Smallcase Investment Rationale

My investment rationale for each of the 10 stocks and 7 sectors lies on the foundation of one
or more of the following pillars:

1. Valuation Mismatch: While the underlying business has been able to grow its top
line and bottom line consistently over the past 10 years while producing a healthy
growth in free cash flow, the stock price has not delivered commensurate returns
either due to poor market sentiment or prevailing headwinds in the whole sector.

2. Industry Tailwinds: The underlying business is well established and the industry is
growing too. Only a handful of players in the listed universe could benefit from
industrial tailwinds. Moated businesses in such industries could grow and compound
our wealth in the upcoming years.

3. China’s Demise - India’s Rise: As China continues to be plagued with innumerous

policy, geopolitical, energy and trade issues, India happens to likely be the biggest
beneficiary of the loss of market share that China faces in industries such as
manufacturing. Niche segment leaders in various segments of the Pharma value
chain in India, starting from specialty chemicals production to API manufacturing,
would benefit the most from the incoming business as a result of the China +1
situation.

4. Value Unlocking: Below the world of the BSE500 exist some companies who are
clean, well run and efficient capital allocators. Companies with a market capitalization
of less than a couple thousand crores, with a dominant market share, delivering north
of 20 percentage points year-on-year growth.

5. Upcoming Capex: Businesses who have utilised the cheap capital that was made
available to them during the quantitative easing by central banks post COVID
outbreak, and have either undertaken brownfield/greenfield capex plans to grow their
top line or have made relevant acquisitions. Such steps could lead to massive growth
unlocking in the years to come as the industry consolidates.

6. Techno-Funda Pick: Stocks which have decent fundamental outlook and the price &
volume action on a longer time frame in its technical chart indicate a healthy capital
appreciation.

While the macroeconomic tensions around the war in Europe, crude oil price, the inevitable
US recession, FIIs outflow from emerging markets continue to plague the world of investing,
India seems to remain immune to most of this noise. Over the next 3-5 years, dominant
franchises in niche segments could compound our money as they leverage their competitive
vantage points and their smart capital allocation skills to grow free cash flows and earnings
at healthy rates (>20%).
Coming to the stocks and sectors picked for my smallcase, I will use the aforementioned
pillars of my investment rationale and build a case for each of the 10 businesses.
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1. PSP Projects Ltd:

Rationale: Valuation Mismatch, Value Unlocking.

The company is one of the fastest growing small caps in the construction and EPC industry
in India. With a current order book of over 3000cr, which is greater than the stock’s market
cap i.e. 2300cr, PSP projects Ltd is well poised for growth in the years to come. Further, one
needs to connect the dots and have a bird’s-eye view to the whole housing demand and real
estate industry. With small ticket home loans becoming more accessible and at affordable
interest rates from various lenders, the housing market and as a result, the construction
industry is on the brink of a breakout. Roughly 40% of the revenues of PSP projects comes
from its residential projects, making it a clear beneficiary of the trend.

The company’s both sales and PAT have grown at a 5 year CAGR of a whopping 30%, A
stat better than 99% of its listed peers. One of its striking competitive advantages is its
compressed working capital cycle. For an EPC company, payments are usually delayed and
cash conversion takes several months. However, for PSP, the cash conversion cycle is
negative (it gets paid in advance for its projects) and working capital cycle is merely 30 days.
Another positive is the fact that the promoter of the firm has been increasing his stake rapidly
since the past 4 quarters. Trading at an EV/EBITDA multiple of 7-8, the company is severely
undervalued.

Potential Risk:
Most of its operations are based in the state of gujarat. Having such concentration of
business to one state could make the company vulnerable to the political situation and a
possible policy change due to change of government. This being said, PSP Projects Ltd is
working towards expansion of business into new geographies.
Reason behind Position Sizing/Allocation/Weightage:
PSP Projects has been given a 5% weightage in the smallcase. Due to its small size,
illiquidity in stock as of today and potential risks mentioned above, it has been given a
relatively smaller allocation. Nevertheless, the company looks to be poised for growth and
could emerge to be one of the most dominant franchises in its domain.

ValuePickr thread: https://forum.valuepickr.com/t/psp-projects-construction-company

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2. Saregama Ltd.

Rationale: Valuation mismatch, Industry Tailwinds.

