Hi Friends,
This is Jeevraj and back with the new investment idea. Many of us have a wish to invest a big chunk at very bottom or small cap company which will be a large cap tomorrow or at-least a mid cap, then it can be a life changing experience. Well finding such stock needs understanding business and its promoters to the core. Its a risk, but if you find such business, it needs courage to invest in such stocks. Lets look at one imaginary example below.
Mr. X starts business. Invests 5000₹, purchased machines worth ₹2000, raw material worth ₹1200. Sells final products at ₹1800. Now cash in hand will be ₹3600. In the first month, Balance sheet looks like loss of ₹1400.
Second month, purchased raw material worth ₹1500 and sells it at ₹2250. Now ₹750 profit in second month. But still, ₹650 loss overall.
Mr. X got big orders worth ₹5000. He hired labour at ₹4000/month. Raw material costs ₹4000, sold total material worth ₹6000. Now additional loss of ₹2000.
Looking at the Balance sheet of Mr. X, anybody will consider it as a Junk company & investors will stay away. Such companies if listed On stock exchanges, will be low volume stocks.
What if you get the opportunity to invests in such business??? What if you know that company is in aggressive growth path and its just the start or say gestation period. Investing in any company in their gestation period is a high risk high reward game. Finding such companies for investment is not so easy and it needs thorough study to find and invests in such business. But if you find it, just have one check on promoters to see how much they are aggressive towards the growth of the company. Once that is done, you have a gold mine.
One such example was already discussed on this Blog. Its Vakrangee. Though Vakrangee is an old business but their franchise model is a new business model and was in gestation period when we identified. And the result is multi-fold returns with in short time.
Now here we came up with the new idea of investing. Name of the company is India Home loans Ltd. At present, it looks like company is not appealing by looking at its numbers. Price to sales ratio is very high. Other Assets is just less than 40 crores. Even recently, financing cost of the company have increased as evident from the companies annual report. But if you observe the trend, company is growing aggressively. Their operating profit increased from 0.57>>>>0.87>>>>>1.05>>>>>2.
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| Operating profit increased over the year |
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| Other assets, borrowing and reserves increased |
But above points are just minuscule which doesn't gives idea of the future direction. Such points does not convince we as an investor to hold big chunks in small cap and hope for it to become large cap. Spice of the such business is what promoters are thinking and what they are planning for the company. Lets dive into promoters arena
If you observe at shareholding pattern(SHP) and just have a glance, it looks like promoters have decreased their shares.
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| SHP from BSEindia.com |
But just download the SHP PDF to see the details of public portion. You will observe that public includes corporate and JM Financials.
http://www.bseindia.com/corporates/shpPublicShareholder.aspx?scripcd=530979&qtrid=92.00&QtrName=December%202016
Now company who handled loans books of ₹10-20 crores till now, will be targetting ₹100+ crores soon and ₹1000+ crores in long term. It will be operating in same segment as DHFL(affordable housing loans for middle class). For JM Financials, it will be like business is not yet started. It will scale up the business to a new height. Additionally, Modi scheme announced on 31st December night and with Pradhan mantri Aawaas yojna, India Home loans Ltd will get a big boost to their loan book. So for investors it will be like boarding in passenger train, On which maximum people avoid to travel as it halts at all stations and goes very slow and suddenly in the journey train rides like a bullet train. What a delightful experience it will be. Same way India Home loans is like business of Mr. X, who is struggling to show real profits on books, but once it manages it to scale up the business, it will be money printing machine. Dont worry about accounting numbers at this stage and all the valuations stuff. My opinion is, stock is available at throw away price.
If you see on charts, volumes started picking up immediately after JM Financials took stake and gave a big breakout. Volumes gained that time is still sustained and retail investors have started eyeing on it.
For JM Financials, stock is already doubled on the News of their entry. Its time for company to perform. So buy the passenger train ticket, fasten your seat belts by boarding in passenger train and enjoy the ride of bullet train.
Note: Rome was not built in a day, so once invested in long term scrip, have patience and wait for the company to grow. Just have conviction on management. Read More on them to get confidence. Confirm the mentioned story by yourself and dont just buy shares because somebody is saying. It will give you more conviction to hold shares even during panic situations
Bottom line for investors:You are buying a loan disbursing company with a loan book of ₹30+ crores and in the hope of loan book amount to reach ₹1000+ Crores
JM Financials here will be like
"Abhi toh Maine start bhi nahi Kiya hai"
Happy investing 
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