Narmada Gelatines – Multibagger Analysis
In this post we would like to analyze Narmada Gelatines Ltd. a small cap company as a potential multibagger.
About: Narmada Gelatines Ltd. (Erstwhile Shaw Wallace Gelatines Ltd) was set up in 1961. The company is strategically located in the Central Indian State of Madhya Pradesh and has convenient access to its main and essential inputs of crushed bones, acid, lime and good quality water.
Narmada Gelatines Ltd., has pioneered the manufacture of ossein and gelatin in India and is today a frontrunner in India’s Gelatine Industry meeting exacting standards of various users worldwide.
Let us analyze the traditional style of check list.
Warren Buffett Checklist
|History of Consistently Increasing Sales, Earnings & Cash Flow|
|Durable Competitive Advantage||Company is into Gelatines business which is dominating in domestic market. The company should be able to sustain future competitions & growth in future.|
|Future Growth Drivers||Company is showing steady increase in Sales & Profits, but an average growth.|
|Conservative Debt (long term debt < 3 Net Profit)||Total Liabilities of the company is around 26 crores. The latest Net Profit is 15 Cores & hence less than 3 times of Net Profit. The company can easily close the liabilities in 2 years.|
|Return on Equity must be Above Average||ROE latest is 18%, which is above our average of 15%.|
|Low CAPEX required to maintain current operations||Not so attractive.|
|Management is holding / buying the stock||Promoter Holding is around 75%, which shows a good confidence from them in the company.|
|Price is Under Valued (< intrinsic value)||Considering the growth aspects Intrinsic Value is higher than current market price, plus the company is trading below book value.|
|Stock Price is consolidating||Yes|
Additional Futurecaps Checklist
|PE, PB Ratio||Current PE Ratio is 3.4, but the trailing PE would be around 2. PB Ratio is already 50% discount & attractive so.|
|Cash Flow Positive||Positive|
|Paying Dividends, Tax||Dividend Yield is around 3.5% which is attractive.
Company is paying taxes.
|EPS Growth Rate||EPS Growth Rate is positive ranging from 10% to 30%.|
|Expected Gain in 10 Years||Considering 20% growth, power of compounding, recognition as mid cap, we can say, the price should double every 3 to 4 years. So 10 times growth in price we can expect.|
|Power of Brand||Company was set up in 1961, Member of Jumbo Group which is into Restaurant businesses.|
|Corporate Governance, Reputation of Leaders||Overall seems to be good.|
Futurecaps thinks the company has multibagger properties.
As the company is small cap & not a very aggressive player, we prefer only 1/3 of normal allocation.
Futurecaps recommends 20 to 25 multibaggers per year, we recommend a 25% to 50% allocation of your savings in equity. The stocks recommended here are gone through Analysts of several years experience in stock market. Although they were successful in predicting future multibaggers, the overall stock market is a risky game. So we recommend the reader to put his/her own thoughts & invest wisely.