Smallcap Auto-Ancillary Stock Down 15% in 2 Days After Ashish Kacholia Pares Stake

Ashish Kacholia is known for identifying the best multibagger stocks and fondly referred to 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.

We at Equitymaster try to look up to the top investing gurus and their portfolios that can form the foundation for successful long-term investing.

The week gone by saw a bulk deal by Kacholia which sent the stock in question tumbling.

Which Stock Did Ashish Kacholia Sell and Why?

The company in question is from the auto ancillary space - SJS Enterprises.

SJS Enterprises makes a wide range of aesthetic products catering to segments including two-wheelers, passenger vehicles, commercial vehicles, consumer durables, and appliances.

The company manufactures self-adhesive labels like automotive dials, overlays, exterior decals for two and four-wheelers, badges and logos for the automotive, electronics, and appliance industries.

The company expanded its product portfolio to include in-mould decorating and aluminium badges.

Bulk deal data released yesterday showed that Kacholia offloaded 160,000 shares of SJS Enterprises on 8 November 2023.

We looked at the September 2023 shareholding pattern of the company and noticed that Kacholia held 3.23% stake in the company or 1,003,891 shares in total.

This means Kacholia only offloaded about 10% of his stake in the smallcap company.

He still continues to hold a large chunk of SJS Enterprises shares.

Coming to the reasons behind selling...

While we don't know why he sold shares of SJS Enterprises, there are some reasons that we can guess.

#1 Profit Booking

On a YTD basis, up until 7 November 2023, the smallcap stock witnessed a remarkable rally of over 40%.

Shares of the company have rebounded sharply from around Rs 370 levels to Rs 700 apiece in the past six months.

Take a look at the chart below which shows the company's stock price performance in the year gone by.

The rally can be attributed to favourable industry trends within the auto ancillary sector. In the financial year 2022-23, the auto industry experienced a substantial upswing in both production and sales, primarily driven by increased economic activity and enhanced mobility.

A noteworthy trend has been the surge in automobile sales, with a growing preference for larger and more powerful models. This is evident in the popularity of SUVs in the passenger car segment and the rising demand for 250cc-plus bikes.

So, one potential reason behind Ashish Kacholia's decision to reduce his holding could be to take some money off the table and book profits.

#2 Promoter Selling

Note that this is not the first time Kacholia has offloaded partial stake in the company. In August 2023, Kacholia sold shares of SJS worth Rs 115 million (m).

Back then, Kacholia offloaded 180,000 shares at Rs 640 apiece.

This constant selling by the ace investor could possibly be attributed to selling by promoters in recent months.

After Kacholia offloaded partial stake in August this year, it was reported that the company's promoter group Evergraph Holdings and Sanders Consulting sold nearly 30% in the company.

Of this 30%, Evergraph Holdings reportedly sold around 29.5%, while Sanders Consulting sold the remaining.

As of June 2023 shareholding, Evergraph Holdings was among the promoter group entities which held 51.33% stake in the company.

Post this transaction, Evergraph's stake came down to 4.6% as we can see in the September 2023 shareholding data. This balance shareholding of Evergraph is locked up until November 2024.

Promoter selling can be a cause of concern sometimes. Promoters typically have the most intimate knowledge of their companies, so if they are selling shares, it could be a sign that they see problems on the horizon.

However, it's crucial to recognise that promoter selling doesn't automatically equate to a poor investment. There are valid and diverse reasons for such sales, including diversification of their portfolios and addressing estate planning requirements.

When contemplating investments in situations involving promoter selling, it's imperative to adopt a holistic approach.

What Next for SJS Enterprises?

While promoters of the company are selling shares in the open market, foreign institutional investors (FIIs) have shown a keen interest in the auto ancillary company.

During the September 2023 quarter, foreign institutional investors (FIIs) significantly increased their stake in the company, elevating their ownership from 5.3% in June 2023 to 14.3%.

While the company's financials for the June 2023 quarter showed a modest increase in revenue, it posted decent growth in the most recent September 2023 quarter.

SJS Enterprises reported revenue of Rs 871.2 m, up from Rs 818.3 m in the year-ago period.

Net profit during the quarter fell marginally to Rs 163.6 m from Rs 171.5 m in the same period a year ago.

During the quarter, the company added Lear Corporation and other original design manufacturers (ODMs) like Neolync, GDN Enterprises and Foxconn Technologies as new customers to supply to telecom segment.

For the first half of FY24, the company has posted a 27% growth in revenue and 16% growth in EBITDA, mainly on account of the WPI acquisition.

In July 2023, SJS Enterprises completed the acquisition of a 90.1% stake in Walter Pack Automotive Products India (WPI) for Rs 2.4 bn.

WPI is one of the leading companies in India that has capabilities in advanced IMD, IMF, IML, and IME technologies, providing a strong technological advantage.

Looking ahead, the company is poised to enhance its revenue and expand its network, capitalizing on the favourable industry dynamics and the heightened FII interest.

Here's a table comparing SJS Enterprises with its peers.

Comparative Analysis

Company	SJS Enterprises	Triton Valves	RACL Geartech	ZF Steering
ROE (%)	17.1	-11.3	25.1	6.5
ROCE (%)	22.8	1.1	21.7	8.8
Latest EPS (Rs)	22.3	-84.1	37.2	42.5
TTM PE (x)	29.1	-	34.8	19.4
TTM Price to book (x)	4.2	2.4	7.9	1.7
Dividend yield (%)	0.0	0.0	0.1	0.6
Industry PE	34.2
Industry PB	3.7

Data Source: Ace Equity

Owing to the bulk deal by Kacholia yesterday, shares of the company slipped over 8% to close at Rs 640. Today the stock is down 3% to Rs 620.

SJS Enterprises has a 52-week high of Rs 729 touched on 12 September 2023 and a 52-week low of Rs 379 touched on 20 March 2023.

At the current price, the company trades at a PE multiple of 28.3x and a price to book value multiple of 4.2x.

To know more, check out SJS Enterprises financial factsheet.

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...