Weekend Observations 22nd Oct 2023

Weekend Observations , Rajesh Exports Follow Up


RTI For Money

10/22/20233 min read

Rajesh Exports
Rajesh Exports

Top Gainer this week has been FACT which gave a return of 29.90%. Stock looks very extended on the charts. Fundamentally the stock is good but seems overpriced. 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 - 031 vs 055 last week. Out of these 07 are large cap and 24 mid cap.

New 52 week lows - 004 vs 001 last week. The 4 stocks are all mid caps.

Near 52 week high - 228 vs 240 last week.Out of these 96 are large cap and 132 mid cap.

Near 52 week low - 036 vs 028 last week. Out of these 16 are large cap and 20 mid cap.

From the above it shows the trend is slightly -ve with midcaps taking the majority of the hit.

The 52 week low list has a 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 a 7 year low of around Rs.433.20 which was last seen in Dec 2016. From there the stock rallied to a high of around Rs.865 by Oct 2017 which was a double from the lows in less than a year.

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 had placed an order at around 441 levels to add the stock to my value portfolio which got executed last week. Now, I have placed an order to buy the stock at around 433 levels which was the low of last week.

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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