Small Cap Stock To Buy - Narmada Gelatin

Recently I came across a small cap stock recommendation by Ashish Chugh, well known for his hidden gem stocks. He discussed a small company, Narmada Gelatin. Here are details on why he recommends this small cap stock.

Narmada Gelatin is a 50 years old company from Shaw wallace group and it manufactures Gelatin. It's product, Gelatin is mainly used in food and pharma industry. It is a debt free entity and is available at very attractive stock valuations.

Company had sales of about Rs.91 crore, it was up by 10% in the same period last year. Profit after tax (PAT) was up by about 15% to Rs9.5 crore. Company has a small equity base of Rs.4 crore. EPS for FY11 was Rs 23.50. At the current stock price of Rs 100, the stock trades at PE of 4.25

If you take a look at the balance sheet of the company it shows that Narmada Gelatin is a totally debt free company. Net current assets are close to Rs 26 crore as in FY10. The company has investments of Rs 5.5 crore in mutual funds. After adding profit for FY11 into this, the total current assets and cash swells to around Rs.41 crores. With current assets of about Rs.41 crores, the market cap of this debt free company is at Rs 40 crores. This means the business of a company is available virtually free of cost.

The promoter's holding in this stock is 75%. The recent dividend of Rs.4 puts dividend yield at 4% at current stock price of Rs.100 The book value of the stock is Rs.140

Products of Narmada Gelatin are used in Pharma and food industry (FMCG), that makes it a recession proof business.

Shaw Wallace group has been selling it's many businesses in recent few years. Narmada Gelatin is a good dividend yielding stock with steady growth. If the company is old by Shaw Wallace group, lots of value unlocking would take place.

All in all, it is a good small cap stock to buy, a hidden gem recommended by Ashish Chugh, below Rs.100.