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Low risk, high return SMALL CAP - YouTube
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hi everyone welcome to today's video so
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on today's video i am going to talk
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about a small cap stock which i have
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started to buy on dips and i am
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aggregating it i have already done the
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first big purchase on this stock and i
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am going to continue to make this
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investment
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so which stock am i talking about please
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watch the video till the very end you
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will get the answer you will understand
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the entire arguments why i am buying
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this talk very important disclaimer this
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is not a buying recommendation please do
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your due diligence and only then enter
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the trade in the interest of whole
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transparency i disclose the investments
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that i am making you can understand the
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rationales logics and then take a trade
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you can take a trade avoid it but do it
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at your own free will the important
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lesson that i would want you to take
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away from this discussion is around the
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concept of risk this is a very important
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point because i keep taking a lot of
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heat from people that he actually why
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did you invest in jp power by the way
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that stock is up by 28 29 already why
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are you propagating investing on such
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risky stocks this that so i feel that
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people have a very bad understanding of
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risk and let me demonstrate by giving
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you an example here so if i ask you that
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do you believe in the concept of higher
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risk higher rewards that this is an
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american concept that the higher risk
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you take the higher your rewards will be
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for example when you go and invest in
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small caps therefore your risk is higher
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therefore the rewards are higher do you
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believe in that narrative the answer is
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yes then you are misunderstood the
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entire concept of risk let me prove that
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point by giving you a couple of examples
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also but the first golden rule of risk
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is that please don't take risk with
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things that you can't afford to lose
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i'll repeat that again that please don't
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take risk on things that you can't
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afford to lose there is no such thing as
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100 guaranteed returns in anything so
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please be smart and logical around this
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concept so this brings us to the
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sponsors of the video which is ritto
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insurance i love their insurance product
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i myself and many of my family members
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have purchased insurance from them
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directly and insurance is something that
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all of us should have now why do i
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advocate the firm very simple that you
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can use the link in the description box
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schedule a free call with them you don't
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need to pay anything speak with an
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insurance expert get an understanding of
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how much insurance you need to take what
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type of insurance there are so many
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complexities that they can help you
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demystify without charging you a penny
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it is a great product therefore i am
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advertising it check the link in the
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description box now coming to the second
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golden rule of risk which is the higher
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the risk the higher the reward no this
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is a flawed concept it doesn't work that
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way let me demonstrate that by giving
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you a couple of example and then i will
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disclose the name of the stock that i am
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purchasing now let me give you the
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example of lnt now many of you would
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think that lnt is a large cap stock it
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is a very big company i've heard of it
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larson and two groups such a big company
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so let's take a look at the five year
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returns of lnt right so here are the
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five year returns for l t
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and it has given approximately 75 return
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in five years i will say accept what is
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bad with it 74 75 return very good okay
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now compare this to nifty 50
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returns now this is the return that you
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have received in the last five years
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from nifty 50 109 or 110
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now good 35 difference between the
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returns of nifty 50 versus l t right now
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you might say except you know what you
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are wrong here because l n t e is a risk
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free stock right risk free stock it does
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not have lot of risk so how do you and i
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decide what is risky versus not for this
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we need to take a look at long term beta
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of the stock i will explain that
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subsequently on the video what beta
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means but beta is essentially a measure
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of volatility okay volatility right so
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this is a measure of volatility and if
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the stock has a beta of 1.39
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1.39 it means that the stock is 39 more
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volatile compared to nifty for example
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if nifty moves by 100 points
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upwards then the stock should have given
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you 39 percent more returns 39 more
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returns in an upward market but what did
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you see that the nifty went up by 100
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points and despite having higher risk
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with lnt it fell down despite it being a
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large cap stock so what am i essentially
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saying about lnt that lnt is a high risk
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stock that is giving you low returns
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this is the worst possible combination
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that you can have now the opposite is
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also true sometimes you might say that
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you know what if we take a look at any
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small cap it will have more volatility
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more volatility
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and
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therefore it will have higher returns
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not true and i will show you one stock
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today that has low volatility but high
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returns high returns right
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and in fact it has high potential
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returns also so which talk am i talking
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about so i am talking about amritanjan
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healthcare limited this is a yellow bomb
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that you would have heard of or our
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parents or grandparents would have heard
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of because this is a very old company
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they used to make amra tanjan baam then
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they got engrossed in a bunch of other
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different type of businesses which did
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not work out now subsequently post 2002
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2003 the third generation of this
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business has started taking care of this
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business and they are turning things
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around so i am going to talk about
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amritanjan healthcare and i am going to
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dissect this talk but very quickly let
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me further build upon the theory the
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theoretical part of risk i will keep it
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very brief and to the point and you will
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enjoy this discussion because if you
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hear about this concept in an mba
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classroom the teacher usually takes
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approximately an hour explaining it i
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will explain it to you in a very
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practical no-nonsense way okay now here
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is a concept that you must know and it
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is called as capital asset pricing model
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right so this is the first key concept
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that you must know and before this you
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must understand a concept called as
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efficient market hypothesis now
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efficient market hypothesis simply means
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that hey if you take a look at any
