Ace Investor Ashish Kacholia's Sell-Off in this FMCG Stock Sparks Concerns

In recent months, the Indian stock market has been experiencing remarkable growth, consistently reaching new highs.

As a result, seasoned market veterans have been actively reorganising their investment portfolios. They are capitalising on profits in certain areas while increasing their exposure to other promising sectors.

These seasoned investors have not only amassed substantial wealth but have also become revered icons in their field.

As a result, many aspiring investors now look up to them as role models, eagerly studying their every move and analysing their investment decisions, with the hope of achieving exceptional long-term returns.

In this article, we will focus on the recent activities of one such investing guru: Ashish Kacholia.

According to the latest exchange data, the ace investor has dumped his stake in a FMCG stock.

Before we delve deep into the reasons why Kacholia made such a move, let's look at who Ashish Kacholia is and what are some of his top picks.

Who is Ashish Kacholia?

When we talk about successful investors in India, it's impossible not to mention Ashish Kacholia.

Kacholia is known for identifying the best multibagger stocks. He is known as the 'Big Whale' of the Indian stock market.

Over the years, he has picked the best multibagger stocks by looking at the fastest-growing companies from the midcap and smallcap space.

He started his career with Prime Securities in 1993. In 2003, he started Hungama Digital Entertainment Company along with Rakesh Jhunjhunwala. He is also the proprietor of Lucky Securities.

To dwell deep into his portfolio, check out Ashish Kacholia's portfolio: top 5 stocks.

Which stock did Ashish Kacholia sell and why?

The stock in question is none other than Megastar Foods.

According to the data available on the exchanges, Ashish Kacholia's stake in the company dropped below 1% recently. In the March 2023 quarter, the investor held a 1.13% stake in Megastar Foods with 112,968 shares.

Megastar Foods recently filed its shareholding pattern for June 2023, and Kacholia's name was missing from the shareholders' list who own more than 1% stake in a company.

It is difficult to ascertain whether he completely exited the company or just sold some shares.

Kacholia entered Megastar Foods in the September 2022 quarter by adding 103,666 shares or a 1.04% stake in the company.

While we don't know the exact reasons why Kacholia offloaded Megastar Foods, here are some we can guess.

#1 Profit booking

The FMCG stock has gained over 30% in the past three months. While over the past year, the company's shares have delivered an outstanding return of 72%.

This remarkable rally in the company's stock can be largely attributed to its impressive financial performance during the fiscal year 2023.

The company reported a substantial YoY increase in revenue, recording a remarkable 64% rise, amounting to Rs 3 billion (bn).

Additionally, the net profit for the quarter showed significant growth, reaching Rs 101 million (m), a staggering 92% increase compared to the previous year.

This surge in profitability was primarily driven by the increasing demand and improving sales in the rural market.

Further, the company's positive momentum has been supported by stable commodity prices and a moderating inflation environment, leading to a resurgence in sales.

Looking ahead, the company's management is optimistic about sustaining high profits in the future. As a result, investor confidence remains strong, and the shares continue to soar, attracting further attention from the market.

Over the past three years, the stock has proved to be a true multibagger, generating remarkable returns of over 177%.

Considering the recent rally, it appears that Ashish Kacholia opted to book partial or full profits in the company.

#2 Sectoral challenges

Another reason for Ashish Kacholia's decision to trim his stake can be attributed to the upcoming sectoral challenges due to the volatile operating environment, primarily driven by weather-related risks.

The progress of the monsoon is a critical factor to monitor closely, as any impact of El Nino on agricultural activities and rural demand could significantly affect the company's performance.

El Nino's warmer ocean temperatures across the Pacific can disrupt weather patterns globally, often leading to lower monsoon rains in India.

This reduction in rainfall can adversely affect agricultural production, resulting in increased food prices and additional pressure on rural consumers.

As a significant portion of the FMCG company's revenue, approximately 30-40%, comes from rural markets, a weak rural demand poses a major challenge to the company's growth prospects.

Moreover, the potential impact of floods further exacerbates the situation, as they can disrupt supply chains, cause damage to infrastructure, and affect consumer behaviour in affected regions.

Additionally, the company may face challenges related to commodity prices. If commodities remain at their current levels, the company's price growth may be near flat or marginally negative.

However, the moderation of inflation could lead to intensified competition in the FMCG sector, putting further pressure on the company's pricing strategy and profitability.

As a result, the overall sentiment towards the FMCG sector has been affected.

How shares of Megastar Foods have performed recently

Megastar Foods rose around 72% in the past one year. Over a month, the share price has gone up by 6%. So far in 2023, Megastar Foods shares have gained 37%.

Megastar Foods touched its 52-week high price of Rs 347 on 25 July 2023. Its 52-week low was Rs 162.8 touched on 5 September 2022.

The company is currently trading at a PE (price to earnings) multiple of 33x.

About Megastar Foods

Megastar Foods Limited was originally incorporated as a private limited company with the name Megastar Foods Private Limited on 28 November 2011.

Further, the company was converted into public limited company and consequently name of company was changed from Megastar Foods Private Limited to Megastar Foods Limited on 9 March 2018.

The company is engaged in the manufacturing of food-based products such as wheat flour, organic wheat flour products and allied flour products.

Basically, the company produces food products related to wheat i.e., wheat flour products, Maida-Fine wheat flour products, Suji-Semolina and much more.

For more details, see the Megastar Foods company fact sheet and quarterly results.

You can also compare Megastar Foods with its peers:

Megastar Foods vs Avanti Feeds

Megastar Foods vs Bikaji Foods

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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...