Weekend Observations 15th Oct 2023

Weekend Obervations , Rajesh Exports Analysis


RTI For Money

10/15/20233 min read

Top Gainer this week has been ITI Ltd. which gave a return of 19.98%. Stock looks very extended on the charts and has doubled in a month. Fundamentally too, the stock is not that great. It seems to me that the correction that has been happening for the last few weeks might continue this week for the stocks that have run up too quickly without any significant change in fundamentals or future outlook. But bull markets are driven by liquidity and markets can remain irrational longer than we can remain solvent. So my strategy would be to wait on the sidelines and buy only good companies when there is the next market correction. That could take a while but I would rather be safe than sorry. What’s your plan for the coming week?

New 52 week high - 055 vs 33 last week. Out of these 20 are large cap and 35 mid cap.

New 52 week lows - 001 vs 00 last week. The only stock here is a midcap.

Near 52 week high - 240 vs 254 last week.Out of these 92 are large cap and 148 mid cap.

Near 52 week low - 028 vs 030 last week. Out of these 13 are large cap and 15 mid cap.

If we see the above it shows the trend is mixed with a slightly positive bias.

The 52 week low list has a single midcap called Rajesh Exports which I see as follows:

The stock has a P/E of less than 9 which indicates that it is pretty cheap and you would recover your entire investment in less than 9 years if earnings remain the same.

It is also trading at a P/B of less than 1 which makes it an interesting stock to look at for value investors.

But the question that arises is why is the stock trading so cheaply?

Let's try to dig into the fundamentals to see if we get a clue.

If we see the last quarter results the sales grew by more than 70% and profits by 14% which is decent.

If we look at a longer period like 5 years the sales have grown at 13% but the profits have remained largely stagnant in the Rs.1200-1400 cr. range which could be a cause of concern for growth investors.

If we look at the balance sheet we see assets of Rs.22k cr and liabilities of Rs.8k cr giving an equity of around Rs.14k cr. If you compare it with the market cap of Rs.13k cr we can see that the stock is available at a slight discount which is being reflected in the P/B of less than 1.

If we see the cash flow statement we can see that the cash on books has dropped from Rs.15k cr in 2019 to Rs.1.5k cr in 2023 which is a drop of around 90%. The major change of around Rs.10k cr came in 2021 due to working capital changes which would need further investigation as the max working capital changes before that was never above Rs.5k cr.

The ROE/ROCE is less than 10% and the profit margins are less than 1%.

If we look at the technicals/charts the stock is at almost at a 3 year low of around Rs.441 which was seen in August 2020. From there the stock rallied to a high of around Rs.994 by January 2022 which was a double from the lows in less than 1.5 years.

If we go back further the stock had hit a low of around Rs.421 in June 2016. From there the stock rallied to a high of around Rs.874 by January 2018 which was also a double from the lows in less than 2 years.

Can history repeat itself or will it be different this time?

Conclusion: Fundamentally the growth, cash position and margins are worrying but technically it seems the downside could be not too much from here. These types of stocks are in the category of value investments where the downside seems limited and the upside could be huge if I have the patience to hold on to the stock for at least 2 years. Also, I would not allocate a huge amount of my portfolio in such stocks and keep a close eye on the developments in the company if I intend to build a large position. Personally, I would invest only a small portion of my portfolio in the stock and evaluate it every weekend to determine the way forward. I have placed an order at around 441 levels to add the stock to my value portfolio.

The famous investor Basant Maheshwari has also expressed his contrary views at the link below where he advises not to buy it.

Ask Basant: Rajesh Exports की 2 minute में Analysis & Other Queries? - YouTube

Please consult your financial advisor before investing. The above are just my views.

What are your weekend observations?

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