Background: Imagine world without color. Color is a part of everything in our life and touches our life in every way, especially food. Vidhi Dyestuffs Mfg. Ltd., is a leading manufacturer of Synthetic and Natural Food Grade Colours that brings this color to our life.
Introduction: The company, Vidhi Dyestuffs Mfg. Ltd is in the business of manufacturing Edible colors for Food, Confectionary, Beverage, Pet Food, Cosmetics, Health Care, Pharmaceutical industries etc. for 2 decades. It is the world’s largest listed company in the space and second largest in the world overall (after Roha Dyechem). The company is the only company in the listed space that is manufacturing all the permissible fourteen colors (unlike its other competitor which are producing just a handful) and therefore, has a more complete portfolio than anybody else. The company’s products are being distributed and consumed in over eighty countries across six continents. The company has been growing at a very brisk pace of sales topline 30% CAGR for last 5 yrs and bottomline has been growing at 66% during the same period, even the OPM has increased consistently over the last five years. The company is working on very high utilization rates and we should not be surprised if the company announces another round of expansion in near future. Promoters of the company hold more than 64% stake without any pledge. Given the lower crude prices and high utilization rates, the company’s input costs could decrease a lot giving further fillip to company’s profitability. For the crown of second largest producer of synthetic food colors the company is in competition with a US based company called Sensient Food Colors, while the largest being Roha Dyechem. We should be thankful to the compulsions of the Big guys that they are unable to keep companies below a certain market cap and below a certain price on their radar or else these GEMS would never be available this cheap.
Valuations: This small cap company with pricing power which has grown its topline at 30% CAGR and bottomline at more than 66% CAGR over the last five years with a remarkable dividend payout is available single digit PE. Notably the dividend is increasing every year and this year they have already paid an interim dividend of 25% (last year total was 40%). The company has healthy return ratios and is expected to maintain the growth rate. The debt is also decreasing since last few years is now just above 2cr. Given its huge stature in Food Colors industry and dominant position with all range of offerings, the company is distinctly undervalued.
Technicals: The stock is trading at life time highs and broke its multi-year consolidation a few weeks back on very strong volumes. Given the strong growth, increasing dividends and decreasing debt, the stock is expected to give multi-fold returns in coming times.
Note: A small cap with pricing power and with strong rising sales, improving operating margins, very good dividend payout and available at cheap valuations with a chance of strong PE re-rating is the right recipe for potential blockbuster multi-bagger and should be strongly considered as a core bet.
Disclaimer: No holding in the stock as of now, and it is safe to assume that I may or may not invest in future. Also, the above stock view is my personal view in individual capacity. For rest, please look at the About page.