Shankar Sharma Picks Stake in Multibagger Telecom Stock

One of the earliest and most important lessons that successful investors learn is the value of looking beyond the headlines.

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

To find the compelling stocks that others are missing, many people look to portfolios of seasoned investors. These investing gurus ace the market test and earn high returns.

For investors seeking such news, there is noteworthy stock market news: an ace investor, Shankar Sharma, recently added a telecom stock to his portfolio.

Who is Shankar Sharma?

Shankar 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 publicly holds 6 stocks with a net worth of over Rs 457 million (m).

Which Stock Did Shankar Sharma Buy and Why?

The stock in question is Valiant Communications.

The company manufactures communication equipment, primarily for power utilities / other utilities and is engaged in its allied services.

The latest shareholding pattern of Valiant Communications shows that Shankar Sharma has added a 2.6% stake in the company, respectively, as of the March 2024 quarter.

Notably, in the December 2023 quarter, his name was missing from the list of shareholders.

Shankar Sharma's stake is valued at Rs 88 m, with 200,000 shares.

While we don't know why he added shares of Valiant Communications, there are some reasons that we can guess.

#1 Back-To-Back Order wins

Valiant Communications secured significant achievements with back-to-back order wins in early 2024.

First, on 21 February 2024, the company forged a memorandum of understanding (MOU) with CXR Anderson Jacobson SAS, a France-based entity.

This collaboration aims to empower CXR France in marketing Valiant's array of cybersecurity products and solutions to its clientele in France, neighbouring European nations, and other French-speaking regions in North Africa.

The partnership is poised to extend Valiant's market penetration and offer advanced cybersecurity solutions to a broader audience.

Moreover, on 20 February 2024, Valiant Communications received a purchase order from Balkantel QQD, an international entity, on behalf of end-user Bulgarian Power Utility ESQ EAD.

The order, valued at Rs 19.8 m, entails the supply of communication and protection solutions tailored to meet the technical requirements of Bulgarian Power Utility ESQ EAD. The stipulated deadline for executing this order is 30 June 2024.

Furthermore, in January 2024, Valiant Communications divulged receiving orders totalling over Rs 95 m for its communication and protection solutions. These orders encompass various power utilities across the globe, spanning regions such as India, the USA, and South America.

The successive order wins could potentially serve as one of the reasons why Shankar Sharma opted to buy the counter.

#2 Sound Financials

The company's revenue has grown steadily over the past three years, with 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 increase in interest and admin expenses.

In FY22, there was a significant decline in performance, with a net loss of Rs 26 million (m) and a negative net profit margin of 20%. This decline can be attributed to various factors, including a decrease in net sales by 39.0%, indicating a decline in revenue generation.

However, the company showed signs of recovery in FY23, with a substantial increase in net sales by 138% and a return to profitability, reporting a net profit of Rs 17 m.

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

Financial Snapshot (2021-23)

(Rs m, Consolidated)	FY21	FY22	FY23
Net sales	217	132	315
Sales growth (%)	-	-39	138
Net profit	16	-26	17
Net profit margin (%)	7.4	-20	5.3

Source: Equitymaster

Further, in December 2023 quarter, the company reported a 35.8% YoY rise in revenue at Rs 123 m. Meanwhile the net profit for the quarter came in at Rs 13.8 m, up 87.3%.

What 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 20 m 5G connections, spanning over 700 districts, and aims to reach 40 m connections by the end of 2024.

Moreover, India has transitioned from being 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 has 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 Rs 121.9 billion (bn).

This initiative has spurred 31 companies to commit to additional manufacturing in the telecom equipment sector.

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

How Valiant Communications Shares Have Performed Recently

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

It has a 52-week high of Rs 500 touched on 9 April 2024 and a 52-week low of Rs 137 touched on 8 May 2023.

It is currently trading at a PE (Price to Earnings) multiple of 7.4x.

About Valiant Communications

Valiant Communications specializes in manufacturing communication equipment primarily tailored for power utilities and other utility sectors, offering 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.

Notably, its time and frequency synchronisation solutions feature global positioning system (GPS)/global navigation satellite system (GNSS) Time Servers, among other offerings.

Valiant Communications operates across different geographical segments, including India, the United States, Europe, and other regions, with its manufacturing unit situated in New Delhi.

For more details, see the Valiant Comm company fact sheet and quarterly results. For a sector overview, read our telecom sector report.

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