Stock that left VIP and Titan far behind! - Views on News from Equitymaster

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Stock that left VIP and Titan far behind!

Nov 8, 2011

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.

Equitymaster requests your view! Post a comment on "Stock that left VIP and Titan far behind!". Click here!

9 Responses to "Stock that left VIP and Titan far behind!"

Kalinga Rao

Apr 24, 2013

Dear Sir,
Congratulations for your website. You have elaborate site which gives lot of info, but about your calls multibeggar.. Please invest money given on fees to you properly. MIC electronics has been disaster.

Regards,
K RAo

Like 

Shane

Oct 21, 2012

Hi,
I want to know how you people miss the point and say now grapes are sour, ( from now on company cannot grow). But you show that you can make multibaggers, market Value pro , Large cap , mid cap, small cap and loot public. For investing investiment of 35k odd plus useless cds, my god you guys are making public fools. Then you send mail Sorry we screwed up. But didn't you tell we will never screw up when taking that 30- 35 k.
I will forgo my money but hope you guys stop giving stupid summaries.

Like 

Radhakrishnan

Nov 21, 2011

What is the point informing us now . If you have informed us about in 2005/6/7/8/9/10 it would have be useful to the investors . Not anymore .

Like 

maruthi

Nov 18, 2011

It is really useless to concentrate only on profit growth you turned blind eye to its negative operating cash flow which shows the quality of earnings

Like 

F KHAN RAO

Nov 18, 2011

Dont plz beat about the bush .

Like 

R Sathyamurthy

Nov 15, 2011

Sir,

How did you not spot it? Any introspection?

Like 

santosh

Nov 15, 2011

how to use this artcile

Like 

Vishwam

Nov 13, 2011

Your article may be theoretically correct, but practically useless information to investors.

Like 

varun

Nov 9, 2011

what kind of articles are these? u guys are drifting

Like 
  
Equitymaster requests your view! Post a comment on "Stock that left VIP and Titan far behind!". Click here!

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