»Profit Hunter by Equitymaster

On This Day - 2 JULY 2019
This Smallcap Stock could be the next Page Industries

Richa Agarwal, Research analyst

I have been writing to you about the rebound opportunity in smallcaps.

The theme is taking longer to play out.

In the last one month, the smallcap index has corrected further by around 5% (while Sensex has remained flat). The gap between the smallcap and large cap indices has widened.

There are many short-term factors - Debt defaults, auditors and credit rating agencies facing the heat, trade tensions, delayed monsoons, the upcoming budget - that are keeping the big investors away and leading to volatility in this space.

But that's not bad news at all. It gives you more of action time and opportunities to invest in.

Currently, in the smallcap space, there are great businesses available at attractive valuations.

But even among them, there is a business that is first among equals. It has the elements and the potential that companies like Balkrishna and Page Industries had, when they were undiscovered.

It's not often that one comes across the kind of opportunities, where there is conviction of holding it for the long term. And by long term, I mean not just 3 to 5 years, but 10 years or more.

In fact, of the certain mistakes that we have made in the past, one was to not hold such stocks for the long term (exit early). A case in point is Astral Polytechnik. We closed the position with 143% gains. After our closure, the stock made new highs. As I write this, it is nearly 600% from our closing price.

Now we can't afford to miss such potential opportunities. We don't want to repeat such mistakes.

So, a few days ago, we decided to search for next 'Crorepati stock' - a stock that has the potential to not just survive over the next 10 years, but become even more relevant to its clients and to the economy... Where the runway is huge and promoters have unmatched competence.

We have selected one. Amid all the disruptions that the economy has gone through in last three years, the business has proved itself resilient. It has not just shown consistent growth, but has rewarded shareholders with dividends as well. We have been tracking the stock for almost 3 years now. And our conviction in the management has only grown stronger.

If the company maintains the growth rate, even without considering an expansion in valuation multiples or rerating, we believe the stock has the potential to multiply nearly 8 times from here.

This small cap stock makes the cut to be a part of coffee can portfolio...to be held for 10 years or more.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor and Research Analyst, Hidden Treasure

PS: Small cap stocks are back in the news. After the recent correction, sentiment could turn positive for this segment of the market. I recommend you listen to our small cap expert Richa Agarwal. She has picked the the best small-cap stocks in the market.

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