Nov 8, 2011|
Stock that left VIP and Titan far behind!
VIP Industries and Titan Industries. The word 'Industries' in their names is not the only thing common between them. The stocks of these two companies have been one of the most lucrative tickets to the rich house over the past three years. Their meteoric rise has left most of their other counterparts far behind. Take Titan Industries for example. It is not always that one gets a near five bagger in a matter of three years. The audacity shown by VIP Industries is even more remarkable. This counter is up a mind boggling 18 times during the same period.
Now, let us expand our definition of long term a bit. How about going back to fiscal year 2002? No problem at all. These two stars shine even more brightly on this changed horizon. Our findings show that while VIP has managed to turn every rupee into Rs 39 between FY02 and FY11, Titan has turned out to be a huge 74-bagger.
Impressive as these returns are, these stocks have still found it difficult to break into the top 20 list of stocks amongst all the adequately leveraged companies listed on the Sensex. Yes, you heard it right. The list that we are talking about has a 100-bagger, 200-bagger and a stock that even comes close to being a 300-bagger during the period under consideration!
Please be noted that we used the word 'adequately leveraged' here. What this means that we have kept out companies with an average D/E of less than 1 not one, not two but over a period as long as five years. This will ensure that the growth in stock price has not been funded mostly by debt.
So, which is this firm that has given heavyweights like VIP and Titan a run for their money and has emerged as a near 300-bagger? For those not affiliated to the aluminium industry, this name may come as a surprise. The stock that we are talking about is none other than Himadri Chemicals and Industries. This little known manufacturer of a certain kind of binder has seen its stock price go up a mind numbing 291 times between FY02 and FY11 and that too without its D/E ratio falling out of 1 in the past five years. Besides, its adjusted EPS growth is up an equally impressive 105 times during the same period.
Whichever way you look at it, Himadri has certainly had a dream run. We believe the company's turning point came in the fiscal year FY06, which saw its earnings grow up four fold in a single year. From there, adjusted EPS went up another three times over the next five years.
The company is a classic example of finding a niche and then dominating it. Please bear in mind that unlike Apple or say a Microsoft, the company has not invented a revolutionary product that will change our lives forever. It is rather a commodity manufacturer but one of the best in the world in its chosen field of business.
The company is the largest manufacturer of coal tar pitch (CTP), a compound used in the manufacture of aluminium and graphite rods. Thus, as these industries grow, Himadri will turn out to be one of the biggest beneficiaries of the same. What is also commendable is the diversification that the company has managed to achieve while staying true to its core competence. Until 2005, it manufactured only a couple of products but extended its value chain to an impressive 8 products by the time fiscal 2011 arrived. It is this diversification that helped it grow at an impressive pace over the past few years.
This is not all. The company prides itself on being the cost leader with the capability to commission capacity at the lowest cost and conversion at the lowest levels in the business.
Clearly, the company has been an impressive story whichever way you look at it. But will it be able to sustain this same momentum going forward? Of course, it is next to impossible for the company to turn into another 100 or 200 bagger in the next 8-9 years. But growing significantly may also not come easy. We would do well to remind ourselves that the mind boggling growth in the last 10 years has come on account of converging of a few favourable factors like cyclically depressed earnings, a fundamental shift in the metal industry from production shifting from Europe to Asia and increase in the capacity of most metal manufacturers.
It is very difficult for all of these factors to converge again in the near future. Besides, the company's business model is not easily scalable. In order to grow sales and profitability, it will have to incur heavy capex year after year and if the industry or the economy faces a couple of years of downturn, availability of funds as well as demand for its products will certainly dry up. The capital intensive nature of the business can also be borne out by the fact that despite profits growing at an impressive rate over the past few years, it has not exactly set its dividend counters on fire. In other words, the dividend payout has rather been pretty ordinary.
To sum up, the three hundred bagger of yesteryears may find it hard to live up to its high standards in the forthcoming years.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407