I often tell you about such stocks on this channel which are trading at a discount from their 52W high.
But have you ever thought about the reason behind it?
See, follow any investment philosophy you follow - Value, Growth, Momentum, etcetera etcetera.
All in all, you must position a stock at the right time and sell it at the right time.
Mr. Nilesh Shah, MD, Kotak AMC also believes the same.
So did you hear?
No matter how much growth potential a stock has, if you buy used at the wrong price, your returns could be below expectations.
So, in today's video, we will tell you about 2 such high-growth stocks which are giving up to 35% discount on trade from their 52W high.
A quick disclaimer.
If a stock is trading at a discount from its 52-week high that doesn't mean that it will go up from that point.
Or it cannot be corrected from there.
So it is important to do our research, judge the company's fundamentals, understand the trend, then make a buy/sell decision.
So let's start. We have applied the following filters to select these stocks.
After applying this filter, out of the stocks found in June, we handpicked 2 stocks that are at the highest discount to 52W High.
ROE and ROCE tell us how much profit a company is generating on the capital invested by you.
The higher these metrics, the better it is considered.
To calculate the percentage that both companies are down from their 52W highs, we have taken the numbers for May 22, 2023.
Let's start with this.
The first company is the establishment of Trident Limited in Ludhiana, Punjab!
The company started with the chemical, paper, and cotton yarn business
and today Trident is the world's largest terry towel manufacturer with sales in 150+ countries.
Trident Limited stock was trading 30.97% higher from its 52-week high of 22nd May 2023.
Talking about the business of the company, it mainly operates in 3 segments: Yarn, Home Textile, and Paper.
Let us understand the three segments one by one.
The first is cotton thread. Trident Ltd has India's largest spinning installation set up at a single location in India.
Trident has a diverse product portfolio in this segment.
For eg, 100% cotton combed yarn, special open-end yarn, organic cotton yarn, core spun yarn, blended yarn, Elli-twist yarn, and many more!
Next is home textiles.
The company is recognized as one of the world's largest vertically integrated textile companies in the home textile segment.
This segment mainly has 2 main sub-segments: a) Bath and b) Bed Linen.
This segment caters to customers in domestic and international markets with diverse brands such as Dusk & Dawn, Finesse, Jiva, Epitome, etc.
The company's products are available in chains like Big Bazaar, DMart, Myntra, etc. in the domestic market
and in chains like Costco, Walmart, and Ralph Lauren in the international market.
The third and last segment is paper, under which Trident supplies a variety of high-quality paper
such as multi-color paper, high-speed printing paper, publishing paper, branded copier paper, etc.
With a manufacturing capacity of 1,75,000 tonnes per annum, Trident is the world's largest manufacturer of wheat straw-based paper.
If we talk about the revenue from these business segments of the company,
then the major part of the company's revenue comes from the "Bed and Bath Linen" ie "Home Textiles" segment, at 62% in the third quarter of FY2023.
17% of the flour is from the yarn, and the remaining 21% is from the paper segment.
Now let's talk about numbers.
If we look at the overall sales, the company has grown its sales at the rate of 10% CAGR in the last 10 years.
Its profit has grown at a CAGR of 35%.
A similar trend is observed in the first 5-year and 3-year timeframes as well, where the company's profits grew faster than their sales.
But over the past 12 months, the company's sales have been flat, and profits have plummeted.
The reason for this is that the company has been earning more than 60% of its revenue from exports.
and ongoing global geopolitical and economic challenges affecting exports.
You will see something like this in IT industry companies as well.
Looking at the capacity utilization of Trident, bed linen capacity utilization stands at 65% in Q3 FY23 as against 100% in the same quarter last year.
You will see a similar decline in the capacity utilization of all segments.
The same reason again! If the company's exports were hampered, sales would be low, and as a result, their inventory began to accumulate.
However, if there is a silver lining for Trident in this whole situation,
it is their strong EBITDA margin of over 25% in their paper business, which is among the best in the industry.
While the company's paper business margins contracted from 28.4% in FY21 to 25.9% in FY22, their margins have improved to 30.6% in 9M FY23.
As the economy is opening again after Covid, offices, and schools are opening, and it is seeing growth again in this segment.
Talking about capex plans, between FY22 to FY25, Trident spent Rs. 21.16 billion, financed with a debt/equity ratio of 3:1,
to enable the company to expand its Yarn Segment capacity to 48%, Sheeting Segment capacity to 59%,
Towel Segment capacity to 6%, Chemicals to 118%, power capacity can be improved by 28%.
This increased capacity of the company will be operational by March 2024 in a phased manner.
And in the coming time, it can help in boosting the company's volume.
