555 Institutional Report

5/26/2018 555 Institutional Report

1/21


2/21

- A Follow-Up Research update on our Multibagger Stock Picks

Q3- FY 13 : Special Flash Back Report

Specialists in discovering Multibagger stocks


3/21

Content Index

Letter from Research Desk on Market Conditions.

Is a new Bull Market in the Offing ?Best BUY Stocks at Current Market Prices.

(5 X 5 X 5 : 5 Stocks, 5 Years, 500 Returns)Long Term Portfolio Stocks for Investors.

(Best Stocks across different Sectors)Stock Picks for a Conservative Investor.

Quarterly Results Analysis of 25 Multibagger Stocks.



4/21


Wisdom from the Legend


5/21

From the Desk of our

Research Team

Dear Members of Multibagger Service,

It's been a Bloodbath in Marketsover the past 6 Weeks. Yesterday's Budget fall added salt to the

Injury. The Biggest wounds has been in the Mid-Caps and Small-Caps which have been beaten out of

Shape. There are several Stocks which have fallen over 40% over the past few weeks and the Indices is

not reflecting the real pain in the Markets. Companies with very High debt and Pledged Shareholding

have been hit the most.While Markets have consistently foxing Investors on the upside, we believe that the Markets are

setting themselves up with clear Capitulationwhere the Weak Hands will get completely wiped out

and Smart Investors continuing to accumulate Shares. While it has been extremely difficult to time

these, we believe that by building up a Portfolio of Quality Stocks - Investors would do well over time.

Mid-Cap and Small-Cap stocks have continued to Under-performthe Markets for quite some

time and the discountof Small/ Midcaps to Large Caps are at a 4 year Highand this will reverse goingforward. We believe that while some of our Portfolio Stocks may be Volatile, these are Good Business

bought at very attractive Valuations. While our Stocks have corrected, we believe that relatively the

damage is less considering the fact that we have stayed away from Stocks which are having High

Pledged shareholding or companies where the Business model is weak. Even though they have

corrected, considering their Quality they would bounce back sooneror later.



6/21

All our Multibagger Stocks have come out with their Q3-FY 13 Results. Before we go into the

Results analysis of our recommendations, let us get a broad Idea on the Quarterly Results

performance of the Overall market. Generally Earnings performance of companies has been much

below expectations as the Economy continues to be subdued. One Striking feature of this Results

season has been the Pressure which India Inc is facing in the current Economic slowdown.

The divergence in the Performance of different companies also has been very wide. While the

Large Cap companies have been able to maintain their Marginsto an extent, the Mid-Cap and Small-

Cap stocks have seen pressure on both their Topline as well as Margins. These are well reflected in the

Share prices, with a Carnage in the prices of Small Cap and Mid-Caps. We believe with the Economy

going through a touch phase, this may continue over the next 2 Quarters.



7/21

We certainly have not recommended stocks where there are Issues like high Pledged share

holding and also most of our Stocks have good Businesses underlying and hence there is no Scary fall

where the recovery would be extremely difficult.

Even in Mid-Cap and Small-Cap stocks, most of our companies are Market leaders in their own

sub-segment or have enough Pricing power and hence, even if the wider Mid-Cap indices dont

perform well, our Stocks would perform better. As we continue to say, a Portfolio which has great

Quality Stocks will definitely do well over a period of time and performance shouldnt be compared on

a Month on Month basis. Stocks like Greaves Cotton, Cera, Indiabulls, Astral Poly has performed

brilliantly in a Tough Environment where even the larger players are struggling. Most of the stocks

have structural Triggers which will improve Valuations.

We would also like to point that, Equity Markets are forward looking and probably the worst forthese Stocks might be over. With the Indian Economy bottoming out along with some steps taken by

the Government to revive Economic growth, we believe there will be better Earnings going forward.

None of our Stock picks (Except Arshiya) have any fundamental problems as such where the

Management is bad or underlying Business dynamics is weak. As Investors, its very important to get

through this phase to benefit going forward.

While the Overall Economic sentiment has made sure that there are no Retail buyers, we see these

are Classic signs of Markets getting ready for a major up move. With proper Government policies, this

up move can indeed turn out to be a very Big Bull Market. In those cases, Our Stocks continues to be

well positioned with high Quality businesses with decent Pricing power. We would also like to believe

that once Retail public comes in or selling pressure abates, there could be a sharp run in these



8/21

Stocks. While some stocks has been purchased at Higher levels, Investors who have regular Cash flow

from savings or have higher Cash Allocation can deploy additional money at these attractive prices

and average down on these stocks, which will help them get strong returns going forward.

