My First Value Creator For 2016
The year 2015 presented several value creators to investors and most of the multibaggers were from the mid-cap and small-cap space. I continue to believe that 2016 and beyond will be years when mid-caps and small-caps provide stellar returns.
Mallcom (India) is my first value creator idea for 2016 from the mid-cap space. The company got listed in the Bombay Stock Exchange on October 16, 2015 with a direct listing eligibility.
Being a recent listing, the stock is not in the investment radar for a majority of investors. However, the company holds immense growth potential in the long-term.
Mallcom (India) Overview
Mallcom (India) is involved in the manufacture, export and distribution of a wide range of Personal Protective Equipment (PPE) since 1983. Mallcom (India) is one of the few established manufacturers and exporter of “Personal Protective Equipments” and is the only pure-play listed company in this segment in India.
In terms of variety, the company’s personal protective equipments include head protection, hand protection, body protection and feet protection. Therefore, a comprehensive range of products are available for different manufacturing industries.
For the year ended March 2015, Mallcom (India) reported turnover of INR265 Crore, representing 21% revenue growth as compared to March 2015 turnover of INR218 Crore.
Key Investment Positives
- Mallcom (India) has been successful in gradually increasing its revenue from INR114 Crore in March 2011 to INR265 Crore in March 2015. With the launch of new brand identity in 2015 and aggressive participation in global events to enhance brand visibility, the company’s revenue growth is likely to sustain in the coming years.
- Since inception in 1983, Mallcom (India) has been on an expansion mode. Most recently, the company set up a new production facility for seamless nitrile gloves at Falta. Mallcom (India) currently has 12 ISO 9001: 2008 manufacturing facilities across India. With only working capital related loans, the company has strong financial flexibility to continue expansion of production capacity and product range.
- As a result of growing communicable diseases and rising occupational health and safety concerns at work place, the demand for personal protective equipment is on a rise. In particular, the awareness is increasing in India and Mallcom (India) has been conducting workshops on a pan-India basis to increase awareness of PPE. This is likely to translate into incremental growth.
- Mallcom (India) has an excellent client base and this underscores the point that the company’s products are of high quality. The company’s client base in India includes clients like Sesa Sterlite, Saint Gobain, ITC, ABB, Siemens and Maruti Suzuki, among others.
- With the “Make in India” initiative, the coming years will witness increased manufacturing activity in India and Mallcom (India) will be a direct beneficiary of this boom. In addition to the manufacturing sector, Mallcom (India) also has protective equipments for the healthcare sector and I see strong growth traction in that segment as well.
- Mallcom (India) has been a consistent dividend paying company and the company paid dividend of INR1.5 per share in FY2014-15. I expect the company’s dividend to sustain in FY2015-16 and in the coming years.
For trailing twelve months, Mallcom (India) reported EPS of 8.84 and this implies PE valuation of 21.8. These valuations are not expensive considering the company’s unique product offering, growing sales and immense potential in the coming years.
Further, for the first half of the current financial year, Mallcom (India) reported EPS of 7.18. if this performance is replicated in the second half of the financial year, the annual EPS for 2015-16 is likely to be 14.36. This would imply forward (March 2016) PE of 13.4, making Mallcom (India) very attractively priced at current levels.
Mallcom (India) has a good export market and this is likely to be impacted if weak economic conditions persist in the Euro zone. However, I strongly believe that any weakness in exports is likely to be offset by strong growth in India.
Mallcom (India) has surged from INR152 to INR192 within 7 trading days. If investors find the stock attractive, I would advise gradual accumulation on any correction.
The company’s second half EPS for the last financial year was weak as compared to first half EPS. If this trend is repeated in the current financial year, the forward PE is likely to be in the range of 18-22. In any case, the company’s valuation is likely to remain attractive considering the initiatives to accelerate growth.
Mallcom (India) has a unique product offering that caters to a wide variety of industry including construction, manufacturing, healthcare, pharmaceuticals, metals & mining among others. The company expansion and revenue growth has been steady and Mallcom (India) has been a constituent dividend payer.
With a new brand image launched in 2015 along with more aggressive marketing initiatives, I see significant growth potential for this stock in the coming years. At current levels, the stock is attractive in my opinion.