Jash Engineering Ltd : This stock idea delivered 180% returns in just 15 months; one can expect 3x from CMP 684 in next 3-5 years!
Multibagger Stock Idea of Mar'21 made public today : Jash Engineering Ltd (NSE: JASH, CMP = Rs 272 on 22nd Mar'21)
Note: Jash Engineering stock idea was published in Mar’21@ 272rs per share (made a high of 765rs recently, i.e. 180% in just 15 months, as on today it is trading around 684rs) to all our PAID subscribers of Mentoring Program where we identify 12 best-in-class micro-cap multibagger stocks in a year. Today we are making this report public for the benefit of all those clients who wish to join us. This is a niche player with global presence and there is long runway of growth left for this company. It’s buy & forget for next 3-5 years with 3x upside from CMP. To join WhatsApp to +91 9354179604 (Sanjay Gupta)
Below mentioned write-up was shared with the clients in Mar’21…
🏆🏆🏆 Market Cap ~ 330Cr | PE (FY21E) = 12-14 | Exceptional Company run by Capable, Committed, Conservative/Realistic & Visionary Management | Expect ~200% Upside in Next 12-18 months.
📌 Market leader in India for most of its products & among the best 5 in the world in the Water Control Gates (Others are Hydro Gate, Waterman, Paques, Ross Whips Gates); Target is to become #1 or 2 in 3-4 years!
📌 Sales growth (3Yr) 21%; Profit growth (3Yr) 27%; Consistent dividend paying company
📌 Total turnover potential from existing facility Rs 500+ Cr Vs FY21 Expected Sales of 305 Cr. Phase 1 expansion at SEZ nearly reached its end by May/June 2021. Phase 2 expansion has also started and should be over by November.
📌 Between 2013-20 : cPAT - ~62 crores Vs cCFO - ~79 crores. It's clear that PAT is translated in CFO by the company.
📌 As on 1st March 2021, Order book position is 438 Cr, out of which 168 Cr order (38%) is for Indian market and 270 Cr order (62%) is for International market (125 Cr from USA & 145 Cr from rest of the world). Timeline for the execution of this order book is 12-15 months.
📌 They are slowly reducing dependence on the Indian Market and derive 60%+ revenue from International Markets (US, Singapore, RoW). In the last 3 years export revenue jumped from 22% to 45%.
📌 During 2018 Export / Domestic revenue was 22% / 78% while in 2020 Export/Domestic is 45% / 65% which shows clear shift in export revenue which is higher in margin and fast payout.
📌 Increasing demand of Waste Water Management. Govt. projects such as Namami Ganga, projects coming from Mumbai Municipal Corporation are tailwinds.
📌 Key strategic advantages are - Empaneled with municipal corporations, Product expertise & Strong order book (almost 1.5 years revenue visibility).
📌 Mutual funds (e.g. SUNDARAM MF holds 7%, BLUE LOTUS CAPITAL ~ 3%, AVENDUS PHOENIX FUND), Individual investors (SHARMIN NASSER, ZAKI ABBAS NASSER, NIKHIL VORA) are holding stake in this company.
🎙️🎙️🎙️ Projected Sales for FY20-21 : Rs 305 Cr (Export = 105 Cr and Domestic = 155 Cr; Data Source Q3FY21 Company Presentation & Q3 Conf Call dated 11th Feb 2021).
- Revenue achieved from Q1 to Q3 FY21 = 170 Cr, it means they are likely to achieve revenue of around 135 Cr in the current quarter (Q4FY21)
- Mgmt expects PAT margin of 12-15% in Q4FY21, it means PAT of 16-20 Cr in Q4FY21 Vs 10 Cr in Q3FY20.
- According to mgmt, maximum sales are booked in the last quarter of any financial year, so Q4FY21 is going to be a blockbuster quarter with expected revenue up 53% QoQ and profit up 60-100% QoQ.
- Q4FY21 EPS is going to be approx 14-17 Vs EPS of 8.5 in Q4FY20; Full year EPS will be around 20-23. Strong financial growth even with a COVID19 impact that resulted in non-realization of 20 crores.
- Based on estimated EPS of 20-23, stock is trading at a PE Of just 12-14 which is very attractive.
👌👌👌 Top Quality Management of Jash Engineering (Capable, Committed, Conservative/Realistic & Visionary) are experts in doing "turnaround of companies they acquire".
- 2009 : Acquired Sureseal (India) @ 1 Cr, achieved FY-20 revenue of Rs 7 Cr.
- 2011 : Acquired Shivpad Engineers Pvt. Ltd (India) @ 6 Cr, achieved FY-20 revenue Rs 31.2 Cr.
- 2014 : Acquired Mahr Maschinenbau GmbH (Austria) @ Euro 2 million achieved FY-20 revenue of Rs 10.46 Cr.
- 2016 : Acquired Rodney Hunt Inc (USA) @ $ 4 million achieved FY-20 revenue Rs 85.9 Cr
🚀🚀🚀 To find a multi-bagger stock, two underlying trends we should look for in a business?
Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing.
Secondly, an expanding base of capital employed.
If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities.
So, Jash Engineering ROCE has increased substantially over the last five years to 26%. The amount of capital employed has increased too, by 72%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Jash Engineering has.
JASH's earnings have grown significantly by 21.5% per year over the past 5 years.
💥💥💥 Let's know more about Jash Engineering Ltd - A world class company available at M Cap of Just 320 Cr
📌 Strong Multi-geography based Supplier of Engineering Equipment - The company is a strong multi-geography based supplier of engineering equipment related to waste water management, stormwater management, valves, Hydropower etc. Operates through subsidiaries as Shivpad, Rodney hunt, Mahr Maschinenbau and others to gain a foothold in US, European, Middle East and South East Asian markets.
📌 5 Product Categories - The company has presence in 5 product categories and is soon launching a 6th product category developed in collaboration with Invent AG (German). Jash is the only Indian manufacturer for all these product categories providing it with a knowledge leverage.
📌 5 Wholly Owned Subsidiaries - Jash has 5 wholly owned subsidiaries and employs over 800 people. It also has set an ambitious target of reaching 500 cr. in revenue by 2023-24 through expansion and acquisitions.
📌 60 years old company with clean corporate governance - In 1988, Mr. Pratik Patel (3rd generation of family), a Production Engineer with a MBA in Finance joins the business. In 1996, Jash Engineering entered into a Technical & Financial Collaboration with Schuette group, Germany. 20% equity given to Mr. Axel Schuette (present diluted holding ~ 6.5%), who joined the board as a director, hence corporate governance issues can be ruled out. Also they have a top reputed auditor.
📌 Listed in 2017 @ 120/Share - This company got listed in October 2017 through IPO (Price Band - 115-120 per share) on the NSE Emerge, October 2019 they moved to NSE main board. During 2012, Pragati India Fund invested $5 mn in Jash Engineering, the purpose of listing in 2017 was to give exit to PE fund.
📌 Empanelled with municipal corporations - The company’s products are approved by major municipal corporations, sewerage boards, consultants and large engineering, procurement and construction (EPC) companies in India and over 25 other countries such as the US, the UK, West Asia, Hong Kong, Singapore and Malaysia.
📌 Focused on In-organic growth (acquisitions) - Through a series of acquisitions and technical joint ventures, the company has created a strong revenue growth in the international market such as West Asia and the US and has transformed Jash into a global player in water control gates, screens and valves industry.
📌 Conservative & consistent growth rate - Annual growth target of 15-20%, lower because they deal with EPC contractors (who are not in a very sound financial condition).
📌 Rodney Hunt Inc Key Growth Driver - When they acquired Rodney Hunt in 2017 their turnover was $33 mn. Rodney Hunt is $14-15 mn now (getting back to profitability) and they are projecting to take it over $30-35 mn in 3-4 years’ time.
📌 Low debt & minor pledge - Net consolidated debt of ~ 68 Cr (12 Cr long term debt and 55.5 is the working capital limit). Pledged shares (~3.4%) during Sep 2019 due to delivery commitment of Rodney Hunt Inc orders where they airlifted gates instead of shipment.
🏆🏆🏆 We should pay a premium to any stock if the company can fulfil at least 2-3 criteria mentioned below. Fortunately Jash Engineering fulfils all the 8 criteria. 👌👌👌
✅ #1. Companies can reinvest at higher rates of capital employed - YES (JASH's ROCE has increased substantially over the last five years to 26%. The amount of capital employed has increased too, by 72%.* This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.)
✅ #2. Monopoly/Duopoly/Oligopolistic Industry Structure - YES (JASH is among the best 5 in the world in the Water Control Gates (Others are Hydro Gate, Waterman, Paques, Ross Whips Gates); Target is to become #1 or 2 in 3-4 years!)
✅ #3. Supply side Excellence - YES (JASH has presence in 5 product categories and is soon launching a 6th product category, no other peer has so many products & supply excellence).
✅ #4. Industry going through tailwinds - YES (Increasing demand of Waste Water Management is huge. Govt. projects such as Namami Ganga, projects coming from Mumbai Municipal Corporation are tailwinds. In the USA also demand picking up.).
✅ #5. Regulatory Moat - YES (The company’s products are approved by major municipal corporations, sewerage boards, consultants and large engineering, procurement and construction (EPC) companies in India and over 25 other countries such as the US, the UK, West Asia, Hong Kong, Singapore and Malaysia. New players can't get into this business easily.)
✅ #6. Management Quality - YES (Almost 60 years old company run by 3rd generation promoter & his team are capable, committed, conservative/realistic & visionary; No Corporate Governance Issues)
✅ #7. Technological Edge - YES (For every product they design/develop, they have JV with World's top technology company from Germany / Canada etc.)
✅ 8. Exit of competitors - YES (In next 3-4 years out of top 5 players, a couple of players will not survive which will make the way clear for JASH to become #1 or #2 player.)
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