The music streaming industry is witnessing a fast paced growth trajectory, courtesy the
digital consumption of music reaching its at all time highs. Saregama Ltd is the country’s
oldest and 2nd largest music label with one of the most robust music libraries. The company
owns the Intellectual Property Rights for over 150,000 songs in India. The company’s trump
card that would facilitate its future growth in the upcoming 3-5 years is its focus on
aggressively acquiring regional music from the interiors of India. Surprisingly, Bollywood is
not the most famous/widely streamed music. It is in fact the regional music such as Bhojpuri,
Punjabi, Malayalam, Tamil amongst other languages that contribute massively to the stream
time. Further, due to the highly consolidated nature of the industry, there exists only 3 to 4
dominant players that gobble up the entire music streaming market worth 20 billion INR.
TIPS industries is the third biggest company in this space which owns the IPR of just about
30,000 songs as opposed to the 150,000 of saregama’s catalogue. Moreover, the industry is
poised to grow at a CAGR of 27% given the entertainment consumption trends. Streaming
giants like amazon music and spotify are Saregama’s clients/distributors. There are huge
entry barriers to this space and saregama seems to have no fear of competition or
disruption.

Apart from the music licensing, Saregama Ltd also has a product range called Carvaan
which is retailed in stores and online across the country. The company’s 5 year sales CAGR
is 23%. However, what is impressive is its 5 year earnings CAGR of a whopping 78%. The
company’s margins have been expanding massively over the last decade as a result of
curtailment of revenue leaks as mentioned in its annual report FY21. I believe, with the
monetisation of its aggressively growing music catalogue coupled with the growth of the
industry and Saregama’s dominant market share, it can become a serious wealth maker in
the coming 3-5 years. The company trades at an earnings multiple of 42, but given the high
growth industry it belongs to with an almost monopolistic market position, the relatively high
P/E is justified.
Potential Risk:
If too many independent labels come up in the industry and behave irrationally in terms of
their fees, it could potentially hurt Saregama Ltd. Further, this being a fast growing industry,
It can be difficult at some stage for Saregama to keep aggressively adding to its library and
acquire IPR at a high rate.

Reason behind Position Sizing/Allocation/Weightage:

Saregama Ltd. has been given a 8.5% weightage in the smallcase. This allocation is justified
as it compensates for the high volatility that the stock operates with due it being a smallcap
with low average traded volumes. Also, due to a high P/E, one bad quarter could beat the
stock down. The allocation is high enough to be in alignment with the growth potential the
company has, given its dominant market share in the industry.

ValuePickr thread:
https://forum.valuepickr.com/t/saregama-india-ltd-india-s-premier-music-publishing-label

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 3. Divi’s Laboratory Ltd.

Rationale: Valuation Mismatch, China’s Demise-India’s Rise, Industrial Tailwinds, Upcoming

Capex.
The company is a market leader in the manufacture of API (active pharmaceutical
ingredients) and nutraceutical intermediates. With a global presence and robust clientele,
Divi’s Labs boasts of a massive competitive advantage in terms of distribution and trust. It is
the largest and amongst world's only three manufacturers of the API called ‘Naproxen’ which
is used in almost every anti-inflammatory drug in the world. Only Murali Divi and his team
are owners of the formulation of such a product. The pharma sector as a whole has been
massively underperforming since the past 5 years. Due to problems such as a 3 year break
in the FDA approval cycle due to COVID and raw material inflation leading to margin
compression, the stocks in this universe have been a victim of poor market sentiments.
However, in the same 3 year window, Divi’s lab has been able to double its top line on a
consolidated level and triple its PAT. World’s top 10 pharma companies are Divi’s clients and
rely on the company for crucial APIs. Given how China’s manufacturing scene is collapsing,
a lot of the business would fall in the lap of champion franchises in India and Divi’s will
benefit from this trend of reducing dependence of the west on China.

With an operating margin of 43%, the company trades at a 5-year-low price to earnings
multiple of 30. The market has sold Divi’s after the past 2 quarters after seeing the
uncertainty that prevails due to input cost inflation. However, Divi’s has weathered such
storms and bouts of inflation time and again since the past 20 years and has delivered a
stellar earnings growth of around 20% in the past decade. The company is also planning a
capex of over 1500cr, all from its internal cash accruals to augment its manufacturing and
R&D facilities. Pharma sector has bottomed out and as the sector rotation plays out in the
years to come, Divi’s will be at the forefront of the rally. With such high earnings to cash
conversion (almost 85-90%), the stock is currently available at a steal valuation and will
continue to compound investor’s wealth for the years to come.
Potential Risk:
If the uncertainty in the global supply chain of raw materials persists as a result of the
geo-political tensions, the margin pressure might continue to affect some more quarterly
numbers. However, Divi’s has the pricing power to pass on the inflationary effects to its
customers.

