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Last Updated : Sep 24, 2018 11:05 AM IST | Source: Moneycontrol.com

Bet on these 2 ideas where firms have scalable business models: Ajcon Global

Akash Jain of Ajcon Global said the dented market sentiments will present investors great and good companies at decent valuation which investors can add in their portfolio.

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Akash Jain

Ajcon Global

Bears were in full command last week with massive volatility being witnessed on the last trading day of the week as NBFCs cracked significantly, especially housing finance companies witnessing heavy selling pressure which hit market sentiment quite badly.

NBFCs, largely dependent on wholesale funding, tanked on fears that liquidity conditions are tightening due to crisis at IL&FS and demand for funds. Rising bond yields along with rupee depreciation and surging crude oil prices has been a cause of concern for NBFCs as the cost of funding would rise for them.

In the last week, FIIs sold equities worth Rs 2,674.12 crore, while domestic institutions bought equities worth of Rs 1,782.63 crore.

India's volatility index (India VIX) was also up 12.28 percent last week. The smallcap index was down 5.54 percent, largecap index ended 3.34 percent lower, while midcap index shed 4.61 percent.

The dented market sentiments will present investors great and good companies at decent valuation which investors can add in their portfolio.

Few companies with long-term sustainable and scalable business model with great management which we have selected for investors are as follows:

Quess Corp

We are quite excited by this new generation business model. We are very bullish and structurally very positive on this company with a great management. The company’s business model is well suited for new India which we believe will pan out well in the future and can give multibagger returns if a patient investor holds it for atleast 5 years.

Recommend investors to have a slice of it in the long term portfolio. The company’s financial performance has been quite robust with gross revenue CAGR of 44 percent over FY13-18 to Rs 6,167 crore, EBITDA CAGR of 50 percent over FY13-18 to Rs 354 crore in FY18 and PAT CAGR of 79 percent over FY13-18 to Rs 310 crore in FY18. Low Debt/Equity ratio of 0.41x in FY18.

The company expects to compound it's EBITDA by 20 percent per annum over the long term. While the company grows organically and through friendly acquisitions, its focus will be long-term institution-building and not quarterly earnings.

The company will work to keep its debt to EBITDA geared at around 2x. On an asset-light model, it will continue to develop innovative products and service lines. In the past, the Company has done around 22 acquisitions and turned around those businesses quite successfully.

At CMP of Rs 890, the company is valued at 41x on FY18 diluted EPS of Rs 21.8. We recommend investors to 'Buy' with a target of Rs 1,230 (41x of estimated FY19 EPS of Rs 30) by FY19 end implying an upside of 38 percent and believe it can give big returns over a period of 5 years.

BSE Limited

In Q1FY19, the Company reported decent set of numbers. Q1FY19 revenue from operations witnessed a rise of around 5.9 percent on YoY basis to Rs 116 crore. EBITDA (including investment income) declined by 8.2 percent on YoY basis to Rs 56.79 crore. EBITDA margin declined to 36.4 percent in Q1FY19 from 40.8 percent in Q1FY18. However, Q1FY19 PAT jumped by 3.6 percent YoY to Rs 51.5 crore.

BSE is transforming itself quite well under new the management. The company is constantly improving and innovating itself. BSE is focusing on next gen products for emerging India to keep competition at bay.

The company is making its presence in newer segments like Currency and Interest Rate Derivatives, MF platform, SME platform, new bond raising market as well as GIFT city which can scale up in a good manner in a decade’s time. Its MF platform contributed over 50 percent of the net MF inflow in equity funds in June 2018. BSE StAR MF crossed 10000 MFD registration; adding over 1500 new Distributors per month; overall distribution network of over 2 lakh in over 3000 towns across India.

The exchange successfully completed buyback on July 9, and the issued equity share capital now stands reduced by 3.70 percent to Rs 10.51 crore. At CMP of Rs 717 (Face value: Rs 2), the company is cheaply valued at a P/E of 16x and P/BV of 1.09x. We advise investors to add this company in their long term portfolio and keep on accumulating this company on every declines.

We do not have a price target for this company as there is immense opportunity for the company over the next 10 years. We are confident that this company can become a strong wealth creation story in years to come.

Disclaimer: The author is Vice President - Equity Research at Ajcon Global. The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Sep 24, 2018 11:04 am
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