Why Dolly Khanna’s Latest Stock Pick Nilkamal May Be Her Next Multi-Bagger

Nilkamal, a stock which has been long neglected by investors owing to its poor performance, began showing some signs of life, as if some strong hands had gripped it. It surged 35% in one month. A little bit of probing beneath the covers revealed the answer – our own friendly neighborhood stock wizard Dolly Khanna was sitting pretty in the stock, with a holding of 1,52,864 shares.

When and where did Dolly Khanna buy the said stock? Nobody knows!

Now, this is one trait of Dolly Khanna that you have to appreciate. Unlike other big-ticket investors who buy in a bulk deal and attract attention, Dolly loves to buy in bits and keep a low profile. You never know what Dolly Khanna is up to until after the event.

Of course, Dolly can never keep anything a secret for too long because we keep a hawk eye on her activities in the stock market. We have thoroughly analyzed her portfolio and also tried to decode her secrets to finding multi-bagger stocks.

Anyway, now the all-important question is why Dolly bought Nilkamal and whether there is any more juice left in the stock for us to feast on.

Nilkamal is a small cap company with a market capitalization of only Rs. 300+ crore. Surprisingly, it is said to be the world’s largest manufacturer of moulded plastic furniture. It has a strong market presence and brand value and dominates the industry in the plastic business. It is promoted by the Parekh Family (Vamanrai V. Parekh, Sharad V. Parekh and Hiten V Parekh).

Nilkamal got into a spot of trouble because of its’ aggressive expansion plans. It set up a mattress manufacturing facility at Hosur, Tamil Nadu and promised to extend the facility to three other zones. It also set up a retail division called “@Home”. This division has a presence across India through 19 large store formats having an average size of 20,000-25,000 sqft.

Nilkamal made huge capex investments of nearly Rs 4.6bn over FY07-FY13. The @home division itself absorbed Rs. 1bn in investment. Unfortunately, the @home division proved to be a cash guzzler and a huge drag on the profitability of the company.

However, all that may be changing now. According to a research report by Jignesh Kamani of Nirmal Bang, Nilkamal has decided to go slow in @Home business and may even look at divesting its stake also to focus on its core business. Nilkamal’s other business segments are also on the verge of a turnaround. Jignesh Kamani expressed confidence that all negatives like aggressive capex, moderation in volume and the pressure on margins is factored in its valuation at 6.9x/4.0x FY14E P/E and EV/EBTIDA, respectively and that likely improvement in volumes and margins and free cash flow generation can lead to a re-rating of the stock.

If you ponder over it, Nilkamal fits in like a glove with Dolly’s investment strategies. Dolly is constantly on the prowl for companies which are quoting at rock-bottom valuations and in which investors are not interested. If such companies are making efforts to pull themselves out of the morass, Dolly loves to quietly pick up the stock and play the wait and watch game. She knows that the downside risk is low while the upside risk is huge.

We saw examples of this brilliant strategy in Selan Exploration, Liberty Shoes, Relaxo Footwears and several other stocks, where Dolly has received a rich payback.

So, if you don’t have a chunk of Nilkamal in your portfolio, you need to give it serious thought and perhaps buy it on dips. Being associated with Dolly can have rich rewards.