Reason behind Position Sizing/Allocation/Weightage:

Divi’s Laboratories has been given a 10% weightage in the smallcase. The high weightage is
justified as it is a market leader in its segment. Being one of the Nifty50 constituents, the
stock is highly liquid and low beta. The company has a track record of consistently
compounding investors wealth and can continue to do so in the years to come.

ValuePickr Thread: https://forum.valuepickr.com/t/divis-laboratories/1272

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4. Gufic Biosciences Ltd

Rationale: Valuation Mismatch, Value Unlocking, Upcoming Capex.

The global injectable drug products market is over 500 billion dollars and is constantly
growing. However, to cater to such a large market, the biggest drug companies outsource
their manufacturing contracts to countries like India where skilled labour is cheap and readily
available. Gufic Biosciences is one of the leading producers of lyophilized injectables in the
world. With a market cap of roughly 2000 cr, the stock trades below the BSE500 universe.
Nevertheless, the dominance of the franchise in the injectable space is uncanny. Pharma
giants like Sun Pharma, Dr. Reddy’s and Zydus Lifesciences are few amongst many of its
big ticket clients. There exists a steep valuation mismatch in this stock. The company has
delivered a sales CAGR of 30% in the last three years while delivering a PAT CAGR of 64%
in the same period. This margin expansion is a result of its stunning capacity utilisation of
over 82%. The stock trades at a price to earnings multiple of 24. There exists no other
smallcap in the same industry that has a return on capital employed of 45% and a return on
equity of 43%.
The company is highly profitable and is currently undertaking a greenfield capex of roughly
350cr to expand its manufacturing capacity and test new product lines. This capex is majorly
funded by its strong internal accruals. The impact of this capex on the top line of the firm will
be reflected in the FY 24-25. The company also plans to increase its exposure to
international exports where, due to dollar exposure, the company enjoys hefty margins.

The promoters are fully invested in the firm and seem to have conviction in the growth story
of Gufic as is reflected from their concall transcripts of FY2021. They own the maximum
stake i.e. 75% in the company and have no plans to dilute any of it. Notably, the working
capital cycle of the firm has been compressed by 40% in the last one year which conveys
that their asset turnover is getting better.
Potential Risk:
Margins might fluctuate for a quarter or two due to international supply-chain disruption.
Further, due to increased competition in the space, Gufic might have to invest more
aggressively in R&D to stay ahead of the competition.

Reason behind Position Sizing/Allocation/Weightage:

Gufic Biosciences Ltd. has been given a 8.5% weightage in the smallcase. The moderate
weightage is justified as the process of value unlocking might take a couple of years to play
out considerably. Its new launches of products and foray into cancer immunology and its
related products can prove to be an exciting growth lever. Being a small cap stock as of
today, the portfolio is better off with a slightly conservative exposure to Gufic due to high
volatility and infancy of its growth.

ValuePickr thread: https://forum.valuepickr.com/t/gufic-biosciences-ltd/49251

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5. Action Construction Equipment:

Rationale: Valuation Mismatch, Techno-Funda Pick.

Action Construction Equipment holds 63% market share in the mobile crane space. It is one
of the largest suppliers and manufacturers of pick and carry cranes. It also deals with supply
of hydraulic forklifts and other industrial mobility solutions. As addressed in the rationale of
PSP Projects, the construction and real estate segment has multiple levers for growth
ahead. ACE is an indirect play on this theme of boom in the construction segment. Given its
decent fundamentals and market leadership position, coupled with the valuation comfort that
exists with the stock trading at an earnings multiple of 25, ACE can prove to be a
multibagger in the next 2-3 years.

While there exist much better quality companies in the segment in terms of free cash flow
generation and growth, the technical chart for ACE seems promising. On a longer time frame
i.e. monthly, as shown below, ACE is about to give a cup and handle breakout with
encouraging volumes. The price and volume action seems to indicate a price target of
roughly 600 in the next 12-15 months. The healthy upside and decent fundamentals make it
a techno-funda pick in my smallcase for Diwali 2022.
Potential Risk:
Like every other technical pick, there exists a possibility of some bad news affecting the
performance of the stock. However, since the company is sound fundamentally too and is
almost debt free, there is some margin of safety.

