Mudar Patherya is a veteran stock picker on the BSE and NSE and a specialist in penny stocks and micro-cap stocks.
Even when Mudar Patherya is recommending a buy of penny stocks, he ensures that they are strong from a fundamental and technical perspective.
Penny and Micro-cap stocks are known to be very profitable because they can give huge multibagger gains to investors. However, they are also very risky stocks and can cause huge losses.
Mudar Patherya ensures while recommending a buy of small-cap and mid-cap stocks that they have good management pedigree, strong product lineup, decent financials including low debt and the valuations are reasonable.
Latest buy recommendations and tips by Mudar Patherya
Here is a list of the latest tips and recommendations of stocks that are a good buy at present:
Update: 25th May 2017
Even as a number of companies were complaining about the economic sluggishness and the demonetisation-induced slowdown, there were some companies doing better than ever.
Maithan Alloys has posted the kind of fourth quarter results that make you wonder whether what you read was a typographical error. Here is the PBIT (profit before interest and tax) sequence of the last four quarters: Rs 26 crore, Rs 14 crore, Rs 91 crore and Rs 141 crore — the kind of profit that most of this small company’s large steel customers would not have made in 2016-17. Besides, the company has posted the kind of fourth quarter results that make you wonder whether what you read was a typographical error. Here is the PBIT (profit before interest and tax) sequence of the last four quarters: ~26 crore, ~14 crore, ~91 crore and ~141 crore — the kind of profit that most of this small company’s large steel customers would not have made in 2016-17. Besides, the company’s Ebidta margin strengthened from 12.5 per cent in the first quarter to 31 per cent in the last quarter. The company issued a guidance after announcing results: It would report at least a 15 per cent Ebidta margin any quarter, any market cycle. I have heard of revenue and profit guidance, but a margins guidance…
Himadri Specialty Chemical:
Himadri Specialty Chemical is a turnaround story when seen from an annual perspective — a loss of ~34 crore in 2015-16 transformed to a post-tax profit of ~132 crore in 2016-17 following an increase in oil prices that reversed a quarter-on-quarter sequence of raw material inventory losses that earlier needed to be written off the profit & loss account. The last quarter was a stunner: A ~45.65 crore pretax profit compared to ~30.74 crore in the third quarter.
I love this performance. Ebidta (earnings before interest, depreciation, tax and amortisation) in the last four sequential quarters moved from ~202 crore to ~135 crore to ~185 crore to ~245 crore. Correspondingly, interest expenses declined from ~9.72 crore to ~3.42 crore across the period. Ebidta margin improved from 17 per cent to 15.3 per cent to 16.7 per cent to 19 per cent. The interesting point is that even as revenues increased ~94 crore through the period, Ebidta increased ~43 crore, indicating traction.
Gujarat Mineral Development Corporation (GMDC):
If I had to place my salary on one stock (from the ones whose results have been announced), it would be GMDC. The company’s post-tax profit improved from ~219 crore in 2015-16 to ~324 crore in 2016-17. The last quarter’s annualised post-tax profit momentum is higher (~90 crore). Any company that reports an 18 per cent pretax margin and improves it by 600 basis points in the last quarter tells me that it is in the grip of a positive sectoral momentum. The GST (goods and services tax) could prove to be another kicker, moderating tax incidence.
Bhansali Engineering Polymers (BEPL):
Crazy numbers, rising from ~9.55 crore Ebidta in the third quarter to ~28.31 crore in the last quarter — an interest cover of more than 10 — though one would have done better with some clarity on the ‘other income’ of ~6.39 crore in the last quarter.
8K Miles Software Services:
The magic of 8K Miles Software Services’ results is not in its standalone 2016-17 net profit (~5.45 crore as against ~2.05 crore in the previous year). But turn to the consolidated numbers: Annual net profit strengthened from ~68 crore to ~166 crore. In the last quarter, the company reported a post-tax profit of ~54 crore, which was higher than the annual average (indicating that the momentum is positive). When a company does as well as this, shouldn’t readers deserve a line or two explaining the performance?
(Check out Mudar Patherya’s top midcap picks on CNBC TV18)
Update: 19th April 2017
Buy Manaksia Industries
Mudar Patherya has recommended a buy of Manaksia Industries. The Company is engaged in the manufacture of of aluminium crowns for Indian-made foreign liquors, beverages and pharma companies. Manaksia Industries has ambitious growth plans such as reviving its steel operations in Georgia, and doubling metal cap manufacturing capacity in India and abroad.
Manaksia Industries may become a multibagger stock if the growth plans go off well.
