Dolly Khanna latest pick is a little-known metals and chemicals company which specializes into recycling of lead scraps into various forms of lead metal and alloys and it also makes PVC additives. Chennai-based Pondy Oxides & Chemicals is the latest addition in Dolly Khanna’s portfolio.
The company is engaged into smelting of lead battery scraps to produce lead metal which is further processed into pure lead and lead alloys. It operates three facilities including two in Tamil Nadu and one in Andhra Pradesh. Understandably, battery manufacturers form the biggest set of customers for Pondy Oxides.
Since the company is already present in the circular economy and plans to expand its portfolio, it did not take long for a seasoned investor like Dolly Khanna to visualize growth opportunities in the sector.
The recycling plant in Tamil Nadu has a capacity of 36,000 metric tonnes per annum and it is poised to scale up to 48,000 metric tonnes per annum from the beginning of FY2022-23. The company is also working on expanding its portfolio of non-ferrous metal recycling segment and plans to include plastic recycling in batteries, although more concrete details on this front are yet awaited.
Dolly Khanna latest investment is already a multibagger
The stock has already gained over 200% in the last one year but still trades at a very attractive PE multiple of only 10.3. Along with the latest quarterly results, it was revealed that Dolly Khanna picked up a significant stake of 3.64% in the company, translating to an investment of INR16.8 crore.
After touching a high of INR 930, the stock has corrected nearly 20% and is currently available at INR746 per share. Probably the best thing about the setup is that the stock is taking support at its 50-day moving average (50 DMA). In technical analysis, 50 DMA is a crucial support level and stocks often rebound from this level. In the last one year, Pondy Oxides has also respected this crucial support level multiple times as evident in the image below.
In terms of fundamentals, the latest stock pick of Dolly Khanna has little to talk about. Although the stock is available at attractive PE multiple, its return on capital employed (ROCE) is rather low at 7.5% and its debt to equity (DE) ratio is also high at 1. In the last 3 years, its sales growth has been rather anaemic at just 2.24%.
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Nevertheless, its latest quarterly performance has been quite impressive with a sales growth of 41% from the Q3 of FY2021 and the company also started conducting earnings concall with analysts. In the latest earnings report, managing director Ashish Bansal issued an upbeat guidance targeting to increase financial metrics with 25% CAGR in sales, about 15% return on capital employed, and 7% plus on EBITDA margins. Clearly, these are aggressive targets and the Dalal Street is liking it as evident with the monthly gain of 14.7% in the stock price. Even if the company is able to reach near these figures, it would lead to a massive re rating of the stock.
Already, the company is positioned strongly with its focus on export markets which contribute nearly 50% of total revenues. Pondy Oxides exports to nearly 15 countries, mostly to battery manufacturing companies and the export contribution is expected to remain at current levels going forward.
Dolly Khanna latest pick offers margin of safety
Whether the company manages to achieve these targets will be visible in the coming years but there is little doubt that Dolly Khanna latest investment offers tremendous margin of safety even at current levels. This is evident from the price to sales ratio of just 0.32.
Dolly Khanna’s portfolio is managed by her husband Rajiv Khanna and it is well known that the couple hunts for value in traditional sectors such as manufacturing, textile, chemicals and sugar. Apart from Pondy Oxides, Dolly Khanna latest investment during the quarter included Khaitan Chemicals & Fertilizers.