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Shilpi Cable Technologies (533389) - An exploding small cap stock

7/30/2014

12 Comments

 
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Shilpi engaged in the business of the manufacturing cables for various applications used in the Telecom Sector,
Automobiles and Consumer durables sectors and the also trades in cable accessories including various types of cables and their accessories widely used in automotive, telecom infrastructure, instrumentation etc. and also deals in manufacturing various copper conductors.

The company is one of the leading manufacturers of RF cables in the country and they are actively promoting aluminum-based RF coaxial cables. Besides it is cost-efficient compared to copper cables while at the same time, the technical parameters are comparable to any other copper cable. 

Shilpi does business mainly in the following sectors:

RF CABLE MARKET
As a consequence of an explosion of mobile device usage, subscribers expect more services, data, capacity and speedier networks – whether they’re outside or inside. 

As a result, addressing the coverage, quality and capacity requirements of In Building users is mandatory. Thus IBS is going
to be critical in the coming months especially with the launch of LTE/4G services. IBS providers mainly use ½” and 7/8” RF
cable along with related accessories . Thus there will be a large requirement for these this type of cable in the coming months

AUTOMOTIVE SEGMENT
The automotive industry in India is one of the largest in the world and one of the fastest growing globally. India’s passenger car and commercial vehicle manufacturing industry is the sixth largest in the world. According to recent reports, India is set to overtake Brazil to become the sixth largest passenger vehicle producer in the world.

BUNCHED COPPER WIRE
The totalrequirements of bare copper wire/bunched copper wire is around 6 lakh M.T. per annum. Out of which,the organized sector requirement is around 3.5 Lakh M.T. and the unorganized sector accounts for around 2.5 Lakh M.T

WHITE GOODS INDUSTRY
The white goods industry plays a key role in Electrical appliances such as Washing machines, refrigerators, Microwave ovens, ironing machines and even air conditioners are considered as white goods. Shilpi believes there is a business potential of around Rs. 800~1000 crs for wire and cable industry in India in this segment.

The industry is very competitive and there is also a foreign exchange risk, as the company exports some of it's products and doesn't hedge the transactions. Let's look at financials:


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Shilpi Cable Technologies share financials
The company is growing at an incredible pace, with sales rising 83% and profits 72%. Operating margins have decreased but, but net margin ticked up a bit. While profits went up almost tenfold, EPS increased only six times from 4.43 to 24.89 Rs. (58% growth YoY). This is due the increase in shares outstanding by 50% in 2012, in the recent year, this has decreased to only 7%. There haven't been any insider purchases recently.
Valuation

The most interesting about the company is it's valuation. Assuming 25% profit growth for the next 5 years, then 12.5% for years 5-10 and 2% terminal growth rate, I get the following value:
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Shilpi Cable Technologies share value
Even with a 20% discount rates and conservative growth estimates (the company grew 80% this year), Shilpi Cable Technologies looks significantly undervalued, with a potential of at least 140%. If it can grow at least 25% for the next few years, the stock could be multibagger. As you can see the stock increased sharply from 20 Rs. to 60 (market cap 310 Rs.Cr.). but I still think it's undervalued and might go higher.
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Shilpi Cable Technologies share chart
12 Comments
HG
9/6/2014 09:41:39 pm

Hello, I came across your blog recently and its great to read about Indian stocks on it. How do you come up with these ideas? Is there a stock screener you use? Thanks in advance.

Reply
Beststocksrightnow
9/7/2014 01:09:11 am

Hello, thanks for the feedback. Yes I use a screener periodically. I screen for stocks with high growth, high ROE, and low debt. Also, I only look at stocks making new highs, that means I never buy something thats going down. Hope it helps

Reply
HG
9/11/2014 03:42:52 pm

Sorry for the late reply. Thanks for the info. Could I ask you write about your capital allocation strategy? How many stocks do you invest in at a point in time and how do you divide your money in your ideas. I find this part quite challenging.

thanks in advance,
HG

Reply
Best Stocks Right Now
9/14/2014 02:23:20 pm

Hello,

I allocate my money depending on the stop loss. I usually do not risk more than 2% of my money on a particular stock. So if my stop loss is 20%, I do not put more than 10% into that stock. If it's a stop of 10% I can put 20% of my money there. Stops are different every time I buy, and they are based on technical levels, but I never put more than a 20% SL. The thing is, if you find a good stock, you should put as much money as you can there, but the risk on that trade shouldnt exceed 2% of your total capital. Hope that helps!

Reply
samba
10/4/2014 05:09:41 pm

Thanks for the post.Can i go with these stocks for long term.Stop loss means you are saying for only short term ?.Thanks in advance....

Reply
Best Stocks Right Now
10/5/2014 04:40:12 pm

Hello, stop loss means, that you sell it once it goes down and hits a determined level. It usually happens within a year or two, so yes its a bit short term.

Reply
Arnab
10/6/2014 09:00:51 pm

Dear Shilpi hits your 1st target. You are rocking. Please update I've also invested. But in little higher price. I entered at Rs. 91 before stock split. Please suggest when to exit?? Thanks.

Reply
Best Stocks Right Now
10/7/2014 07:48:19 pm

Hello, I never set price targets, you never know how high a stock can go. The prices in the analysis were rough estimates of value under given assumption nothing else. I sell a stock when it starts going down on heavy volume, or crosses a retracement and a long-term moving average. Shilpi has not done it yet so I'm waiting.

Reply
Arnab
10/28/2014 04:31:28 am

Dear, Please update "when to sell shilpi?" Thanks in advanced.

Reply
Best Stocks Right Now
10/29/2014 04:40:51 pm

Hello, I am still holding Shilpi as it hasnt hit my stop loss yet, I would sell if it went down strongly on a single day, but this situation is a bit different, the stock is declining bit by bit. I am holding as I think it's got more value and will rebound.

security seals link
2/23/2015 02:08:21 pm

you can find the target wire which has the highest volume and brightest indicator.

Reply
Mrityunjay
4/26/2017 03:03:07 am

Dear Sir, I'm holding SHILPI till 2014. Buy Price was Rs. 64.
Today, It sees a sharp fall of 20% and volume is about 9m. Please suggest what should I do?

Reply



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