Reason behind Position Sizing/Allocation/Weightage:

ACE has been given a weightage of 7.5% in the smallcase. Given my experience with
technical charts on longer time frames, I am fairly confident that ACE will turn out to be a
multibagger in the upcoming 12-15 months. Recently, a lot of the mutual funds and
Institutional investors have built positions in this scrip too. Thus, its weightage in my
smallcase is justified.

ValuePickr Thread: https://forum.valuepickr.com/t/action-construction-equipment-ltd/397

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6. Jash Engineering Ltd:

Rationale: Industrial Tailwinds, Value Unlocking.

Jash Engineering is a microcap operating in the manufacture and supply of industrial water
gates, valves, screens amongst other relevant equipment for water intake systems. With a
market capitalization of 900 cr, Jash fails to appear on most stock screens. However, it’s
market leadership is disguised as the industry is nascent in nature. The competitive
advantage for Jash is its empanelment and network with most municipal boards across the
country that allows for a first mover advantage when applying for tenders and large public
projects. Besides this, the company has taken a strategic decision to reduce its dependence
on domestic business and increase its dollar exposure. Today approximately 60% of its
revenues come from international exports.
The company’s free cash is robust as it is able to constantly make a return on capital above
its cost of capital. It has been able to grow its earnings at a stellar rate of 21.5% and is one
of the very few microcaps that has given forward looking guidance every year and has
delivered on it. The company’s US based subsidiary, Rhodney Hunt, was a loss making
asset until 2021. However, since the last couple of quarters, the company has been able to
sweat its assets harder and establish its brand image in the US too. Today, Rhodney Hunt is
profitable too and is growing faster than anticipated. This could be a serious value unlocking
mechanism for Jash that catapults it into a high paced growth trajectory in the coming years.
With each country increasing its focus on water treatment and conservation systems,
industry pioneers and product expertise of Jash engineering will help Jash become the
biggest beneficiary of the trend. Currently, the company seems to be fairly valued, trading at
an earnings multiple of 35. However, this is a bet for the future. As the industry consolidates,
Jash, given its 40 years of experience in the field and state-of-the-art access to patented
german technology, Jash engineering along with its subsidiaries worldwide could become a
serious wealth creator for its investors.

As shown above, the company’s order book stands at a record high and continues to grow
month on month at a brisk pace. It is evident that the management is trying to become
aggressive and leverage its product expertise to negotiate orders from giant infra companies
across the world.

Potential Risk:
Most of Jash’s Indian facilities are located in one city i.e Indore. While their ties with the local
authorities might help them stay unaffected, there is always a risk in concentration of assets
to one geography.

Reason behind Position Sizing/Allocation/Weightage:

Jash Engineering Ltd. has been given a weightage of 8% in the smallcase. If one reads the
management commentary from the past 2 years, one can sense the thirst for growth and
improvement in the promoter. The company’s turn around of its US subsidiary into profits
and increased focus on exports can help it improve margins. The company seems to be on
its way to 1000cr consolidated revenue in the coming 5 years. Given its a microcap, it is not
prudent to allocate more than 8-10% of funds to it in any portfolio. However, I am certain it
will be the best performing stock in the next 3-5 years.

ValuePickr Thread: https://forum.valuepickr.com/t/jash-engineering-is-it-a-multibagger/13743

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7. Aavas Financiers:

Rationale: Valuation mismatch, Industry Tailwinds.

Aavas Financiers is a small ticket home loan provider to the rural and semi-urban areas of
India. Strongly backed by the AU small finance bank group, Aavas is well poised for growth
for reasons discussed ahead. Aavas Financiers uses its tech investments behind customer
data collection and analysis using big data to help complete credit assessment and provide
loan approval to a new customer in a substantially shorter period of time compared to other
lenders. This is one of the strongest areas of differentiation for these firms. Furthermore, it is
one of the only lenders that is able to maintain a crisp asset quality while providing loans
(avg ticket size 8-10 lakhs) to people who have no proof of income - which forms a major
part of rural India. Over the last eight years, Aavas’ spreads have consistently remained
upwards of 5% as the matched loan book and liability composition (fixed vs. floating) allows
for resilience across the rate cycles. While there may be quarter-to-quarter volatility in
spreads, over longer time horizons, we expect Aavas’ spreads to remain over 5%+. Aavas’s
earnings and assets have grown tremendously as shown in the infographic below.
While the company seems to be highly valued on the P/E front, one must also keep in mind
that Aavas’s competitive advantages are unique and provide for greater, faster growth that
thereby demands for a higher P/E than its peers. The rural and semi-urban market is
fragmented and up for grabs for consolidation. Aavas seems to be at the forefront of this
market share grabbing contest and in the process can compound our wealth.

