This Super Investor Led Us to Our Upcoming Stock Recommendation! - The 5 Minute WrapUp by Equitymaster
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This Super Investor Led Us to Our Upcoming Stock Recommendation!

Jun 22, 2018

Kunal Thanvi, Research analyst

Indian stock markets are going through an interesting phase, to say the least.

In 2018, the broader markets are flat, but there are interesting things happening in mid and small cap space.

Increasing global interest rates, rising oil prices, subdued earnings performance, and finally - auditor's resignations, have spoiled the party for small and mid-caps.

I believe, this correction will continue for some time.

The companies with questionable corporate governance will see their auditors resigning and rising interest rates will keep a check on market liquidity.

While the correction will hit all the companies, the quantum of fall in quality companies with the best corporate governance practices will be lesser and temporary compared to their counterparts.

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This is why I'm not worried about the correction in some of the stocks I've recommended. In fact, I believe the correction can be a buying opportunity.

And that brings me to a stock bought by super investor Aakash Prakash of Amansa Capital..

He has increased his stake in the company in last couple of quarters but the stock has fallen recently.

I've been tracking this company for a while but the stock's valuations never gave me comfort. However, the recent correction has given has brought the stock to reasonable levels.

The company is the market leader in its industry. It has, over the years, grown its profits faster than its sales.

Over the last ten years, sales have grown at a compounded annual rate of 25%, while the profits have grown at a whopping 50%.

The other numbers are good too. Margins, return ratios, debt levels, and cash flows, everything looks to be in top shape.

A Company with Strong Fundamentals

Growth 10 Y CAGR
Sales 18%
Operating Profits 29%
Net Profits 50%
Return Ratios 10 Y Avg
Return on Equity 32%
Return on Capital Employed 31%
Debt to Equity 0.6
Operating Cash Flows/ Profits 1.9
Source: Ace Equity, Equitymaster

Come to think of it, the company's journey may have just begun.

Not only is it building upon its success, it is continuously introducing new products in the Indian market and expand abroad.

Going by its track record, I'd say this is one company that's well poised to execute its plans to perfection and keep the growth momentum going.

While the big picture does look good, I've been taking a deeper look.

What's the company's business model exactly? How does it make so much money? What are its strengths? What are the areas of concern?

Most importantly, how does this company fare on the Smart Money Score?

And finally, are the valuations cheap enough to consider buying the stock right now?

Well, subscribers to Smart Money Secrets will get the answers soon. I'll publish the detailed report on Monday. Stay tuned...

You can sign up for Smart Money Secrets here.

Chart of the Day

Let's look at the past holdings of our Super Investor Aakash Prakash He has a terrific track record of finding companies that are benefiting from very long-term trends.

This case is no different.

Over the last ten years, the company I've analysed has latched on to a multi-year mega trend both in the domestic and international markets.

Apart from riding this trend, the management has made the business stronger by backward integration. They have forayed into exports (now around 60% of the company's revenues) and they have allocated capital wisely.

This Company Made It Big in the last Ten Years

As this chart shows, the company has not only grown its bottom line by 50% over last ten years (compounded annually), it has also commanded average return ratios in north of 30%.

This outstanding track record along with the multi-year mega trend this company is riding has got Aakash Prakash interested in it.

And at Smart Money Secrets, we always look out for high-quality companies with outstanding track records and huge runways ahead of them.

Regards,

Kunal Thanvi
Kunal Thanvi (Research Analyst)
Editor, Smart Money Secrets

PS: What are India's best investors doing with their portfolios in such a volatile market? Kunal Thanvi is on a mission to reveal their top picks to you. Follow India's top 40 super investors here.

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2 Responses to "This Super Investor Led Us to Our Upcoming Stock Recommendation!"

Anand

Jun 23, 2018

In course of time I expect this product of Equitymaster to do as well as their flagship Stock Select and Hidden Treasure. Not following blindly the super gurus is very heartening.

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Anand

Jun 22, 2018

My expectation is over a period of time Smart Money Secrets will come on par of Stock Select and Hidden Treasures as one of the quality offerings of Equitymaster. Hopefully the quality of research and effort should not get diluted as time goes by.

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Equitymaster requests your view! Post a comment on "This Super Investor Led Us to Our Upcoming Stock Recommendation!". Click here!