4 stocks turned multibaggers in 2021 after strong margin show

NEW DELHI: Investors seem to be rewarding four companies for consistent improvement in margin profiles, as their shares have rallied 126-269 per cent in 2021, against a 23 per cent rise in the BSE500.

The four — Balaji Amines, Deepak Nitrite, JK Paper and Lux Industries — have risen up to 15 percentage points in margins over the last four quarters, data compiled from corporate database AceEquity showed.

Except for Deepak Nitrite, analysts see the upside capped for these stocks after the recent strong rally.

Balaji Amines saw its consolidated PAT margin improving to 21.61 per cent in the June quarter from 21.4 per cent in March, 20.12 per cent in December, 15.65 per cent in September and 14.16 per cent in the year-ago quarter. The scrip has soared 269.12 per cent this year.

Edelweiss said June was the strongest quarter in the company’s history. The performance of its standalone amines business as well as the subsidiary, Balaji Specialty Chemicals (BSC), was good. Edelweiss said growth in FY22 would be driven by the capacity addition in ethylamines, higher utilisation of dimethyl formamide, capacity debottlenecking in acetonitrile and further ramp-up in BSC. “Demand outlook remains strong for its products. However, rich valuation can impact near-term upside,” it said.

The data showed Deepak Nitrite's margin had improved by 515 basis points to 19.82 per cent in the June quarter, from 14.67 per cent in the year-ago quarter.

Motilal Oswal said Deepak Nitrite's June quarter numbers beat its estimates, driven by better-than-expected margins in phenolics and a margin expansion in the basic chemicals segment. But there was a risk of margin contraction from the normalisation of phenolics product prices, it said, adding that it estimated an ebitda margin of 27 per cent in FY22 and 26 per cent each for FY23 and FY24. "Even on a conservative margin assumption, we forecast an Ebitda CAGR of 14 per cent and PAT CAGR of 16 per cent over FY22-24. The stock trades at relatively cheaper valuations of 26 times FY23E EPS and 17 times FY23 EV/Ebitda compared with peers," it said, while suggesting a target of Rs 2,350 on the stock. The scrip has two strong buy, two buy, one hold and one strong sell call.

In the case of JK Paper, the upside could be limited, said analysts.

Kotak Securities said the company was well placed to capitalise on the recovery of demand for paper once the economy fully opens up. After the recent stock rally, the brokerage said it believes the current valuations factors in the improvement in performance, and changed its recommendation to reduce, from buy.

JK Paper, whose PAT margin hovered at 0.56 per cent in the June quarter of last year, reported a margin of 15.77 per cent in the quarter gone by, up 15.20 percentage points. IDBI Capital has a hold rating on the stock, though it said JK Paper was among the domestic listed paper players that had scale of operations, an extensive distribution reach and effective backward integrated operations.

For Lux Industries, the margin improved to 15.26 per cent from 11.61 per cent YoY. “Driven by a higher gross margin, the Ebitda margin expanded to 20.9 per cent. The margin was in excess of 20 per cent for the third quarter in a row. The management expects to maintain it at 20-21 per cent Ebitda. On its profitable growth trajectory, we are upbeat about its long-term growth prospects for its strong brand equity, launches and long-standing operations in innerwear. The steep rise in the stock price, however, limits the potential,” said Anand Rathi.

The brokerage lowered its rating on the stock to hold. Another brokerage, SMIFS, has an accumulate rating on this stock.

This is how we arrived at the four stocks from 500 BSE500 stocks.

For the study, only those stocks were picked where the companies did not report losses in the last five quarters, had show sequential improvement in PAT margins for last four quarters, and had margins in excess of 15 per cent in June quarter.”