Pondy Oxides CMP 205- A Potential Multibagger

Pondy Oxides & Chemicals Ltd (POCL) incorporated in 1995, is one of India’s leading metals, metallic oxides, and plastic additives producers. POCL has broad-based operations manufacturing of Lead, Litharge Red lead, Zinc oxide, Lead sub Oxide, and solid and liquid stabilizers of PVC. The automobile batteries industry (Lead, Lead-Antimony & lead-calcium alloys) is the major customer segment. Tires & Ceramics (Zinc Oxide), Cable sheeting (Lead oxides), Galvanizing units (Zinc), and Plastics (PVC stabilizers) are the other customer industries Pondy caters to. POCL is a major exporter of lead and leads alloys & export turnover amounts to about 50% of the total turnover of the company.

Clients:- Amara Raja Batteries, Exide Industries, J K Tyres, Supreme Industries, Kisan, Shriram EPC, Chemplast, MRF Ltd, Tata Yuasa

         For More info Click:- https://pocl.co.in/
NUMBERS THE LATEST:-
Market Cap:  115.90 Cr         Book Value:  236 Apx          Promoter holding: 46.70 %
TTM Sales 1081 Cr             TTM Net Profit 17.21 Cr.      CMP as of JAN 17, 2019: 205

POSITIVES

1. The excellent dividend track record since 2004, It has never missed a dividend since then, which shows how much they care about minority shareholders.
2. . The company achieved the highest turnover and profit for the financial year 2018-19 since its inception.
3. Out of the Total Revenue, Export Revenue was 549Cr which is just above 50% of the total revenues.
4. Since the company imports its raw material requirements and exports its finished products, it provides them a natural hedge against fluctuations.

INTERESTING INFO

1. POCL increased its annual production of Lead Metal and Alloys from 32140 MT in 2015-16 to 46636 MT in 2016-17 and 53148 MT in FY 2017- 18, showing consistent growth over the years. Current Lead and Lead Alloys Smelting Capacity is of 84000Tons, Company targets to reach a total capacity of 1,20,000 MT per annum by 2020-2021  which shows management is growth-hungry to maintain its leadership position.
2. The company has also started production of Zinc Oxides where it has installed capacity of 1200TPA, whereas its capacity utilization is just 10%, as its products get recognized for quality among the vendors, this will provide additional operational leverage which will add to revenues as well as profits
3.  A Microcap Investor Subramaniam P holds 145000 Shares of Pondy Oxides for the past 5 years and hasn’t sold any shares in Pondy Oxides.
4. POCL has in place a robust risk management framework for identification and monitoring and mitigation of commodity price and foreign exchange risks. The risks are tracked and monitored on a regular basis and mitigation strategies are adopted in line with the risk management framework. POCL primarily uses forward exchange contracts to hedge the effects of movement in exchange rates. This for a 100Cr Marketcap company it looks very disciplined and they know what they are doing.

NEGATIVES/POSSIBLE RISKS

1. Though it has a natural hedge, its mismanagement can hamper the profitability of the company,
2. The company is exposed to foreign exchange risk arising from currency exposures, primarily with respect to US Dollars.
3.  Adverse Lead price Fluctuations affect their profitability, if not used proper hedging.

MY TAKE

     Pondy Oxides & Chemicals is a high-quality company. This company is a leading player in secondary lead smelting. The promoters and management have commendable experience in this field with a track record of over 2 decades. It has an impressive growth track record and has been grown from just 20 Cr turnover in 2001 to 1050 Cr in 2019, Still, the company is available at a MarketCap of just 115 Cr. 
If they are able to just repeat what they are doing it for the past 2 decades (Growing their Production Capacity) they can do a Sales of 2000 Crores in the next 2 years and a Net profit possibility of 100Cr, Which is the Current Marketcap of the company, this stock is virtually trading at a Forward PE of 1- FY22 or FY23 basis.
Looking at the future growth opportunity for the company and its past track record, this company which is trading at a market cap of 1/10th of its sales makes this company grossly undervalued, Once the market realizes its undervaluation this stock is poised to become multifold from here.
Thus Pondy Oxides is a potential Multibagger!!!!, With Enough Patience, we can see Levels of 350, 700, 1000, 2000 in the Next Few Months, and Years.
Important Note: Potential multi-baggers are those stocks that have the potential to give 100 – 500% profits. Obviously, such returns take time. Probably 3 – 4 years or more. Short-term volatility is the reality of the stock market and that will always happen. Short-term movements(upside and downside) are impossible to predict. Only invest funds that you will not need for the next 3 – 4 years. As long as you buy a stock for the right reason and are convinced about the future prospects of the company, there is no need to worry if the share price goes down and stays down for a period of time after you buy; provided you have followed the cardinal stock market mantra BUY LOW.
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