3 Investment Ideas in Listed Equity Space

By- Pranav Fatehpuria (21BC214)

Dr. Lal Path Labs

About the Industry - Indian Diagnostic Industry which is valued at Rs ~70000 Cr is highly fragmented market. National
chains accounting for mere 6% of the total Rs 70000 Cr in an industry that is growing at 14-16% indicates that there is
large headroom to grow. Today’s health treatments are evidence based with cost of pathology not even 10% of the
total cost of treatment. Hence the customers prefer quality over price and the industry is not price driven. This allows
Dr.Lal Path Labs to command a 20% premium over its competitors due to its flawless diagnostic process and accurate
delivery of results.

Competitive Differentiation and high returns on capital- The major economic moat of the company is its “Hub and
Spoke” model which provides it a wide distribution network through a reference lab. This provides an edge over its
standalone counterparts. This has not only enabled Dr. Lal Path Labs to develop a pan-India presence but also to
efficiently utilise its capital in a cost effective way. The company has been successfully generating >20% ROCE in past 5
years and the future cash flow growth looks very promising. The premium valuations are justified through superior
return record and hence makes it a good investment for long term growth.

Galaxy Surfactants – The Unrivalled Titan of Surfactants

About the Industry - Surfactants, one of the widely used ingredients in personal care and home care products, have
application in other industries such as textiles, construction and others. They form a very essential component of BPC
product and detergents and hence play a crutial part in their value chain. The industry tailwinds including increasing
customer awareness and shift towards natural and chemical free products.

Simple yet distinct business – Galaxy Surfactants enjoys majority share in the Indian surfactants market and has been
very successful in providing customized solutions to its clients. The company has been adaptive enough to increase their
product pipeline to target both performance and speciality surfactants.
• Galaxy enjoys stable margins as it can easily pass on the increased cost to its customers due to surfactants being
an essential raw material. The profit per kg is about Rs 58.5 which is 33% higher than previous year.
• With a an 18% compounded growth in EPS over past 3 years and a 19% ROCE, no valuation is too expensive for
this stock!

Elecon Engineering Ltd

About the Industry – The Global gear industry is engaged in manufacturing of industrial gearbox, a system in which
mechanical energy is transferred from one device to another to alter speed. The gear box is an essential tool that finds
its application in many user end Industry like sugar, steel, cement and renewables.

Why Elecon Engineering? Elecon is a market leader in a fragmented space with ~38% market share. The company is
currently operating at lesser capacity utilisation and can easily ramp up capacity resulting in higher returns. Being a
pioneer in a niche segment the company is sure to leverage the revival of Indian capex cycle. The company has a healthy
order book of Rs 127 crore and is export driven that promises sustainable EBITDA margins of >20% and a 25% ROCE.

It is a fantastic combination to play on Elecon engineering when it has impressive Volume Growth, Operating Leverage
Play and focus on to be net debt free in the future. The current PE of 33 is offset by a high EPS growth, implying a PEG
ratio of 0.5 which makes it the right time to invest in this stock.

All the above three stocks have carved a specific competitive advantage or has established itself in a crucial
segment which makes them fundamentally strong to deliver exponential returns.