Increasing promoters' stake in these two companies shows that promoters are confident about their growth potential
26-Sep-2019 •Danish Khanna
For investors, buying or selling stakes by promoters is an important consideration. After all, being insiders, promoters are better aware of the underlying value of their business. Therefore, they can easily assume the long-term value in the stock price. Generally, promoters increase their stakes if they feel the stock price is beaten down excessively or is undervalued.
This article focuses on small-cap companies, wherein promoters have increased their stake by at least three per cent in the last six months.
Stake increased: 3.41 per cent
One of the largest diversified suppliers of auto components in India, the company operates three key business segments: i) Electronic and Mechanical Security Systems ( 46 per cent of revenues), ii) Information and Connected Systems (34 per cent of revenues) and iii) Plastic Interiors ( 20 per cent of revenues). It supplies its products to auto OEMs across the globe and boasts of a rich clientele, comprising Audi, BMW, Ashok Leyland, Mahindra, Bajaj Auto, Tata Motors, to name a few. Besides, the company provides aftermarket sales and services for two- & three-wheelers, four-wheelers and off-road vehicles. In FY19, more than 30 per cent of its revenues were derived from exports to Europe, North America and South-East Asian countries.
Over the years, Minda has entered into strategic alliances and technical collaborations with leading international companies to assimilate the latest technologies. This has empowered the company to design cutting-edge products and technologies in line with stringent international quality standards.
As an auto ancillary company, its performance is very much dependent on the demand for new cars and auto sales, which are currently undergoing a rough phase. This, coupled with other factors, took a beating on the company's stock price, which has fallen by close to 40 per cent in the last one year.
As of FY19, return on equity stood at 14.6 as against 19.05 in FY18. This decrease was mainly because the company issued new shares in 2018 to raise Rs 310 crore and use the money to seize future growth opportunities. Over the last 15 years, the company has been a regular dividend payer. Currently, the stock trades at a PE ratio of 13.8x.
Stake increased: 4.97 per cent
Tata Metaliks is the manufacturer of foundry-grade pig iron. It also offers a range of by-products, such as slag, pig iron skull, pig iron chips and plates etc.
Its products are mainly used in automobiles, power generation, railways etc. Besides, its other major product, ductile iron pipes is used in sewers, transporting potable water and irrigation.
The company has seen a complete turnaround from a loss-making entity to a profitable business through a planned strategy and the allocation of capital towards high-margin, value-added ductile iron pipes. It is now doubling its DI pipes capacity with a capital expenditure of Rs 555 crore and that, too, without taking any debt. This high-margin segment of DI pipes contributed 53 per cent to the company's revenue in FY19 as against 19 per cent in FY12.
The company's stock has been a wealth creator for its investor, giving a return of more than 38 per cent compounded annually in the last five years. Currently, the stock trades a PE of 9.2x.
Disclosure: The intent of the article is not to recommend any specific stocks. If you wish to invest in any of the above-mentioned securities, please do thorough research.