We personally love to keep a track of small, interesting and growing companies with a market capitalization of under 100 crores. But we are rarely able to talk much about these small companies as they come with their own set of troubles including low liquidity, low visibility, lesser information, chances of corporate in-governance etc.
It is interesting to go through their annual reports and valuations even if one does not invest in them.
[Companies with ** mark are classified under PCAS (call-auction mechanism)]
Acrysil** (M.Cap 53 Cr): Acrysil is the “only company in all of Asia – and one of just a few companies worldwide ” manufacturing quartz kitchen sinks.” The company posted a good June quarter. The management talks about big ambitions in the annual report. If they actually end up delivering what they are aiming for, this stock can give fantastic returns.
Alicon Castalloy** (M.Cap 55 Cr): This company is “one of the largest integrated aluminium casting manufacturing units in India.” Interestingly, the company has posted a growth of 25% in the revenues over last 3 years, when the whole auto ancillary industry has been witnessing a slowdown. The margins have fallen significantly though (from 18% to 11%). CRISIL report provides a good history of the company. The book value is Rs.96 and the stock is at 3.5 times earnings at Rs.50.
Bharat Agri Fert & Realty (M. Cap 40 Cr): Over the last couple of years the company entered into the real estate business. The company is getting majority of the profits from real estate projects of the company in Thane, Mumbai. The company is almost debt free and has got good success in the Phase 1 of the project. Phase 2 is scheduled over next 3-4 years. The stock is trading at 2 times earnings, 0.75 times the book value and provides a dividend yield of 3.25%
Dynemic Products** (M.Cap 15 Cr): The company is “into manufacturing of Food Colors, Lake Colors, and Blended Colors & US-FDA certified FD&C Dyes. These are essential ingredient of food, drug, cosmetic, personal care and FMCG industry.” This is a highly competitive market. The company has grown at about 20% over the last 5 years and about 70% of the revenues are from exports. Last year the margins were impacted due to MEE plant regulations. At current price of Rs.14, the market capitalization is just about 15 Cr, while the net profits over last 4 years have been more than 4 Cr each year. The stock provides a dividend yield of 9% (company has consistently maintained dividend payout of 30% each year).
Gulshan Polyols** (M.Cap: 53 Cr): The company is amongst the largest producers of sorbitol and calcium carbonate in India. It is the market leader with a substantial market share in the respective segments.The company is almost debt free, has 6 plants in five states, and cash from operations during each of the last 5 years have been in excess of 20 crores. The company has been consistent with dividends though the payout ratio is low (current yield is of 5%), 1/3rd of book value and a PE of 2.25 times.
KG Denim (M.Cap 37 Cr): If one looks at the past numbers, the company was quite stagnant till 2009 with the sales in 200 crores range and had been posting losses. Since then, the revenue has grown to over 500 crores and the profits are back (along with a significant improvement in the ROE numbers). The stock is available at just 2 times earnings, half the book value and provides 5.3% dividend yield.
Piccadily Agro** (M.Cap 58 Cr): We mentioned about this company earlier too. The company has grown at a CAGR of 25% over last 5 years. The interesting part is the country liquor business started in 2007-08 period, the company has been able to grow it rapidly from 36 Cr turnover in 2008 to 205 Cr in 2013. They now have some leadership brands in the Haryana market. The margins were severely affected for more than a year due to control on selling price but the same have been increased recently and the company should benefit. The stock is trading at 2 times earning, half the book value and provides a dividend yield of 4%.
Premco Global** (M.Cap 10 Cr): The company is a manufacturer “of Woven and Knitted Elastic and non-Elastic Narrow Fabric and Webbing.” This is a competitive market and with low margins. But the company has been posting some fabulous numbers lately. The company also has a good clientele. The stock is available at a PE of just 1.4, half the book value with dividend yield of 5.5%.
Shree Ajit Pulp & Paper**(M.Cap: 20.5 Cr): This is another very interesting company. The company manufactures “reels of kraft paper used for making corrugated boxes in packaging industry.” The revenues have grown at a rate 25% annually over the last 5 years. The company also has an ROE of 25%+ yet available at just 1.3 times earnings and almost at a third of its book value. Despite being in the paper sector, the company has had low debt and good working capital management.
** The companies are classified under PCAS (call-auction mechanism).
It is always better and very much rewarding to go into superior businesses. Prof. Sanjay Bakshi has posted a wonderful post on the same. Yet we fail to understand the extreme negative sentiments and valuations of 2-4 PE in few companies which have been consistent on dividends, growing at a decent pace and have good tangible assets backing them. We feel some of these small caps are trading at quite a discount to intrinsic value and perhaps compelling Graham kind of ideas.