Ashish Kacholia's Latest Pick is this Multibagger Data Center Stock That's Up 650%

Following the buy and sell activities of renowned investors like Jhunjhunwala and Damani can often provide valuable insights into market trends and effective investment strategies.

These prominent names have dozens of analysts working for them and have access to data streams that you and I can only dream of.

Ashish Kacholia is one such investor, and a highly respected figure in the Indian stock market.

He is known for his sharp investment skills, especially in small-cap, micro-cap, and mid-cap stocks.

Yesterday, a stock market filing by a smallcap company revealed that Ashish Kacholia has entered the stock during the second quarter of FY25 (July-Sept 2024).

What makes this buy activity more interesting is that the smallcap firm in focus is involved in the emerging data centre industry.

That's right.

Kacholia has invested a huge sum to acquire a 1.05% stake in a company called E2E Networks, that's a critical player in the data centre industry.

This stock has now become one of Ashish Kacholia's largest positions in recent times.

So, why exactly did Kacholia buy stake in this company?

And what efforts is the company taking to grow over the medium term?

Let's find out all this in this not so deep dive...

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.

Ashish Kacholia's Latest Stock Pick

Surprisingly, it's a company that has already rallied over 660% in the past one year.

If you shorten the stock price performance to 2024, E2E Networks share price has rallied over 420% on a YTD basis!

Surely, there has to be an explanation on why Kacholia picked stake in a stock that has already run up.

E2E Networks is a play on the data centres theme. The company is a hyperscaler from India. It focuses on advanced Cloud GPU (graphic processing unit) infrastructure.

E2E Networks offers its services through third party data centers located at some high demand areas like Noida, Mumbai, and Vellore.

On Tuesday, 22 October 2024, it was revealed that Ashish Kacholia has picked a 1.05% stake in the company.

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

Companies have to file the name of investors who hold 1% or more in the company every quarter.

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

#1 High Growth Industry

As mentioned above, E2E Networks is involved in the data centre industry. The company is frequently in the news for collaborating with companies looking to expand their data centres and artificial intelligence (AI) platforms.

The stock was listed in 2018 on the NSE emerge platform and it recently transitioned to the main board.

In recent years, its performance has improved amid the company's growing focus towards data centres.

Large data centres could be the size of entire city blocks. The power needed to run these could charge an entire town. All this creates demand for many products which E2E specializes in.

#2 Strong Financials

This is a given... ace investors are bang on when it comes to picking high growth stocks.

Look at the table below to see how E2E Networks has scaled up its performance in recent two years -

Financial Snapshot

Rs m, standalone	FY20	FY21	FY22	FY23	FY24
Net Sales	251	353	519	662	945
Growth (%)	-26%	41%	47%	28%	43%
Operating Profit	10	113	233	338	496
OPM (%)	4%	32%	45%	51%	52%
Net Profit	-94	-12	65	99	219
Net Margin (%)	-37%	-4%	12%	15%	23%
ROE (%)	-33.0	-5.0	22.1	26.5	40.7
ROCE (%)	-31.5	-3.9	17.1	35.3	31.5
Dividend (Rs)	0.0	0.0	0.0	0.0	0.0
Debt to Equity (x)	0.0	0.2	0.0	0.0	1.6

Data Source: Equitymaster

For financial year 2023-24, the company's revenue came in at Rs 950 million (m), a growth of around 43% YoY.

While its net profit for the full year more than doubled to reach Rs 220 m. The strong growth could be attributed to more orders and execution during the year.

In FY24, the company also incurred a capex of Rs 1.9 bn, with deployment completed by April 2024.

In the first quarter of FY25, the company's revenue grew to Rs 417 m, more than doubling YoY. While net profit grew 44% YoY to Rs 101 m.

This was followed by an even better second quarter. Revenues during Q2 shot up to Rs 480 m from Rs 220 m a year ago.

While net profit also doubled from Rs 60 million in September 2023 to Rs 120 million in September 2024 quarter.

Investors can look forward to the conference call it has scheduled for 28 October 2024.

What Next?

Going forward, E2E Networks has strong growth plans in place to support the massive tailwinds of the data centres industry.

The company is in the process of acquiring H100 units.

It's also building an AI platform called TIR for data scientists and developers.

For FY25, E2E Networks has planned a massive capex of around Rs 8 billion (bn).

One focal point that investors can track is the promoter holding in the company, which has gone down for two consecutive quarters.

Nevertheless, foreign investors (FIIs) have reiterated their faith and added a significant stake in the company in the most recent quarter.

Here's how the company fares against its listed peers -

Comparative Analysis

Company	E2E Networks	Empower India	Panache Diglife
ROE (%)	40.7	0.9	1.1
ROCE (%)	31.5	1.0	12.9
Latest EPS (Rs)	14.8	0.1	0.3
TTM PE (x)	257.1	73.8	646.1
TTM Price to book (x)	13.4	0.8	7.4
Dividend yield (%)	0.0	0.0	0.0
Industry PE	109.9
Industry PB	12.5

Data Source: Equitymaster

How E2E Networks Share Price has Performed Recently

E2E Networks is only listed on the National Stock Exchange (NSE).

In the past one month, E2E Networks share price has gained 19%.

In 2024 so far, the stock price is up 425%.

E2E Networks has a 52-week high of Rs 4,015 touched on 21 October 2024 and a 52-week low of Rs 455 touched on 26 October 2023.

In the past one year, the stock price has rallied 660%.

In Conclusion

While Kacholia added fresh stake in E2E Networks, here are some stocks that he completely exited in the second quarter of FY25 -

In conclusion, following the buy and sell activities of the big names in the market and then making your own decision based on your personal risk appetite is a good strategy.

Many investors do just that and earn market beating returns.

While this approach might seem appealing, it has several potential drawbacks.

A replicating investor may end up buying a stock at a much higher price than the successful investor, as the latter may have bought the stock much earlier when it was undervalued.

Also, their risk tolerance level, size of investment and investment horizon is often quite different from that of a retail investor.

They may be able to take bigger risks and hold on to investments for a longer period of time.

Hence, blindly following their moves without considering one's own risk profile and investment goals can be risky.

While it might be tempting to follow the investment moves of successful investors, it is crucial to conduct thorough research and analysis before making any investment decision.

Investors should focus on investing in fundamentally strong companies that align with their individual goals and risk tolerance level, rather than blindly following these gurus.

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...