If we look at its working capital days cycle, this number has come down from 93 to 79 days in FY22 as compared to FY21, which is a positive thing.
Let us now look at some key financial numbers of Trident, and compare it with its listed peers Vardhman Textiles and Welspun India.
Talking about valuations, Vardhman Textiles is trading at a discount to Trident and Welspun India.
But Trident is generating higher ROE against its peers.
Under returns, both Trident and Vardhman have given negative returns in the last year, while Welspun has given 35% returns to its investors.
In addition to this, you can now also see the rating of Trident from top credit agencies right on your screen.
the three High Agencies have assigned an AA rating and a stable or positive outlook to the company.
Let's now talk about the next company.
This company is one such IT company of Tata Group that has been very much talked about in the last few years,
and we had given almost 1,600% return to our investors between April 2020 and August 2022.
This means if you had invested 1 lakh in this company in April 2020, you would have 17 lakhs in August 2022!
I am talking about Tata Elxsi. As on May 22, 2023, its stock was trading up 35.29% from its 52-week high.
Tata Elxsi is an ER&D i.e. Engineering Research and Development company.
Recently, renowned investor Saurabh Mukherjee talked about entering the Tata Elxsi stock.
Let's see what Saurabh Mukherjee has to say about Tata Elxsi.
So Tata Elxsi provides its design and technology services in sectors like Automotive, Broadcast Communications, and Healthcare.
The company operates in the segments: a) Software Development & Services and b) System Integration & Support.
In the Software Development and Services segment, you can further divide into 2 segments.
EPD stands for Embedded Product Design and IDV stands for Industrial Design and Visualization.
In the EPD segment, it provides technology consulting, new product design, development, and testing services to clients from various sectors.
Through the IDV segment, it provides its clients with services such as consumer research and strategy, branding, graphics,
product design, service design, user experience design, transportation design, 3D prototyping, and visualization.
Talking about the "System Integration and Support" ie SIS segment,
here Tata Elxsi provides professional services in fields like cloud and infrastructure management, virtual reality (VR), 3D printing, and robotics.
86% of Tata Elxsi's revenue comes from EPD business, 11.3% from IDV, and 2.9% from SIS.
Tata Elxsi has its presence across diverse segments.
It provides R&D, design, and product engineering services to OEMs (Original Equipment Manufacturers)
and other suppliers in the automotive and transportation sectors.
The company provides Smarter Living, Engaged Entertainment, and Digital Future solutions powered by IoT, analytics,
and artificial intelligence for broadcasters and operators.
Tata Elxsi also helps to lead telecom companies with digital & network transformation, supporting integration, workflow automation, and roll out new services.
Lastly, it designs next-generation products in the healthcare sector in segments such as critical care, patient monitoring, and drug delivery.
Looking at revenue by industry, the company generates 45% of its revenue from "transportation and automotive",
about 40% from media and communications, and the rest from the healthcare sector.
Just like other technology and IT companies, one of the key points of this company is the geographical diversification of its revenue.
Most of the company's revenue comes from outside India.
The contribution of revenue from India is only around 17%.
About 43% of the company's revenue comes from the USA, and 34% from Europe.
This means any geopolitical or economic incident that happens in these geographies can impact the company.
Looking at the financials, the company's revenue has compounded at 17% in the last 10 years, while profits have grown at a CAGR of 32%!
That's the beauty of an ER&D business.
Due to the ongoing EV revolution in the automobile sector, self-driving cars, etc., all the players associated with this industry are getting benefits.
However, looking at the quarterly results of the company, there is a slowdown in the growth of their sales.
Their margins have also been flat for the last 2-3 quarters. You can probably see a similar trend like this in IT companies.
Because some conditions are the same here
like more revenue concentration in US and Europe, demand for pain-skilled employees, increasing attrition, etcetera etcetera.
Another monitorable aspect of the company is its working capital cycle.
Their working capital days have increased from 50 in FY22 to 78 in FY23, which is a negative sign.
Let us look at some key financial numbers of Tata Elxsi, and compare them with its listed peers KPIT and L&T Technology Services Ltd.
Unde valuations, Tata Elxsi is trading at a premium against L&T Technology Services, but KPIT's P/E is higher than both of them
The debt to equity of the three companies is very less.
In terms of ROE, Tata Elxsi is performing better than both companies.
However, KPIT has shown excellent performance in terms of 1-year returns.
So here are 2 such high-growth stocks which are trading at a discount from their 52-week high.
Which of these companies have shares in your portfolio? Tell me in the comments.
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That's it for today's video. Remember, this video is for educational purposes only and is not a buy or sell recommendation of any kind.
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