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.
Conclusion
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.