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efficient market for example u.s europe
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are efficient markets why because there
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is very few insider trading the data
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availability is really nice everything
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can be scrutinized very well the
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regulators are there they keep a
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heavy-handedness on people who are
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selling and buying stocks so these are
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efficient market hypothesis and it
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typically says right from an example
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that even big investors big investors
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do not have any
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systematic systematic
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advantage
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over small investors so ok so what does
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this mean it simply means that for
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example if certain news comes right then
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there is no insider trading that is
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happening in the u.s everyone has same
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access to data and information of course
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someone is more skilled they will make
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more money but there is no systematic
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manipulation of information or there is
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like efficient flow of information that
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people are getting information in a
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timely manner no bad bad things are
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happening and everyone gets a fair play
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to make money in the stock market that
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is what efficient market hypothesis
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simply says
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now this leads to this particular
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concept around capital asset pricing
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model and please understand these
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technical things this can help you
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impress people and embrace enter your
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hand and impress your dates and whatnot
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so listen to this very carefully okay so
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essentially this is how you measure risk
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right the entire argument about l t that
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i was making it was based on this
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formula so what it simply says is that
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in an efficient market right so if you
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assume that the markets are efficient
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that is what is believed the market
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should be then every stocks risk can be
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categorized according to this er means
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expected return for example when i am
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investing my money in lnt what should be
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my expected return should i expect like
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15 percent from it should i expect like
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25 from it what should be my expectation
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okay so very easy for you to judge that
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what you do is that you take the risk
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free rate which is usually the fb rate
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seven percent right and
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add a beta to it beta is the volatility
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right i explained the concept of
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volatility just a few minutes back so
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please remind it watch it right so
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that's the beta premium and this is the
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market risk premium that your market
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risk premium that you are assigning
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right so beta times the market risk
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premium this is a formula that should
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tell you that how much return should you
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be expecting now let's not get into the
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math of it but let just try to simple
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common sensically understand the point
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that this formula simply says there is a
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direct relationship between the expected
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returns
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and the risk that you take right but
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this formula is based on what this
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formula is based on efficient market
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hypothesis being right in the first
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place now india is a place where the
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efficient market hypothesis is not right
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right india is not a market where
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efficient market hypothesis holds true
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why is that because in india the cost of
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capital is very high in india the flow
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of information is rigged these are all
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my personal opinions so sevi please
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don't sue me this is my personal opinion
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that the markets in india are
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inefficient there is insider trading
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there is a bunch of different different
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things that are thrown in which rigs the
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system therefore the market is not
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efficient and therefore this formula
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does not hold to and therefore we have
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companies like l t which do not give you
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proportionate returns in accordance with
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the risk so this is the theory part of
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it now let me show you how you can make
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money by using this principle super
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simple right now let us identify a stock
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where the risk is lower so i have told
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you the name of the stock already it's
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amritanjan according to me it has lower
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risk and i'll explain it to you point by
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point why i feel that the risk in this
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business is low okay so here is the beta
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for amritanjan long-term beta it's 1.21
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it's lower than lnt okay let's take a
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look at five here return same matrix
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that we use for lnt the returns are 225
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percent
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higher than nifty much higher than lnt
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so if you were to put your 100 rupees in
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lnt versus amra tanjan where should you
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pick just in terms of risk reward
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equation hundred percent you must invest
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in amra tanjan but let me explain it to
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you why the risk reward equation is so
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fascinating for a company like
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amritanjan and it should continue to be
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the same or rather in fact the risk
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reward equation should further improve
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now why am i saying this so primarily
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there are three specific reasons why am
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i saying it so the first key reason is
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regarding the core business of
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amritanjan and you can check that in the
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head bomb space
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it has 43 market share it's almost a
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monopoly from that perspective it's a
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major major player so it has a very
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stable core business that's point one
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second
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in the new businesses in which it is
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entering and i'll talk about this
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subsequently it has started to gain
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market share so it has a stable business
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and it has a growth business combination
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of both reduces the risk it's not as if
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that it is like reliance which is now
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experimenting with a bunch of different
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businesses it is not like facebook which
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is experimenting with a new business
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line so essentially amritanjan is a
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business which has a core stable
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business and a new growth business now
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related point here is that the nature of
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the market is very stable it's not as if
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that the customers will go away or there
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will be like some kind of a trend change
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that is happening here that people will
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stop availing relief medicines there are
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more and more people who have like pain
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related ailments and issues and they
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will continue to avail these type of
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services now you might make an argument
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that okay you know what people might not
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put balm i am like a gen z and i don't
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use bombs i use like relief spray and
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bunch of different different things so
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that product nature might change good
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question so essentially if you take a
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look at their product portfolio you will
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find out that they are experimenting
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with a range of products for example
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this is the annual report and they are
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experimenting with like sprays they are
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experimenting with release patch this is
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an innovative product that they have