The entire finance space, especially the lenders, are going to outperform in the years to
come on the following counts:

- The clean up of asset quality post covid as a result of RBI regulations

- The bargaining power held by top companies in this space, enabling cheap cost of
money
- Economic recovery and improvement in the credit growth cycle
- Healthy projections of GDP growth

Aavas also has the support of the aforementioned industrial tailwinds. The following chart
shows the mismatch between earnings growth and market sentiment towards the stock:

Potential Risk:
The promoter seems to be reducing his stake significantly lately. This could also be in order
to finance the business through shareholder’s equity and not debt. Moreover, Aavas’s
success is dependent on the growth of housing demand in rural and semi-urban India.

Reason behind Position Sizing/Allocation/Weightage:

Aavas Financiers has been given a weightage of 15% in the smallcase. Given how financials
have underperformed and hardly delivered any real returns in the past 3-5 years, sector
rotation is bound to catch up with what is India’s most crucial industry. Further, given the
economic demographic, a player like Aavas has the largest market to capture in a country
like India. Its consistent investment of cash into new technology and use of data analysis to
analyse customer demand and credit ratings assessment, makes for a definitive moat. Given
the cheap valuations as of today, and several avenues of growth coming its way, all
propelled by conducive industrial tailwinds puts Aavas in a sweet spot and thereby justifies
the highest allocation in the smallcase.

ValuePickr Thread:
https://forum.valuepickr.com/t/aavas-financiers-banking-on-the-unbanked/54118

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8. HDFC Bank:

Rationale: Valuation mismatch, Industry Tailwinds.

Over the last 24 months, HDFC bank’s share price has given absolutely 0 returns. This
however, is far from the underlying growth of fundamentals in the same period. HDFC bank
in the last 3 years has gained more market share than the combined market share of Kotak
and Axis bank. The best in class asset quality, the access to cheapest cost of money and the
stellar growth of its loan disbursements and CASA openings make HDFC bank a no brainer.
Due to negative market sentiments as a result of the pandemic, talks of recession and the
HDFC merger announcement, the bank’s share price has not done much. However, at such
steal valuations, the company’s growth levers are plenty. I believe the HDFC-HDFC bank
merger could result in even cheaper access to funding and immense cross-selling
opportunities. Advances (loan book) market share has shot up from 7% as of March 2017 to
11.5% as of March 2022. Similarly, deposits market share has improved from 6% as of
March 2017 to 9.5% as of March 2022. No other bank has been able to clock market share
gains on this magnitude organically over the past five years.

The franchise has been able to deliver a PAT growth of above 20% since decades and its
been possible because of institutionalising of the business by effective succession planning
put in place. Another reason why HDFC bank is well positioned for extraordinary growth is
the slow death of the PSU banks. As the PSU banking sector continues to be plagued with
asset quality issues, private quality banks like HDFC bank are major beneficiaries. At a price
to book multiple of 3.3 (better metric of valuation for banks due to the nature of industry)
HDFC bank is very attractive at current valuation.
The valuation mismatch is evident in the CAGR stats of earnings and the stock price. There
is clearly a lot of catching up left to do and as the financialisation trend continues to play out
in India, HDFC bank shareholders are sure to make money.
The entire finance space, especially the lenders, are going to outperform in the years to
come on the following counts:

- The clean up of asset quality post covid as a result of RBI regulations

- The bargaining power held by top companies in this space, enabling cheap cost of
money
- Economic recovery and improvement in the credit growth cycle
- Healthy projections of GDP growth

Potential Risk:
If the benefits of the HFDC Ltd - HDFC bank merger takes longer than predicted to
materialise, then the investment might necessitate a longer term holding than 3-5 years.
Also, 2024 elections will be a key political event that could impact the entire banking
ecosystem. Any negative news could increase volatility in the market.

Reason behind Position Sizing/Allocation/Weightage:

HDFC Bank has been given a weightage of 15% in the smallcase. Given how financials
have underperformed and hardly delivered any real returns in the past 3-5 years, sector
rotation is bound to catch up with what is India’s most crucial industry. The succession
planning and its reinvestment of excess free cash back into the business to grow, will bring
about further improvement of fundamentals. No other bank in the world has been able to
grow its earnings so consistently (above 20-25%) every year for the past 20 years. Moreover
the focus on integration of technology, and enhancing customer banking experience could
catapult more market share towards HDFC bank. Needless to say, with strong provisioning
of bad debts and best in class asset quality, HDFC bank is a safe investment and thus the
said allocation is justified.