HSIL, Somany Ceramics and Raymond
HSIL, Somany Ceramics and Raymond are companies with deep distribution capital. Distribution capital is the ability to sell fastest, largest and at the lowest cost.
In Somany’s case, the promoter began to meet the trade, listen to their issues and understand shelf-space dynamics. The trade partner sitting in a remote location now knew he enjoyed the sunvaayi that extended right to the top; he began to stock more.
HSIL has restructured its multi-decade business by creating three sales channels — building products, packaging and consumer products — through which all portfolio increments will now be addressed, enhancing organisational crosssell synergy on the one hand, while enhancing dealer revenue on the other.
Raymond was India’s first organised sector textile retail brand; the company has virtually reinvented its distribution network in the past four years starting with store refurbishment (challenging, as no franchise wants to take an enforced shutdown), stronger brand alignment and spending, increased capital efficiency per dealer and then simply telling the rest of the trade how so and so is now making more money. The result: Business growth in the past three years has outperformed the sectoral average.
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Mudar Patherya has stated that there is nothing in the numbers of Emami Infra to suggest a simmering volcano. But, remember the principal behind this company, ~394 crore in customer advances on its books likely to become revenues in FY17, an impending net worth-enhancing Zandu Realty merger (with a disproportionately lower increase in equity capital), asset-light pan-Indian project launches — and a market cap of only ~165 crore at a time when the illustrious parent is valued at ~23,500 crore. Opportunity.
The company is a leading Indian engraving house with a chemical etching facility, offering electronic engraving for gravure printing, specialised coating applications and flexo printing. The third quarter results were a downer: Ebitda precipitated from ~4.19 crore in the second quarter to ~2.76 crore. This is why I would back the management: The company reported 23 per cent Ebitda margin in the second quarter and 17 per cent in the disastrous third; in the worst quarter, interest cover was in excess of 9x. If (big if) the company can merely replicate Q2 across the four quarters of 2016-17, that would be an Ebitda of ~17 crore. A steady other income indicates around ~10 crore cash on the books against a market capitalisation of less than ~50 crore. By jove.
Revenues across the last two quarters increased ~3.46 crore; Ebitda increased ~3.58 crore. Interest cover in excess of 55x indicates the company is funds-flush in a capex-intensive business. Consider the Ebit momentum across five quarters: ~3 crore – ~3.37 crore – ~2.96 crore – ~4.89 crore – ~8.38 crore. Market cap around ~235 crore. There is a new twist to the story: Haldyn Glass is on the verge of commissioning a joint venture with Heinz Glas International GMBH, Germany, for the manufacture of perfume and cosmetic glass bottles, benefits of which should reflect from 2017-18.
Webel SL Energy
The company is engaged in the manufacture of solar photovoltaic cells and modules. Ebitda increased from ~4.58 crore in Q2 to ~7.97 crore in the third quarter. This is what I like: Capacity increased from 120 Mw to 200 Mw effective December 2016; it is virtually zero-debt following financial restructuring; it is adequately de-risked from sectoral price meltdown; interest outflow was negligible, order book is multi-month, production take-off has commenced and this is perhaps the only listed presentable post-restructured balance sheet in a loss-laden sector passing through its biggest expansion phase in its history. Market cap: ~113 crore.
The new management assumed control in the second quarter of FY17. The management turned the company around in Q3 (its first in control). I have three broad clues on the way forward: Bullish downstream prospects, dearth of listed seismic exploration players and a hefty inflow of maintenance orders. The stock did a rope trick on Friday, so I am keeping vigil for an opportune decline.
Keshav Kantamneni, who comes from a global financial services background, is now managing a struggling Chennai plywood company. When he acquired Uniply a year ago, the company had a large accumulated loss, product returns were high, accounts with most dealers lay unsettled, professionals were missing, the business had plateaued, and the big daddies had such an extensive grip on the sector that it was difficult to grow further. India was the second most populous market. The country was one of the most under-consumed for plywood.
In the first three quarters of 2015-16, most alloy companies reported losses the world over and a number of ore mining companies discontinued operations. The exception was Maithan Alloys Ltd (standalone). The manganese alloys manufacturer reported a profit after tax of Rs 32.7 crore in this period and appears quite likely to finish that financial year with accrual of around Rs 47 crore.
GPT Infra projects
The government has introduced reforms to accelerate road and rail throughput; it has evolved its focus from project award to project completion. The speed of broad gauge line building is expected to increase from 4.3 km a day to 19 km a day by 2018-19. The Indian Railways intends to quadruple investment in five years
JK Tyre will report a consolidated Ebidta in excess of Rs 1,000 crore for 2015-16 (Rs 868 crore for the first three quarters, consolidated). Strangely, the company is priced at a discounting less than half its industry peers.