With this Report, we have also added a few more sections which will help all our Clients to take the

Right decision with respect to their Investments and not bogged down by Market conditions.

- Team HBJ Capital

While this Report consists of all Analysis, I would like to give a small brief on two stocks which have

Higher Allocation amongst our Clients and their performance has not been good.



9/21

HSIL

HSIL in spite of being a Market leader in both its Business segments, has been affected with a

sharp drop in profitability. While its Building Products division seems to be doing fine, the Container

Glass division has been affected badly. In spite of being a two-company competition in the Southern

Glass market, the Glass producers have not been able to pass on their additional costs. This has been

primarily due to the higher supply in the Market as a result of Capacity addition of both the

companies within a short period of time. While the demand for Glass is growing, we think that the

additional Supply will be absorbed over the next 3 Quarters and Margins will definitely stabilize.

The Building Products division is highly profitable with very strong Pricing power indicated by the

number of hikes this year. We believe that the company is going through a temporary problems with

strong underlying Fundamentals and if not for these Issues, the stock would be quoting at several

times over the current Prices. This allows mature Investors to build positions in this Stock at attractive

prices. Bajaj Electricals is also one such stock where one of its division with temporary issues is taking

down the Valuation of the entire stock making its available at Mouth watering levels for.



10/21

Sanghvi Movers

Sanghvi Movers results were bad. Much of the damage has been because of the Environment and

is not companys self created problems. While we have been expecting the Investment cycle to pick

up, there has been a significant delay in the same and reports on the ground is still not encouraging.

The sector continues to face severe pressures and the entire CAPEX will continue to face problems still

better Government action is taken. But with Governments entire focus on this, we believe its just a

matter of time before the company starts performing well.

We believe the biggest attraction for us in this bet was the Valuation and we think while the debtreduction theme might be a little elongated, but still the stock continues be a Good Buy. While the

headline profitability might have crashed, the company still continues to generate enough Cash and

with no additional Capital Expenditurewill be able to retire its Debt. We are not fearful of the debt

on the balance sheet considering the Asset backed nature and also the significant expenses are

Depreciation costs which are cashless expense. Even at our Buying price of 100 Rs, the share is highly

undervalued with respect to its assets and mean reversion will happen with Debt reduction.



11/21 Specialists in discovering Multibagger stocks

Some Basic Rules which needs to be understood about these Picks

Dont Over-Allocate : Discipline is Highly important in Investing and in spite of our continued

bullishness in these Stocks, DO NO ALLOCATE OVER 10% in any of Stocks in your Portfolio.

555 Stocks are Volatile : We believe that these Stocks are inherently Volatile and these 500% returns

will not be Linear and hence Investors should not re-think on these stocks very frequently.

Not the Bottom, but Cheap :As Legendary Investors say, we may not be buying these Stocks at thebottombut we are certainly buying them Cheap enough to Profit handsomely going forward.

Immense Patience Required : Some Stocks bets are pretty Long Term and hence, we think that

Investors should be highly Patient. Also bulk of the Returns may be back-ended in the 5-Year period.


12/21

SN Stock CMP Industry

1. Bajaj Electricals 177.60 Consumer Durable

2. HSIL 98.00 Consumption

3. Dewan Housing 162.45 Housing Finance

4. Sanghvi Movers 67.15 Infrastructure

5. Karur Vysya Bank 462.95 Banking


On Sanghvi Movers : Its a High Risk bet, while we are buying a good company at very Cheap Prices

the Balance sheet Risks has increased from last Quarter and hence a Staggered buying is Good.

On Karur Vysya Bank : While this Stock, may not be a 5-Bagger, its certainly one of the safest

Mutlibagger Stocks present. Sanghvi Movers and KVB together would balance the Risks and Returns.

.

Important Points to Note :-


13/21

Long Term Core Portfolio StocksStock Industry

Biocon Pharma

HSIL/ Cera Building Products

KVB/ M&M Finance Financials

Indiabulls/ DHFL Housing Finance

PVR/ Kewal Kiran Entertainment/Consu

mption

Greaves Cotton/

Sanghvi Movers

Capital Goods

Persistent Systems/

EClerx

IT

Bajaj Electricals Consumer Durable

Ashiana Housing Real Estate

TCI/ Redington Logistics


Best Portfolio Stocks for Long term Wealth Creation


14/21 Specialists in discovering Multibagger stocks


15/21

Initial Investment Thesis :-Bajaj Electricals has a great Business Model in its Consumer facingbusiness which contributes majorly to its EBIDTA. This business sucks upvery little Capital and throws a lot of Cash. The company has a very

dominant positioning several segments of Consumer Durables and has astrong Growth Trajectory ahead.

