Despite recessionary trends and weak steel demand, Rishabh Digha Steel and Allied Products have maintained a 15 year track record of regular dividend to its shareholders since 2004.
It has declared 20 per cent dividend for FY18 and it has announced a book closure for dividend from September 14, 2018. Stock is available cum dividend till 14th September 2018. Incorporated in 1991, the company under the leadership of Ashok Mehta, Managing Director, is mainly engaged in the job-work of de-coiling, straightening, cutting, shearing of hot rolled, cold rolled and mild steel coils/sheets. Rishabh Digha's production facility is located at Taloja District, Raigad, Maharashtra.
Spread across 5,430 square metre (approx. 60,000 sq. feet) of industrial shed, it has an equal amount of built plant capacity of processing and storage capability of 20,000 metric tonnes per month. Being strategically located at Taloja MIDC ensures easy transport of raw material and delivery of finished goods to all over the country. Further, the proximity to Jawaharlal Nehru Port Trust is an added advantage for its operation.
The company's client includes dealers of TATA Steels, SAIL, Ispat Steel, AbhayIspat (India), ARK Industries Ltd (Mumbai), Arya Ship Breaking Company, Delta Iron & Steel Co, Jay Ambey Steel Traders, Khanna Delta Steel Private Limited, Kothari Steel Syndicate, Krishna Sheet Processors, Jay Ambey Steel, Ridhi Sidhi Iron & Steel, Rohit & Company, Siddhi Enterprises and so on.
Being niche and efficient in its operation, Rishabh Digha valuations look compelling especially from a fixed assets as well as current assets perspective. The investment in this company is more of a play on management execution and improved profitability. Its ability to improve its scale of operations and efficiently manage it working capital requirements amidst a highly competitive and challenging scenario for the steel processing industry is the key sensitivities.
Maintaining Health Growth
Despite recessionary trends, across commodity and currency markets over these years, Rishabh Digha Steel had managed to grow at CAGR of 29 per cent in last 5 years. Not only that, Rishabh Digha Steel is a Zero Debt company and works with negligible working capital. While one would hardly think of a stock with such a negligible working capital, but it is hidden gem for a small cap stock, currently trading at Rs. 110.
Recently, Smart Investor Magazine has suggested that investors should watch this small-cap stock with a stop loss of Rs. 90. On the upper side it may go up to Rs. 125 level in short term while Rs. 200 level in long term. AT CMP of Rs. 104.90, the stock is trading at PE of 37.97x on its EPS (TTM) of Rs. 2.63. The stock is available at a discount currently and would be seen at 250-300 in near future.
Reason for a company like Rishabh Digha to do well is the low risk in the industry. The major acquisition cost is spent for land, plant and machinery that will rather appreciate and are easily saleable. Originally, the land was purchased at Rs. 200/- per sq. meter. In the year 1996 and today it is easily saleable at the throw away price of Rs. 20,000/- per sq. meter.
For financial year ended March 31, 2018, the company reported a net profit of Rs. 1.44 crore against loss of Rs. 0.15 crore, reporting an EPS of Rs. 2.56. It has posted steady numbers in Q1FY19 also. Rishabh Digha has maintained a regular dividend and its dividend pay-out ratio is fantastic. It has paid between 10-25 per cent from FY17. It has declared 20 per cent dividend for FY18 and it has announced a book closure for dividend from September 14, 2018. Stock is available cum dividend till 14th September 2018.
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