro chemicals and pharma ingredients. It also does contract manufacturing and sells branded formulations. It has three plants at Mahad and a R&D unit near Mumbai.
In a presentation of 2014, Astec promised to clock an average annual revenue growth of around 25% for the next five years, helped by commercialization of new products. In FY 2014-15 the revenue increased 29%.
Astec is a sensible buy for Godrej Agrovet because the latter already has a strong market share in agricultural products like plant growth promoters, soil conditioners and cotton herbicides with a pan-India distribution channel of over 6,500 distributors. Godrej Agrovet also has operations in areas like animal feed (where it is the largest manufacturer of compound feed in India, producing more than 1.1 million tonnes of feed and nutrition products for dairy cattle, poultry and aquaculture annually), oil palm plantations, hybrid seeds and processed poultry, where it runs a JV firm Godrej Tyson Foods.
So, it is quite elementary that under the tutelage of Godrej Agrovet, Astec Lifesceinces will prosper. As the fortunes of Godrej Agrovet grow, those of Astec will keep pace in view of the synergies in the businesses of the two.
Gaurav Parikh, a leading stock market expert, has given detailed reasoning in an article in Outlook Business on why Astec Lifesceinces is his “best stock pick for 2016”. The essence of his reasoning that a blue chip behemoth group like the Godrej’s is bound to transform a minnow like Astec Lifesciences into a powerhouse multibagger. He puts it very eloquently:
“At over 30x earnings and over 3.5x book, Aster is not exactly a bargain. But just check out the market cap of the three listed Godrej companies: Godrej Consumer Products is at around Rs. 43,000 crore, Godrej Industries is at around Rs. 13,330 crore and Godrej Properties is at around Rs. 6,500 crore, aggregating Rs. 62,800 crore market cap for the Godrej Group, which is now significantly bigger than the unlisted flagship brand Godrej & Boyce Manufacturing. Now, consider Astec LifeSciences, which has a market cap of less than Rs. 500 crore. With its impressive pedigree, it’s a given that the fortunes of Astec will be closely intertwined with that of the Goderj group. And in due course of time, one can also expect Godrej Agrovet to get listed either through a reverse merger with Aster LifesSciences or in a restructuring exercise in order to add value to the shareholders of both companies. In short, here’s a multibagger that has got a new shot at life.”
From our perspective, the two things that we have to check when making an investment is whether the investment is “safe” and whether there is a potential for a reasonable gain.
As regards the “safety” of the investment, the same is ensured by the fact that the promoters of Astec are the Godrej’s, a group that is revered for its high standards of corporate governance and ethical behavior.
As regards the question whether the stock is investment worthy, the credibility of the Godrej’s business acumen is there for everyone to see. They have several highly successful business operations in the Country.
Of course, if the reverse merger of Godrej Agrovet into Astec Lifesciences, as contemplated by Gaurav Parikh, ever happens, the sky is the limit for Astec Lifesciences!
Incidentally, Gaurav Parikh got his Outlook Business stock pick for 2015 (Shemaroo) right because the stock has given a 51% YoY return and an 89% over two years. Hopefully, his stock pick for 2016 will also turn out right!