Ashish Kacholia Increased Stake in this Market Leader Smallcap Stock. Here's Why...

The market volatility in the last two weeks has rattled quite a few nerves on Dalal Street.

Indian share markets fell consecutively for seven days, just to recover a huge part of those losses in a single day on Friday last week.

Friday's session in the stock market might be remembered as one the biggest turnaround days as the RBI steeped up its game and gave a positive commentary.

At the start of the week, traders and investors alike were fearful. Today, when the laymen are confused about the stock market, the top investing gurus in India are busy finding multibagger stocks for next 10 years.

Everybody has their eyes and ears wide open when Indian investing gurus buy or sell stake in a particular company.

That's because they are well-known for their popular strategies. They have a successful track record of beating market like returns and have a knack of identifying multibagger stocks.

One such guru is Ashish Kacholia, also known as the "Big Whale".

Recently, he purchased additional shares of a smallcap company. Before we delve deep into the reasons on which stock he bought and why, let's take a look at who Ashish Kacholia is and what are some of his top picks.

A word about Ashish Kacholia

Ashish Kacholia is one of the leading investors in the Indian stock market. He is often referred to as 'Big Whale'.

Kacholia is well-known for his stock picks in the small and midcap sectors. He often picks the best midcap stocks to buy.

Alongside the late Rakesh Jhunjhunwala, Ashish Kacholia established Hungama Digital.

He has worked for Prime Securities and Edelweiss Capital. In 2003 he established his own company Lucky Securities.

Which stock did Ashish Kacholia buy and why?

On Thursday last week, Kacholia increased his stake in smallcap company Agarwal Industrial Corporation.

According to the bulk deal data, Kacholia picked up 200,000 equity shares amounting to a 1.38% stake at an average price of Rs 569.89. His purchase is valued at Rs 114 m.

Prior to this, Kacholia already owned 372,128 equity shares or 2.57% stake in the company. This initial purchase was done on 1 August 2022 at an average price of Rs 505, amounting to Rs 189.7 m.

So, when the company files its September 2022 shareholding pattern in the next couple of weeks, you're likely to find Kacholia owns 572,128 equity shares or a 3.95% stake.

Now coming to why he increased stake...

While we don't know the exact reason why Kacholia turned bullish on the company, here are few reasons we can guess.

Agarwal Industries has steadily increased its revenues and profits over the years. 2022 was one of the best years for the company where it delivered solid results with a 76% increase in revenues.

The company also brought down its debt to equity ratio to 0.51 in FY22 from 0.66 last year.

Take a look at the company's financial performance for the past few years.

Financial Snapshot

Rs m, consolidated	Mar-18	Mar-19	Mar-20	Mar-21	Mar-22
Total Income	4,149.9	5,322.3	7,897.9	9,055.0	15,982.0
Growth (%)	39%	28%	48%	15%	76%
PAT	102.8	134.5	255.5	405.3	636.0
Total Debt	956.8	766.5	902.7	1,301.9	1,467.0

Data Source: Ace Equity

So the first obvious reason becomes the company passing the test of a fundamentally strong stock.

Another reason we could think of is government's increased focus on infrastructure. Allow me to explain.

Agarwal Industrial is primarily engaged in the business activities of manufacturing and trading of petrochemicals (Bitumen and Bituminous products), logistics of bitumen and liquefied petroleum gas, and energy generation through wind mills. In short, it's an infrastructure ancillary company.

Industry experts are of the view that with infrastructure expected to boost in the coming years, the company could be a proxy play.

A huge portion of the company's revenues, above 85% to be precise, is generated from petrochemicals particularly bitumen and bituminous products. Bitumen is a common binder used in road construction.

With the government aiming to build 60 km of roads per day, the demand for bitumen is already on the rise.

Agarwal Industrial has an edge here as the company is a market leader in bitumen.

How Agarwal Industrial has performed on the bourses

Soon after it was disclosed that Kacholia has bought stake in the company, share price of Agarwal Industrial spiked 7% on Friday.

Gains were erased as the session progressed and the stock ended 2% higher at Rs 637.85 on the BSE.

Kacholia's first entry price was Rs 505 and the recent entry price was Rs 570. So, he's already sitting on decent gains in quick time.

Agarwal Industrial has a 52-week high quote of Rs 730 touched on 28 April 2022 and a 52-week low of Rs 311 touched on 29 October 2021.

In 2022 so far, shares of the company have gained 62%. If we take into consideration its long term performance, the smallcap stock has delivered multibagger returns of over 450% in the past three years.

About Agarwal Industrial

Incorporated in 1995, Agarwal Industrial is involved in the business of manufacturing and trading of bitumen and bituminous products, among other segments.

Petrochemicals accounts for close to 89% of revenues, followed by transportation (7%), ship operations (4%) and power generation through windmills.

Here's a comparative analysis table of the company on various metrics.

Comparative Analysis

Company	Agarwal Industrial	Gateway Distriparks	GATI	Mahindra Logistics	Transport Corp
ROE (%)	26.2	14.3	-0.8	6.0	20.5
ROCE (%)	23.4	13.2	3.6	12.3	21.5
Latest EPS (Rs)	49.9	4.6	2.8	5.7	41.4
TTM PE (x)	12.8	15.1	57.8	90.9	18.6
TTM Price to book (x)	2.8	2.0	3.6	6.2	3.9
Dividend yield (%)	0.3	7.4	0.0	0.4	0.8
Industry PE (x)	32.3
Industry PB (x)	4.1

Data Source: Equitymaster, Ace Equity

To know more, check out Agarwal Industries factsheet and its latest quarterly results.

You can also compare Agarwal Industries with its peers with our compare tool:

Agarwal Industries vs Aegis Logistics

Agarwal Industries vs TCI Express

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...