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launched they have launched a bunch of
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different different products in the pain
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relief space so overall they have
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already built a bouquet of pain relief
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platforms and they understand the space
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really well now another related point
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here is that they have their
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distribution sorted out this is a very
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widely dominated player in south india
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it is based out of chennai it has wide
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distribution network now to add on to
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more skus which is like more products in
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the range that they are asking more
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distributors to sell their products they
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don't have to go and find new
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distributors and retailers to do it they
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are the same distributors they just have
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to push out more portfolio of products
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the nature of product is such that you
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know they will not expire so easily
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right it's not like a perishable product
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so the supply chain is also very stable
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so from a broad angle amritanjan
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operates in a space where it has a
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stable brand it has stable distributors
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it has a range of products which are
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diversified which are alignment with the
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trend they have a growth product in play
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which i'll talk about in a minute that
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is also there plus regulatory changes
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are not going to impact this it's not as
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if that amritanjan has to do a bunch of
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r d and take like a bunch of approvals
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they are selling mostly over the counter
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medications so the regulatory hurdles
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are also less and even r d spent is also
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very less now this gets reflected in
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their financials for example if you take
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a look at their financials you will see
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something really amazing for example in
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23 the sales were 135 crores now it
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stands at 364 right within a matter of
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eight nine years the sales have three
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eggs big big achievement now because it
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is a family owned business they are
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developing organically it's not like as
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if that just to show some sales number
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they are not going profitably nothing
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like that right if you take a look at
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profits that the sales have tripled but
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the profits have become five times this
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is called as profitable growth it shows
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that the company is truly bothered about
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the profit margins they are not running
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a business just for the heck of growing
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sales that's one part of it that you
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know start selling like waffles at 10
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rupees and start sending it to people's
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house just to increase the sales number
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lot of food tech companies have done
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that that is madness this is solid sales
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model that every time you sell a unit
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you are making money of it this gets
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reflected in the cash flow so let's take
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a look at cash flow cash flow should be
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positive okay so if you take a look at
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free cash flows here are the numbers
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free cash flow it means that the company
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is growing the equity value because the
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company has free cash flow it can
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reinvest that money to build more
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factories bunch of different different
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things they have money in hand so net
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profits are also there the operating
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margins are also improving free cash
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flow is also there it's such a stable
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growth company and then people say that
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it's a small cap stock therefore it is
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super risky no it has lower beta than
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lnt it has no financing cost issue it is
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operating in a stable market so bunch of
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different good things happening for this
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company now comes the third and final
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point that hey what is the growth
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potential of this so i would feel that
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the growth potential is massive because
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the stock is still trading at 36 pe
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which is not very high there can be pe
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expansion for example if this pe becomes
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72 guess what your stock price will at
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least go two and a half three times x
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because that is when investors start
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noticing these type of companies so
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great company from that perspective and
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it is reflected in terms of how they are
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managing their business for example they
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could have taken like big contracts
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earlier on when they started revamping
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the amritanjan brand but they signed an
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ipl contract very very recently right
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they started sponsoring chennai super
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kings i'll put a picture somewhere here
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that's a good marketing strategy for
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them but it's not like vc bagged
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marketing right this is the money that
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the company is earning and then spending
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on marketing sensible responsible
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marketing why am i saying it so here is
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a chart for you so take a look at
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channel performance and their over the
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counter business has grown by 30 in the
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last one year again whatever money and
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profits they are making they are plowing
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it back depending on their weak areas
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that's true now what are the growth
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products that i am speaking about so
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there are specifically two growth
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products that i am speaking about so one
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is sanitary pad and if you do a little
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bit of research about this so one is
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that in that females in india only one
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out of three females in india use
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sanitary napkins and the major barrier
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for that is the cost constraint so of
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course you have like these high brands
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which are catering to urban women etc
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but amritanjan sanitary pad is going to
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cater towards low income people so it
[908]
can be a major growth channel for a
[909]
company like amratanjan so this is one
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value driver because amritanjan right
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now has a very small market share they
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have started onboarding celebrities have
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a distribution figured out so this is
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only a matter of time that this
[920]
particular business stream for
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amritanjan will start gaining prominence
[924]
the second key thing is their
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proprietary product so they have already
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been active in the pain management space
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now they have launched something called
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as advanced pain relief patch now i have
[933]
personally not used it but the feedback
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that i am getting after reading a lot of
[937]
articles on this is that this product is
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very effective and will be widely used
[940]
why because it gives you very focused
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relief with this type of product they
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can further improve their roc because
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they can sell this type of product at a
[947]
high margin the sanitary pad business
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might become a volume game for them this
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pain relief business will become a high
[954]
margin business for them so no matter
[956]
what we look at whether the industry is
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stable yes whether the company is stable
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yes are they undertaking brand expansion
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yes are they launching the right type of
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products yes is the management good yes
[966]
are the financials clean yes so no
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matter how you take a look at this firm
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it comes across as a very clean firm
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that is my understanding and therefore i
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am an investor in this firm i had
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already invested in this form and i
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would continue to buy this firm whenever
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the opportunity presents itself so i
[981]
hope you enjoyed the video please give
[982]
it a thumbs up and i'll see you next
[984]
time
[1002]
you
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