Dolly Khanna's Latest Smallcap Stock Pick is India's Top Ferro Chrome Exporter

It's that pivotal time of the quarter yet again!

Super investors like Ashish Kacholia, Sunil Singhania, Vijay Kedia and the likes are expected to be in the news as their portfolio moves gets released as part of the company filings.

These portfolio changes are for the quarter ended December 2024 (October 2024 to December 2024).

Over the weekend, one such filing from a smallcap company caught our attention.

Dolly Khanna, one of the widely followed investors in India, has invested a huge sum in the quarter gone by to acquire a 1.2% stake in a smallcap company.

Before we get to the stock details, let's look at who Dolly Khanna is...

Who is Dolly Khanna?

Dolly Khanna is a Chennai-based investor who is known for picking lesser-known midcaps and smallcaps. She has been investing in stocks since 1996.

Dolly Khanna's portfolio, which is managed by her husband, Rajiv Khanna, is usually inclined towards more conventional stocks in manufacturing, textile, chemical, and sugar stocks.

Dolly Khanna's Latest Stock Pick

The company under consideration is Indian Metals & Ferro Alloys (IMFA).

Indian Metals & Ferro Alloys (IMFA), promoted by Late Dr Bansidhar Panda, was incorporated in November 1961.

The company primarily produces ferro alloys, including charge chrome (high carbon ferro chrome), and has installed furnace capacities at Odisha.

It is India's largest producer of ferro chrome backed up by captive power facilities and extensive chrome ore mining tracts. The company's ferro chrome output is primarily exported to Korea, China, Japan, and Taiwan. IMFA exports close to 80% of its annual production.

Data released by the company revealed that the ace investor picked up over 1% stake during the third quarter of FY25.

Every quarter, companies have to report their shareholding data and the list of shareholders who hold above 1% stake.

Prior to this, Dolly Khanna did not hold any stake in the firm.

IMFA has now become one of Khanna's largest positions in recent times.

While we do not know the exact reason why the investing guru decided to buy into the counter, there are some explanations...

#1 FIIs Turn Bullish

If you have been following the news lately, foreign institutional investors (FIIs) have been selling Indian stocks for the past couple of months.

The trend of FII selling in Indian equities continued in December 2024 as well.

In fact, for the calendar year 2024, FIIs net-net sold equities worth over Rs 1,192 billion (bn).

At a time when FIIs have been reducing their exposure in many Indian stocks, they have been buying into IMFA.

The latest shareholding pattern shows that FIIs have added stake in IMFA for the past three quarters.

Note that FII involvement signals confidence, often leading to increased interest and investment from other market participants.

Beyond just providing capital, FIIs can also bring strategic guidance, improved corporate governance, and enhanced visibility, all of which contribute to sustained growth.

#2 Upbeat Earnings

The other reason why Dolly Khanna may have bought into the counter could be due to improving financials.

In the September 2024 quarter, IMFA posted the best ever quarterly profit numbers in as many as 8 quarters.

The company's operational performance picked up across all key segments.

IMFA's net profit increased by 40% year-on-year (YoY) to Rs 1.3 bn.

This strong growth is owing to the company's enhanced output, continued focus on operating efficiency and stable input costs as well as selling prices.

Over the past 5 years, the company has reduced debt and improved its financial profile.

Financial Snapshot

Rs m, consolidated	FY20	FY21	FY22	FY23	FY24
Net Sales	16,119	18,442	26,030	26,764	27,802
Growth (%)	-1%	14%	41%	3%	4%
Operating Profit	1,101	3,936	8,268	5,128	6,291
OPM (%)	7%	21%	32%	19%	23%
Net Profit	-665	1,666	5,072	2,253	3,945
Net Margin (%)	-4%	9%	19%	8%	14%
ROE (%)	-5.9	14.4	34.3	12.6	18.7
ROCE (%)	0.3	15.7	35.0	17.8	24.6
Dividend (Rs)	0.0	5.0	12.5	10.0	30.0
Debt to Equity (x)	0.6	0.5	0.3	0.2	0.1

Source: Equitymaster

#3 Ethanol Expansion

The other reason why Dolly Khanna may have turned bullish on IMFA could be due to its expansion into the ethanol segment.

IMFA is diversifying into ethanol production, with an initial capacity of 120 KLD, expected to generate around Rs 3 bn in sales.

The company is planning to gradually increase capacity based on plant performance.

The total capital expenditure for the ethanol project is approximately Rs 1.4 bn, with a payback period expected in around 6 years.

What Next?

Going forward, IMFA is planning to expand production capacity by 40%, with the first phase of expansion expected to add approximately 100,000 tons by FY26.

A second phase of underground mining expansion is projected to add another 100,000 tons, expected to commence between FY28 and FY29.

The company has planned a capital expenditure of around Rs 20 bn over the next 6-7 years, with significant investments in new furnace projects and mining operations.

While the outlook remains rosy, investors should note that the company is currently navigating legal issues related to the mining royalty. This issue is taken up with the Supreme Court, and any negative ruling could impact the business.

The company's management is actively engaged with governmental authorities to seek resolution and clarity on the matter.

Before making any investment, investors should evaluate the company's fundamentals, corporate governance, and the valuation as key factors when conducting due diligence.

How Indian Metals Share Price has Performed Recently

In the past 5 days, IMFA share price has gone up by 12%.

In the past 1 year, the stock price has gained 87%.

IMFA has a 52-week high of Rs 998 touched on 9 December 2024 and a 52-week low of Rs 472 touched on 18 January 2024.

Following the news of Dolly Khanna picking up stake in the company, IMFA shares are trading up by 4% today.

Here's a table comparing IMFA with its peers -

Comparative Analysis

Company	IMFA	Indsil Hydro	Jainam Ferro	Maithan Alloys	Nagpur Power
ROE (%)	18.7	-9.4	5.1	11.7	-0.8
ROCE (%)	13.4	1.1	7.9	15.1	1.3
Latest EPS (Rs)	80.3	-3.6	5.1	284.3	1.7
TTM PE (x)	11.2	0.0	45.1	4.1	88.9
TTM Price to book (x)	2.1	1.4	0.0	0.9	2.3
Dividend yield (%)	3.3	0.0	0.0	0.5	0.0
Industry PE	9.5
Industry PB	1.7

Source: Equitymaster

For more details, check out IMFA's detailed financial factsheet.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...