Current Problems :-Companys E&P business has a lot of loss making projects which is pulling

down the overall Financials of the company. Also increasing competitionand low pricing power makes it a bad business which continues to guzzlethe Free Cash generated from the Core Consumer business.

Future View :-With the Management taking tough decisions in terms of Order Closuresand bidding for Higher Margin work, we believe that there will be arebound in Margins and also the % contribution from this Business willslowly drift downwards, thereby showing much better Financial Ratios.

Valuations & Conclusion :At the Current prices, the Market is giving a big Negative Equity value toits E&P business and with improving Business mix, there is a large scopefor better Valuations. Also, Bajaj Electricals is one of the Rare Qualityconsumer businesses which is currently available at cheap Valuations.Hence, we believe that its good to buy this Well Managed company whichis available at attractive Valuations and can provide strong Compoundedreturns to its Investors in a Longer Time-frame.

Current Stock Price : 177.6 Rs.

Business Quality : 4/5

Consumer Business = 5/5

E&P and Projects Business = 2/5

Business Quality Delta (Change) :

The companys Consumer Business

Quality will have a small Improvement

with better Margins from a Larger Scale.

The bigger improvement is from E&P.

Valuations Grade : 4/5

Good Buying Range : 160-200

Risks Involved :

Continued Cash Infusion into E&P business

and aggressive Pricing in Consumersegments can drag down the Stock much

more from the Current Levels.

Wealth Creation Assumptions :

Earnings Growth = 75%

Valuation Expansion = 25%


Bajaj Electricals

( )


16/21

Initial Investment Thesis :-Dewan Housing Finance is a leader in the Fast growing LMI HousingFinance and the company has built tremendous Scale in this segment,which will help it to increase Profitability. Also the segment itself presents

a strong Multi-decade growth opportunity for a Well set player.Current Problems :-The company currently doesnt face any Issues as such, but has higher

Cost to Income ratio compared with its Peers. Also there are somePerception Issues with respect to the Stock. (Real Estate exposure etc).After separation with HDIL, there is no Real Problem currently.

Future View :-With the company having gained Scale, it would reap some benefits in theform of Lower Liability Costs and with good Provisioning coverage, thecompany is well set for consistent Performance. The huge scale which ithas in Tier-2 & 3 towns will be leveraged and more products would beadded. Also lower Non-Core investments will boost ROEs.

Valuations & Conclusion :At the Current prices, the stock is trading at very attractive Valuationscompared to its Peers. We believe with changes, the Quality is improvingand hence the Discounts should narrow going forward. Generally theStock has a very wide Trading Band. Hence, buying the stock at the Lowerend of its Trading band can reap rich rewards and we believe that theBand itself would shift upwards considering the Positive Changes in theBusiness over the past few Years.

Current Stock Price : 162.45 Rs



Delta is High. The companys scale has

increased hugely which along with

Conservative Finance policies, will lead

to much Higher Business Quality and

eventually better ROAs.



Risks Involved :

The Biggest Risk is anything related to

Corporate Governance, as there are lot of

bad rumours floating around about the

Group as a whole. But with proper NHBregulations on DHFL, the risk is a little lower

than the common perception.





Dewan Housing Finance (DHFL)

i d i & d i d


17/21

Hindustan Sanitary ware & Industries LtdInitial Investment Thesis :-Company is a leader in Sanitary ware business and also has regionaldominance in the Container Glass segment. The company has strongPricing power in its Building products division and both its segments have

good Structural demand which is growing at a Healthy rate.Current Problems :-Company has been hit by temporary issues like Power problems inAndhra and more importantly, glut in the Container glass market(Oversupply from Capacity addition of HNG & HSIL at the same time).

Future View :-

With the end user demand growing and no new Capacities coming up forthe next 3 Years, the Pricing power will be back and with someimprovement in the Power situation, Margins will rebound. We also thinkthat the Faucet plant which will commence in Q2-FY 14 will give a goodboost to its Earnings and also improve Return Ratios.

