We are close to saying bye bye to 2017, and welcoming a new year. As a tradition, we look at new year with new hopes and aspirations and make new goals to make our lives better. One of the goals we all love to achieve is to make more money for ourselves and live a life we always dreamed. For that purpose, we look at stock market as the best source of making money in the long term.
With market trading at all time high, it is hard to find a stock that can give you multi fold returns in one or two years of time span. However, if one is willing to dig little deeper, there are many, money making opportunities offered by small cap and undervalued stock, that have strong fundamentals but have been ignored by market. These stocks are trading at lower valuation compared to their underlying value and have a huge upside potential. If one is willing to hold these stocks for one year or more, they can prove to be multibagger stocks for your portfolio. With this goal in mind, we have prepared a series of top 5 multibagger stocks that will make you rich this year. We have analyzed all these stocks in detail. Putting all that analysis in one single post will be overwhelming for our readers. That is why we have decided to bring you a series of top 5 multibagger stocks, where we will post a detailed analysis of each stock every week till the new year. The first stock of the series is Control Print, which is a small cap company with market capitalization less than Rs. 1,000 crores. Let us take a detailed look at the fundamentals of Control Print:
If you have recently bought a mineral water bottle, a chocolate, ice cream, or any other product, you might have noticed a bar code at the back with batch number and manufacturing date. Such printing requires high tech and error free printing that is able to withstand all types of abuses and is still clearly visible to be read by human eyes and machines scanners as well. Printers used in this process are of different variety depending on the type and surface of product.
While CIJ(Continuous Inkjet printers) are used for printing on water bottles and other packaging materials, Thermal Transfer Printers are used in printing on wafers, biscuit and chocolate packets, Special laser printers are used in printing on automobile and computer parts.
Control Print is engaged in business of making such printing products used for various purposes such as printing brand and product information, barcode, batch number and manufacturing dates, etc. Companys clients come from very diverse businesses, such as FMCG, Agro chemical, cables and wire, building material, electronics, packaging materials, plywood, steel and metal etc.Control Print currently has market share of 17% and is targeting 25% market share in the next couple of years.
Revenue Break up:
Company generates all its revenues from two streams, first by sale of coding and marking products, second by selling consumables that is , the ink used in these printers. Company sells around 2,500-3,000 printers every year, with each printer priced from Rs. 75,000 to Rs. 350,000, company also exports a small portion of its products to Sri Lanka, and Bangladesh.The coding marking products contribute about 25% to the revenue of the company. The consumables business, contributes major part of companys revenue,which is around 75% of the sales. Companys ink prices range from Rs. 6,000 to Rs. 10,000 per litre.
Company has posted amazing sales number in the past 5 years. Company sales have increased from Rs. 79.82 crores in 2013 to Rs. 147.35 crores in 2017, a CAGR growth of 13.04%. Companys new manufacturing facility in Assam will help in their business growth as company is now focusing on exporting its product to other countries.
Companys net profit has been growing at a healthy rate of almost 16% CAGR. In the year 2013, net profit of control print was Rs. 12.44 crores which went up to 26.08 crores in 2017. In the future, company expects to realize higher profits because of printing inks, which is a product with high profit margin and remains in continuous demand once the printers are sold.
Net Profit Margin:
Control Prints Net Profit Margin has seen some improvement in the past 5 years. In the year 2013, company posted Net Profit Margin of 15.58%, which went up in 2017 to 18.31%, an improvement of almost 4% in the last 5 years. With rising consumption and increasing purchasing power of Indian consumers, there is going to be a slew of consumer product launches, all of them will require packaging and marking. All these launches will not only improve company’s sales but will also help in improving its net profit margins by achieving economies of scale.
ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.
Control Prints ROCE has also seen slight improvement in the last 5 years, from 16.51% in 2013, Control Prints ROCE has improved to 18.31% in 2017.
Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds)
Companys debt to equity has seen some rise in the past 5 years. The Debt to Equity ratio of Control Print in 2013 was 0.04, but in 2017, it went up to 0.11. The rise in debt is because company is adding to its production capacity by setting up a new manufacturing facility in Assam worth Rs. 25 crores.
Dividend Payout Ratio (%NP):
Control print has been a continuous dividend paying company for the last 5 years, and its dividend payout ratio has more than doubled in these years. In 2013, Control Print paid 14.5% of its Net Profit as dividend, while in 2017, company paid 36% of its net profit as dividend to their shareholders.
Future Expansion Plans:
- Company has recently established a new manufacturing facility of 65,000 square feet in Guwahati, Assam, which started operating in 20915. With this facility in place, company expects to gain higher market by reaching new customers.
- Company is targeting 25% market share in its segment in the next few years, currently company has less than 20% market share.
Control Print SWOT Analysis:
- Control print is one of the very few players in this niche, making t almost an oligopolic market, where few players operate in the entire segment.
- Because of few players operating in the market, control print has strong pricing power over its products, which allows company to generate higher profit margin.
- Despite such a high growth record posted in the past 5 years, company has not been able to convert this growth into cash. Control Prints operating cash flows have been stagnant for the past few years, although there was a rise in the year 2014-15. Company’s cash flow is rising at a slow rate.
- Its a legal requirement to put a barcode and batch number with expiry date on the products. Control print being in this business for the last 25 years, gets advantage of such legal requirement. With more such regulations in the future, the company will benefit immensely.
- E-commerce offer another opportunity for the company in India. Since all the E Commerce players depend highly on barcodes to store and track their orders, it presents great opportunity for Control Print to expand its business.With more players getting in E-commerce business, Control Prints business is going to benefit immensely.
- Company is dependent on foreign manufacturers for importing parts for its printers and marker machines, this may prove to be a threat to the company in case the foreign company liquidates, gets into legal issues, or has some conflict with Control Print and stops supplying components to the company. Con trol Prints need to look at other partners as well to diversify its supply risk.
Should I invest in Control Print at current levels?
To understand whether Control Print is a good investment at current levels, we need to look at it from both fundamental and technical point of view.
In the past one year, control Prints stock price has already seen strong upside, from a 52 week low of Rs. 225 per share on 21 Dec 2016, to a 52 week High of Rs. 517 per share on 24 Nov 2017, the share price of the company has doubled. On 22nd November 2017, the stock saw a huge positive run, opening at Rs. 450.7, making s day high of Rs. 511.45, low of Rs. 434.20 and closed at Rs. 491.6. In the short term (that is for a month or so), the stock may see further upmove. In the long term however, a correction in stock price is expected, as both RSI and MACD have crossed overbought zone.
The most popular method of evaluating a company for its value is by comparing its Price to Earnings ratio with the industry average. If we compare the P/E of Control Print with the industry average, Control Print looks pretty inexpensive. While Control Prints P/E is currently at 28, it is way below the industry average of 58.6, making it a good investment for long term.
Control Print is a fundamentally strong company with robust business model, good growth record, and immense growth potential in the future. The business of the company will get advantage of improving lifestyle, higher disposable income, and overall consumption growth in the economy.
If you are a short term investor, Control Print, despite a bull run still has some upside potential that can be taken advantage of. A medium term investor must wait for a price correction before entering the stock. A long term investor can start buying the stock at current levels and take advantage of every price correction by adding more shares to his current holding.