ValuePickr Thread:
https://forum.valuepickr.com/t/hdfc-bank-we-understand-your-world/24141

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9. Aarti Industries:

Rationale: Valuation Mismatch, China’s Demise-India’s Rise, Industrial Tailwinds, Upcoming

Capex.
Aarti Industries is a speciality chemical manufacturer with a massive global presence. The
company is strongly backward integrated and caters to various segments in the
chemical-API-pharmaceutical value chain. In the past 2 years, aarti industries has initiated
the largest capex in the entire industry. It has planned an overall capex of over 4500 crores.
To put things into perspective, the company’s annual sales are around 7000 crores. The
management intends to double its top line in the next 4 years as the capacity expansion
plays out and becomes fully operational. Furthermore, given raw material inflation due to
global supply chain disruption, the stock has taken a beating along with the sector. It has
witnessed a drawdown of about 40% from its peak. Currently trading at an earnings multiple
of 18, the stock is heavily undervalued and opens up an opportunity for investors.
Additionally, being among the top three players globally for the manufacture of Nitro Chloro
Benzenes (NCB) and Di-chloro Benzenes (DCB) and the only manufacturer of nitro fluoro
aromatics and Phenylenediamines (PDA) value chain in India Aarti Industries is one of the
largest beneficiaries of the china+1 situation playing out. As China’s manufacturing
collapses, most of the global business will turn eyes towards India and thus towards
dominant franchises like Aarti Industries. Further, the announcement of demerger of its
pharma vertical is going to help Aarti industries expand its margins and focus fully on the
development of the speciality chemicals manufacturing business. As a result of cheap
valuations, strong cash flows and healthy growth of earnings coupled with a massive capex
under way, Aarti Industries is an attractive investment for the next 3-5 years.
Potential Risk:
If the uncertainty in the global supply chain of raw materials persists as a result of the
geo-political tensions, the margin pressure might continue to affect some more quarterly
numbers. Also, for the capex to play out and reflect on the top line and eventually on the
bottom line might take a significant amount of time.

Reason behind Position Sizing/Allocation/Weightage:

Aarti Industries has been given a weightage of 15% in the smallcase. Its strong backward
integration, its monopolistic business in manufacturing of speciality chemicals such as Nitro
Chloro Benzenes (NCB) that are crucial input materials for multiple pharma and paint
industries, and its massive internal cash accrual backed capex justifies the aggressively
bullish outlook on Aarti Industries with such high exposure in the smallcase. Given how
lucrative the industry growth is projected to be and aarti’s competitive advantages and
pricing power, it looks to be an attractive investment at the current juncture.

ValuePickr Thread:
https://forum.valuepickr.com/t/aarti-industries-integrated-diversified-player-on-benzene-deriv
atives/474

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10. HBL Power Systems:

Rationale: Valuation Mismatch, Techno-Funda Pick.

HBL power systems has been chosen by me purely from a technical perspective. On a
longer time frame (monthly chart), the stock has broken out of a 15 year long trendline and
has done so with encouraging volume action. The company is involved in manufacturing and
assembling batteries and other power systems. It produces batteries for Telecom, UPS,
Railways, Solar, Oil & Gas and power sectors. It is also the largest manufacturer of industrial
batteries in our country. The earnings and sales growth numbers over the past 3-4 years
have been decent. The company is also foraying into manufacturing power systems in
collaboration with some local EV players/startups. Company seems to be undervalued as
the earnings growth and underlying cash flow growth is much higher than the stock price
CAGR.
The stock’s technical setup is impressive and over the next 2-3 years, given the traction in
the power and EV space, this stock might become a multibagger. Technical target comes to
206 within 15 months from now.

Potential Risk:
Like every other technical pick, there exists a possibility of some bad news affecting the
performance of the stock. However, since the company is sound fundamentally too and is
almost debt free, there is some margin of safety.
Reason behind Position Sizing/Allocation/Weightage:
HBL Power Systems has been given a weightage of 7.5% in the smallcase. Given my
experience with technical charts on longer time frames, I am fairly confident that it will turn
out to be a multibagger in the upcoming 12-15 months. Recently, a lot of the mutual funds
and Institutional investors have built positions in this scrip too. Thus, its weightage in my
smallcase is justified.

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