Saturday, September 29, 2012
In general ,I am not a fan of penny stock investing and only very rarely spending time to study such stocks. In our stock exchanges 99 out of 100 penny stocks are worthless and punters are playing with it.This is where innocent retail investors are loosing heavily and ends with holding stocks of companies which are existing only in paper .But this time it is an exceptional case and I am recommending this stock because of the potential of the industry in which it is operating and run by a decent management.This company is known as a fertiliser manufacturer and it is getting the valuation of a fertiliser company in stock market .But it is more than that , and only very few investors are aware about its other business .This company having sizable operations in hybrid seeds and it is one of the very few listed stocks from this sector .All of us are aware about the potential of agriculture/farming ,and the sharp run up of stocks like Kaveri Seed Company and Advanta is a testimony of investors expectation about this sector.Diminishing area of farming and increasing demand for food is the possible scenario and it can be tackled only through scientific farming techniques.Hybrid seeds is a vital part of this revolution and the major tool for all efforts to increase productivity.Since we have discussed this subject more than once in the past I am not elaborating .
Basant Agrotech is a company based at Akola (Maharastra) and a member of 130 years old Bhartia Group.Company having three divisions – Fertiliser,Seeds and power generation.company having five fertiser manufacturing plants located at Kaulkhed , Kanheri , Sangli, Hospet and Neemuch.In seeds division company’s processing plants are located at Nagpur and Kanheri and its R&D and Biotechnology lab located at Kaulkhed.Basant manufacturing NPK and SSP fertilisers .Even this sector having potential ,due to government control and all other uncertainties surrounding in this sector let us leave this part and concentrate more on the other business – seeds-which is showing a robust growth rate in past few years .In 2011-12 financial year this division shows a growth over 30 % and touched a turnover of Rs.61 Cr (seeds division alone). Company’s product list includes 15 vegetable seeds (Bitter Gourd,Brinjal ,Okra,Tomato,water melon..etc) more than 10 field crops (Corn,Green gram,Mustard,Paddy,Wheat,Sorghum,Gram..etc) and oil seeds like Groundnut, Soyabean,Sunflower ,cotton..etc). Now company is paying all efforts to develop its seed business which ensures better margin compared with fertiliser.Cash flow is expected to increase in proportion of the growth of seed business .Company is now planning to expand its marketing reach for seed division beyond its traditional markets.30% increase of seeds sales in last year is an indication of its sincere efforts to develop this business.Recently company also started selling seeds through online in association with e-bay to meet retail demand.
Financials and Valuation
Company posted a sale of Rs.276 cr and a net profit of Rs.7.6 Cr in FY 2011-12 .It is an interesting point to note that in last five years Basant increased its turnover and profit continuously in every year without any interruption.Its sales moved from Rs.110 Cr in 2008 to Rs.276 Cr in 2012.This stock is currently valued at a market capitalization of just Rs.36 Cr where its last year turnover is above Rs.276 Cr .Even If we exclude its entire fertiliser business and consider only seed business it is trading at a market cap of just half of the turnover of this division alone.
Icing on the cake
Whenever we think about a penny stock we never look at the dividend part.But here the case is totally different .This company having an uninterrupted dividend history for the past five years and it increased the dividend pay out in every year in last three years.Current year it paid 8 % .Even this this not a big amount it is an indication of promoters attitude towards minority share holders.In many cases promoters are splitting the FV of a stock just to create volume for their easy exit . Here too it is an exception ,in last four quarters they hiked their stake by about 5% which is now stands at 55% and out of this not a single share is pledged.Even in non promoter category , a corporate entity named Basant Capital Tech Ltd acquired 1.17 % stake in latest June quarter .Even if this firm is categorized as non promoters , a detailed study revealing that the directors of this entity is same as the promoters of Basant Agro.
Many retail investors are throwing money in stock market by investing in penny stocks even without considering whether the company is existing or not.I request all of you (if you have such a tendency) to invest in stock like this one and not in stocks like C*** Re******** .Here, it is operating in a sector with huge potential (seeds) which is showing very good growth,dividend paying,promoter hiking stake ..etc.Even in the case of fertiliser sector (which is now its main business) I believe we will get a clear picture about subsidy policy in near future which will end the uncertainty and help the company to take informed decisions.In short , buy it and forget it ,you will get dividend every year and either the market identify its seed business or the management decides to unlock value by de-merging its seed business into a separate company ,you may blessed with unexpected gains.Considering managements efforts to grow the seed business we can’t write off such a chance when the seed division reaches a critical size.Current market price of Basant Agro is just Rs.3.85 which is close to its life time low. Even in this year 70,00,000 equity shares of Rs. 1/- each at a price of Rs. 7.75 per shares allotted to the promoters on conversion of warrants. Current market price is only half of it and at this price nothing to loose considering the potential gain.But as a thumb rule, invest only what you can forget , in penny stocks.
Link to the company's new website HERE