Such a company whose share price in February 2019, was only around Rs 370
And if I talk about today, then it's share price has increased to become around Rs 740
If I go a few days ago
Then it touches RS 800
Which means it is such a share
Which in one year itself gave you a return more than 100%
And if I tell you an interesting fact
Then one of India's famous investors, Rakesh Jhunjhunwala has a more than 5% stake
I, Jagdeep Singh welcome you to the Groww channel
Today we are going to talk about Ion Exchange
Maybe you haven't heard its name before
This is a small cap company whose market cap is only around 1,000 crores
And it becomes interesting because it works in such a sector
Which sector is being discussed a lot
First let us talk about the business of Ion exchange
So, if I tell you about Ion exchange's business, then it operates in the water treatment sector
And the water treatment sector has come in the limelight in the recent times
Because a lot of organisations have brought about changes in their business because of pollution norms
Because of which there was a big boom in the water treatment sector
And because of which this company also had a lot of benefit
And because of that, this company in the past year,
Gave more than a 100% return
The total revenue of Ion exchange comes mainly from three segments
First
Water treatment which is called engineering
Second
Chemical manufacturing
And third
Clean water
As you can see on the screen, I have given the revenue breakup
That from which sector does Ion exchange gets how much revenue
So if I talk about engineering which is the core business of Ion exchange
From there they get 56% of their revenue
From chemical manufacturing their revenue is 35%
And consumer product, where they sell clean water to the people there the revenue breakup is 9%
Now you must be thinking that a water treatment company
What do they manufacture in chemicals?
Ion exchange manufactures resins
And these are those resins that are used in water treatment
And here the company has a double benefit
First
That if the company does its own project of water treatment
And the usage of resins in that, the company makes its own production for that as well
Because of which the company's costing becomes very low
Apart from this
We got to know that, consider, that in the coming time the sector is going to expand really well
But here some new competitors can come in
But a new competitor will come in
They will need the same resins to complete their project
Then here the sale of resins will still continue to increase
No matter the competitor in the entire industry
This company has diversified itself really well
Through which, their revenue in the coming time will increase
And on top of that, the raw material that they use in the water treatment
There will be a good control in that costing
If I talk about a fact, then in India only 60% of industrial water waste is reused
So here the company has a really good opportunity for the company to expand
And if I talk about capital expenditure
The money spent on water reuse
The estimate in the coming time would be around 20%
The upcoming growth prospect of their capital expenditure
If it stays the same then there is a big expansion opportunity for Ion exchange in the coming time
Now after the business let us talk about financials
And let us see how financially strong this company is
Now that the topic of financials has come up let us talk about how much revenue they get from which segment
And in the past few years
How much that segment grew
And from this we will also find out which their fastest growing segment is
As you can see on my screen, there are three graphs that tell you how much revenue they get from which segment
So firstly I will take your attention to the revenue from chemical sector
You can see that in the chemical sector there has been a lot of growth in their revenue
If I compare it to the financial year 2014,
Then in the financial year 2014, their total revenue from the chemical sector was
That was 2547 million
Which has now increased to become 4234 million
And in the other sectors as well there is a little growth in their revenue
But this sector is their fastest growing sector in the past few years
Now let us talk about a financial parameter about which I have never told you before
But today I will discuss about that a little
And the name of this parameter is ROE
Return on equity
And this parameter tells us
That the amount of money invested by equity holders
How much return the company give us on that
If I talk about Ion exchange's ROE, then their ROE percentage is a little more than 26%
And if I compare it to last year
Then last year their ROE was around 20%
So, in ROE as well this company has given a good performance
In the past year
In the quarter of September 2018, this company's net profit was 11 million
If I talk about this quarter, September 2019, after one year
Their net profit has increased to become 25 million
Which means that in one year, their net profit
Grew more than 100%
But here I will tell you a very important thing
That this time every company got a tax benefit
Because of which everyone's net profit increased
But in this company even their core business has a little contribution
Because of which their net profit
Has increased more than 100%in the past year
It is necessary for small cap companies that their debt level is not that high as compared to their profit
If I talk about this company, then their debt isn't that high
And in the recent years, they have reduced their debt
After the financial analysis let us talk about the way ahead if you have invested in this company
Or if you're thinking of investing
And what are the problems in the coming time
The company as a whole can face
As I told you at the beginning of this video that the water treatment sector is still very under penetrated
And in the coming time there are a lot of opportunities for companies
So if this company looks at this opportunity well
And expands well
So in the coming time can expand really well
And apart from this
This company is giving a lot of its attention to foreign exchange
If I talk about data, so from their total revenue
29% of their revenue comes from exports
And in Sri Lanka they have undertaken a very big project
Which they will finish in the coming 3-4 years
And because of this project they have already made a collection of 300 crores
So, only time will tell how this company expands itself in other countries
Now let us talk about some problems
Like I said this sector is very under penetrated and this company has a pretty good market share
But in the coming time, a lot of companies can enter this sector
And when more companies come in, this company will have more pressure to perform
So the coming time will tell us how this company compares to its competitors
The second problem is that in this sector a lot of orders comes from the government sector
And you know that any company dealing with the government has to face an issue of timely payment
And this company has ignored that and made most orders for the private sector
But it is possible that in the coming time they have to deal with the government
So this problem can be faced by the company in the coming time
So, friends, in this video we analysed small cap companies so that there can be a shift in your thinking
Because all the analyses we have done till now was in the case of large cap companies
And a lot pf people like us are interested in small cap companies
And they also want to know how to analyse small cap companies
And this entire video was purely for educational purposes
We absolutely do not recommend buying or selling from any company
So, friends, I will end this video with a question for you
Comment down below and let us know which your favourite company is that have given you multi bagger returns
Or you think it can give you multi bagger returns
In your comment please mention your reason as well
So that from your comment, we, you and the investor community can learn
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Happy investing!