Ashish Kacholia's Block Deal Spurs 20% Rally in this Multibagger Auto Ancillary Stock

We at Equitymaster constantly try to learn as much as possible about the best capital allocators in the world.

More so, the buying and selling activities of the top investing gurus in India like Vijay Kedia, Sunil Singhania and the likes.

One such interesting development that came out this morning is Ashish Kacholia buying a little over 1 million (m) shares of an auto ancillary firm yesterday.

Kacholia didn't buy the dip. The stock was already trading at a 52-week high, and the guru investor's sudden interest sparked an even sharper rally today morning.

Before we delve deep into the stock details, let's take a look at who Ashish Kacholia is and what are some of his top stock 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.

Which auto-ancillary stock did Kacholia buy and why?

According to bulk deal data on the Bombay Stock Exchange (BSE), Ashish Kacholia bought 1,034,353 shares of Universal Autofoundry on 24 August 2023.

This translates into a huge 8.54% stake in the company.

The average price of acquisition for Kacholia was Rs 161.59 per share.

Another HNI, Himalaya Finance & Investment Company also bought the same number of shares at an average price of Rs 168.49 per share.

The promoters and promoter group of the company were the selling shareholders.

Urmila Gupta sold 1.17 lakh shares at an average price of Rs 193.4 per share, Payal Gupta offloaded 9.85 lakh shares at average price of Rs 160 per share, Kishan Lal Gupta 1.77 lakh shares at an average price of Rs 193.4 per share, and Amit Gupta 7.71 lakh shares at average price of Rs 160 per share.

Apparently, these promoters exited the company by selling their entire personal shareholdings.

If you see the company's latest shareholding pattern, you'll notice that promoters had offloaded a huge chunk in the June 2023 quarter.

Coming back to Kacholia's buying...

While we don't know the exact reasons why he bought a huge stake in the company, there are some reasons we can guess...

In the financial year 2023, the company was back to reporting a net profit while its revenue and operating margin also saw a sharp improvement.

Have a look at the table below -

Financial Snapshot of Universal Auto Foundry

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Revenue	1,209.6	883.2	1,277.2	1,624.5	2,361.8
Growth (%)	23.7%	-27.0%	44.6%	27.2%	45.4%
Operating Profit	158.0	75.0	124.2	61.9	255.6
OPM (%)	13.1%	8.5%	9.7%	3.8%	10.8%
Net Profit	76.7	(40.5)	20.6	(27.3)	104.9
NPM (%)	6.3%	-4.6%	1.6%	-1.7%	4.4%
Dividend (Rs)	0.00	0.00	0.50	0.00	0.00
Debt to Equity (x)	1.5	1.7	1.7	2.1	0.9

Data Source: Ace Equity

In fact, FY23 was the year when the auto ancillary company posted the highest ever net profit, revenue, and operating margin.

Return ratios also improved to high double digits while the company's debt to equity came down to 0.9x from 2.11x in FY22.

The company has also started FY24 on a good note by reporting a marginal 6.2% increase in its quarterly net profit. In June 2023 quarter, the company reported a net profit of Rs 35.6 million even as revenue declined 5.9% YoY to Rs 5.8 bn.

Apart from this, Ashish Kacholia's bullish stance could come from the fact that he has started to show a keen interest in microcap stocks that have decent fundamentals and bright growth prospects.

Last week, Kacholia picked a little over 5% stake in another microcap - Dhabriya Polywood.

In the case of Universal Auto Foundry, the company has several tailwinds working in its favour at the moment.

The company was in its initial phase where revenue and profit remained stagnant and rangebound for many years.

But now, with so many green shoots, the company has already posted record FY23 numbers.

The company has already taken capacity utilisation and has planned to increase capex for the coming years. In FY23, the company doubled its existing machining capacity.

Safe to say that Kacholia's bet is bang on and the company could register good growth this year too.

How Universal Auto Foundry shares have performed recently

Yesterday, the stock was locked in 20% upper circuit. Today again, shares shot up another 20% to touch a new high of Rs 232.1 on the BSE.

In the past five days, the stock has shot up over 50% while in the past one year, shares are up 119%.

Universal Auto Foundry hit its 52-week high today and has a 52-week low of Rs 85 touched on 5 December 2022.

Have a look at the table below to compare Universal Auto Foundry with its peers -

Comparative Analysis

Company	Universal Auto	PTC Industries	Synergy Green	Kirloskar Ferrous	Steelcast
ROE (%)	26.3	6.8	2.5	23.9	37.9
ROCE (%)	20.7	11.7	12.6	22.1	42.5
Latest EPS (Rs)	8.8	19.6	3.6	23.1	37.9
TTM PE (x)	21.9	300.5	54.9	20.8	16.5
TTM Price to book (x)	3.9	22.7	7.5	4.1	5.4
Dividend yield (%)	0.0	0.0	0.0	1.2	1.6
Industry PE	29.6
Industry PB	4.2

Data Source: Ace Equity

About Universal Auto Foundry

Universal Auto Foundry operates in the industrial consumables sector. It manufactures castings components in Grey Iron and S.G. (Ductile) Iron.

The company supplies castings used in machined, semi-machined, and as cast condition with surface treatment as per customer's needs.

Suspension brackets, differential housing, hubs, etc. are some of the items that find application in the commercial vehicle and engineering industry.

To know more, check out Universal Auto Foundry's financial factsheet.

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...