Valuations & Conclusion :

At the Current prices, the stock is much cheaper to its Intrinsic Value andalso relatively cheaper than its Peers like Cera and HNG. Also itsConsolidated returns ratios looks bad while if you negate the EVOK,Inorganic Growth and Business reconstruction reserve, the Core ROEs

are strong enough and Incremental ROICs is high for this Business.

Hence, we at HBJ believe that HSIL will grow to become one of thePremium Building products company and create Value for Investors whoare buying this Good Business at current cheap prices.

Current Stock Price : 98Rs


Sanitary ware Business = 5/5

Container Glass Business = 3/5


Delta is High. Value Growth along with

better Cost Control will results in Higher

Margins and hence better ROEs.

Valuations Grade : 4.5/5


Risks Involved :

Continued losses in EVOK and other bad

Capital Allocation decisions. Also sustained

Costs pressures in Container glass business

will deteriorate Balance sheet and reduce

the Intrinsic Value.





S h i M


18/21

Initial Investment Thesis :-Companys Business model makes it a natural beneficiary of Indias

Infrastructure development. Also companys long standing experience

along with a Wide range of Cranes has helped it to build a Strong Moat

around its Core Business.Current Problems :-Company is facing a lot of problems from Balance Sheet Issues (High Debt+ Increasing Receivables) to deteriorating Project pipeline. The othermajor issue is the problems of its No:1 CustomerSuzlon. Indias CAPEXcycle continues to be very subdued with very little new Projects.

Future View :-With a very bad environment, we believe that the company may even slipinto losses for a few Quartersbut the competition is decimated and theCompany is well prepared to take advantage of any Pick up in newCAPEX. Also no new Crane buying, will enable higher Operating Cashflows and Debt reduction leading to a better Balance Sheet. .

Valuations & Conclusion :The biggest reason for recommending this stock in spite of the Risks is theMouth watering Valuations and we believe at the Price, the Odds areheavily in favour of the Investor. While an undervalued stock can remainundervalued, we believe there is a strong Trigger in the form of Debtdeleveraging for this stock. Hence, patient Investors with a little extra Riskcan hope for strong Multibagger Returns in this Stock. If there is a sharprecovery, then even a 5X in 5 Years looks too conservative.

Current Stock Price : 67.15Rs



No Big Change. Its not a very High

Quality business, but the Opportunity

size in humongous and the company is

well placed to Profit from them.


Good Buying Range : 70-110 Rs

Risks Involved :

Several Risks including further Balance

sheet deterioration leading to Asset Sales

or Receivables write-down or continued

Sub par growth or Low utilization Ratios or

a lower Yield. But all these are alreadyPriced in at the current Stock Valuation.





Sanghvi Movers

K V B k (KVB)


19/21

Initial Investment Thesis :-KVB is one of the best managed OLD private sector banks. The companyhas operating performance has been very strong across differenteconomic cycles and the company has been consistently know as the Best

Mid-Cap bank. The bank has started diversifying across the countrywhich will enable it to grow for many more years.

Current Problems :-A slowing economy with negative Interest rates is limiting Credit growth.Also there is pressure on several segments of the Economy leading tohigher Risks on Book. Companys Margins also have taken a hit on both

NIMs and also at the PAT level.

Future View :-With the Economy expected to revive over the next few Quarters andwith imminent Interest rate cuts, we believe that the stock is well placedto generate Strong Profits. The companys Anniversary when there would

be Bonus Offer would also give a boost to the Stock price.

Valuations & Conclusion :At the Current prices, the stock is certainly one of the cheapest Privatesector banks and definitely amongst the better managed ones. We dont

expect the Bank to throw up any nasty surprises and would give steadyreturns with good Dividends too. Considering its history over the lastseveral years, we believe that the Bank would continue to be a Consistentcompounder helping Investors to grow their Wealth.

Current Stock Price : 462.95 Rs



No Big change is expected, probably a

much Higher growth rate would help the

Bank and an aggressive National roll-out

will expand opportunities for the Bank

going forward.

Valuations Grade : 3.5/5


Risks Involved :

Entry of New Banks will create lot of Pricing

pressure and lead to lower Profits. Also any

further deterioration in the Asset Quality

will lead to a fall in the Share prices.





Karur Vysya Bank (KVB)


20/21


21/21

THANK YOU


555 Institutional Report

Documents

Transcript of 555 Institutional Report