Why Did Ashish Kacholia Sell Stake in this Smallcap Apparel Stock?

A couple of decades ago, when we did not have efficient navigation devices, people used to study the sky to understand in what direction they are moving.

During the day, they used to observe the movement of sun to understand directions and at night, they used to study the stars.

Following the north star or the sun helped them find their way to the destination.

The top investing gurus resemble this kind of navigation for investors in the stock market. Very often investors are confused as to which stock to buy, they look towards investing gurus and their buying and selling activity. This has emerged as one of the successful investing strategies for many investors.

In today's article, we'll take a look at a smallcap stock recently sold by Ashish Kacholia.

Before going into details, let us first talk about who is Ashish Kacholia.

Who is Ashish Kacholia?

When we talk about successful investors in India, it's impossible not to mention Ashish Kacholia. He has generated a net worth of Rs 17 bn by investing in Indian stock markets.

Ashish Kacholia is known for identifying the best multibagger stocks. Hence, he is known as the 'Big Whale' of the Indian stock market. The Ashish Kacholia portfolio is like a dream portfolio for many investors.

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.

Which smallcap stock did Ashish Kacholia sell recently?

According to data available on NSE, on 27 December 2022, Ashish Kacholia sold 1.6 lakh share or 0.6% stake from garments manufacturing company S P Apparels.

The shares were sold at a price of Rs 307.1 per share. The total value of the deal was a little over Rs 5 million (m).

Why did Ashish Kacholia sell SP Apparels?

While we do not know the exact reasons why Kacholia decided to sell his stake, there are some we can guess...

Back in 2016, when S P Apparels came out with its IPO, experts were concerned about the company's profit margins.

When compared to its listed peer Kitex Garments, S P Apparels' profit margins were quite low.

Meanwhile, revenues of both the companies were more or less similar.

The management was focusing in the right direction to drive profitable growth. But the company had a lot of catching up to do with peers, and the valuations were also not cheap.

Since its listing in August 2016, the stock has given only 20% returns. Its IPO price was Rs 268 per share.

On a year-to-date (YTD) basis, the stock has fallen nearly 24%, while it has lost about 20% in the last one month.

Even after more than 6 years of listing, the company is lagging behind its peers. If we compare the figures of SP Apparel with Kitex Garments for the financial year ended 31 March 2022, we see the profit margin of Kitex Garments is 15.9% while S P Apparel's profit margin is 9.9%.

During the same period, the return on assets (RoA) of Kitex Garments stood at 12.1% while SP Apparel's RoA stood at 8.9%. A similar situation is seen with return on capital employed (ROCE) and return on equity (ROE).

Comparative Analysis

Particulars for 30 March 2022	Kitex Garments	S P Apparels
Gross Profit Margin (%)	21.7	16.9
Net Profit Margin (%)	15.9	9.9
RoA (%)	12.1	8.9
RoE (%)	15.4	13.3
RoCE (%)	21.7	18.9

Source: Equitymaster

Even if we take a look at the quarterly profit margins of the company, it looks like S P Apparels is struggling.

For the quarter ended 30 September 2022, the company's revenue came in at Rs 3,149 million (m). The revenues were up by 25% compared to last quarter. However, it is the profit numbers that raises concern.

For the quarter ended 30 September 2022, the company's net profit was Rs 229 m. This is a growth of 11% on a sequential basis. The net profit margins for the said quarter came in at 7.5% and is quite low when compared to previous quarter's margin of 10.5%.

Despite growing revenues, the company's bottomline has suffered.

So a prime reason why Kacholia might have sold his shares is because of the company's underperformance on the bourses as well as on a fundamental basis.

In fact, Kacholia is not the only who's selling. Even FIIs sold shares in the most recent quarter. Between July 2022 to September 2022, FIIs sold 0.15% stake.

To know more check out S P Apparels' latest shareholding pattern.

How shares of S P Apparels have performed recently

Over the last one month, the share price of S P Apparels has lost 17.4%.

So far in 2022, the stock has lost 23.2%.

The company touched its 52-week high of Rs 530 on 03 February 2022 and its 52-week low of Rs 295.1 on 26 December 2022.

Interesting to note that shares of the company did not fall much even after Kacholia sold stake. This could be because of a fair trade agreement (FTA) between India and Australia.

The India-Australia FTA, which was signed on 2 April came into force on 29 December. The agreement would provide duty-free access to Indian exporters of over 6,000 broad sectors, including textiles, leather, furniture, jewellery, and machinery in the Australian market.

Under the pact, Australia is offering zero-duty access to India for about 96.4% of exports (by value) from day one. This is good news for S P Apparels since it exports a lot of products.

About S P Apparels

S P Apparels is one of the leading manufacturers and exporter of knitted garments for infants and children in India.

Its products are manufactured at integrated facilities that enables the company to deliver end-to-end garment manufacturing services from greige fabric to finished products.

To know more about the company, check out its factsheet and quarterly results.

You can also compare the company with its peers:

S P Apparels vs Kitex Garments.

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...