Shankar Sharma picks up stake in multibagger telecom stock

While popular stocks may grab average investors’ attention, these tickers can often be siren songs, luring many into unwise investments and distracting them from proven winners.

To find the compelling stocks, many people look to portfolios of seasoned investors who earn high returns. Investors such as Shankar Sharma, who recently added a telecom stock to his portfolio.

Sharma is one of India’s well-known investing gurus. People look forward to his interviews as they are full of colourful metaphors, witty one-liners, and smart observations. According to data provided by the exchanges, Sharma holds six stocks with a net worth of over ₹45.7 crore.

Which stock did he buy and why?

The stock in question is Valiant Communications. The company manufactures communication equipment, primarily for power companies and other utilities, and provides allied services.

The latest shareholding pattern shows that Sharma has picked up a 2.6% stake in the company as of the March 2024 quarter. The stake comprises 200,000 shares valued at ₹8.8 crore. In the December 2023 quarter, he wasn’t on the list of shareholders. While we don’t know why he bought shares of Valiant Communications, we can guess.

#1 Back-to-back order wins

Valiant Communications secured back-to-back order wins in early 2024.On 21 February it forged a memorandum of understanding (MOU) with CXR Anderson Jacobson SAS, a France-based entity.With this collaboration CXR France will be able to market Valiant’s array of cybersecurity products to its clients in France, neighbouring European nations, and other French-speaking parts of North Africa.

The previous day, 20 February, Valiant Communications received a purchase order from Balkantel QQD on behalf of Bulgarian Power Utility ESQ EAD.

The order, valued at ₹1.98 crore, entails the supply of communication and protection solutions tailored to meet the technical requirements of Bulgarian Power Utility ESQ EAD. The deadline is 30 June.

In January, Valiant said it received orders totalling more than ₹9.5 crore from various power utilities around the world for its communication and protection solutions.

These order wins could be one of the reasons Sharma opted to buy the stock.

#2 Sound financials

The company’s revenue has grown steadily over the past three years at a CAGR of 13.2%. This indicates a strong and expanding business.

Net profit has also increased over the period but at a slower pace (2%) than revenue. This is due to an increase in interest and admin expenses.

In FY22 there was a significant decline in the company’s performance, with a net loss of ₹2.6 crore and a negative net profit margin of 20%. This decline could be attributed to various factors, including a 39% decrease in net sales.

However, the company showed signs of recovering in FY23, with a 138% increase in net sales and a return to profitability with a net profit of ₹1.7 crore.

Despite the improvement, the net profit margin remained relatively low at 5.3%, indicating that the company was still facing challenges in optimising its profitability.

In the December 2023 quarter, the company reported a 35.8% year-on-year increase in revenue at ₹12.3 crore and a 87.3% rise in net profit at ₹1.38 crore.

What’s next?

In 2023, the telecom sector achieved a remarkable milestone with the world’s largest and fastest 5G deployment. Within just six months of its introduction, India amassed 2 crore 5G connections, spanning over 700 districts, and aims to have 4 crore connections by the end of 2024.

India has also transitioned from a telecom technology importer to a developer, notably with the creation of an indigenous 4G/5G stack. This homegrown technology has not only garnered interest domestically but also attracted significant global attention.

Amid this digital transformation, India has shifted its focus towards achieving self-reliance in manufacturing telecom equipment, supported by the government’s production linked incentive (PLI) scheme worth ₹1,219 crore. This initiative has spurred 31 companies to commit to additional manufacturing in thetelecom equipment sector.

Looking ahead, India is now poised to lead the world in 6G technology. This positions the company to seize market opportunities and consolidate its presence in the industry.

How the stock has performed recently

In the past year, shares of Valiant Communications have gained 184%. In the past month, they are up 18%.

The stock hit a 52-week high of ₹500 on 9 April 2024, and a52-week lowof ₹137 on 8 May 2023.

It is currently trading at aPE multipleof 7.4x.

About Valiant Communications

The company manufactures communication equipment tailored for power utilities and other utility sectors, and offers a range of allied services.

The company’s portfolio encompasses communication, transmission, protection, synchronization, and cybersecurity solutions designed for various utility applications such as power utilities, railways, metro rail communications, airport communications, and the defence sector.

Its time and frequency synchronisation solutions feature global positioning system (GPS) and global navigation satellite system (GNSS) time servers, among other things.

The company operates in India, the US, Europe and other regions, and has a manufacturing unit in New Delhi.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com