Mukul Agrawal Trims Stake in Smallcap Steel Stock

The BSE Sensex experienced one of the weakest September quarters this time, in the past four years, with a modest 1.7% gain.

This trend also applied to the BSE 500 index and the BSE Largecap indices, while mid-cap and smallcap indices remained unaffected.

In contrast, the Sensex was up 8.3% during the September quarter last year and nearly 13% in 2021.

The last time it reported a decline in the second quarter was in 2019, falling by 1.9%.

All this goes on to show that making money in this volatile market condition is not going to be easy going forward.

Consequently, during volatile phases, many investors turn to investment experts who possess deep knowledge of the market and a thorough understanding of the companies they invest in.

For those closely monitoring these developments, this article provides the latest insights: Mukul Agarwal has recently reduced his holding in a steel stock.

Before moving on to company details, let's look at who Mukul Agarwal is and what are his top stock picks.

Who is Mukul Agrawal?

Mukul Agrawal is a prominent investor in India known for his microcap stocks and smallcap stock picks.

His style of investment involves a mix of offence and defence, with the majority of the time an offensive strategy after proper analysis and keeping two separate portfolios for investing and trading.

With over 55 stocks in the kitty, his portfolio is worth over Rs 30 billion (bn).

Which Stock Did Mukul Agrawal Sell and Why?

The stock in question is Surya Roshni.

The company produces fans, steel, lighting, LED, kitchen appliances, and PVC pipes.

The latest shareholding of Surya Roshni shows that Mukul Agrawal reduced his stake by 0.4%, equivalent to 200,000 shares, during the September 2023 quarter. His ownership decreased from 1.8% in the June 2023 quarter to 1.4% in September 2023.

Interestingly, this isn't the first instance of a seasoned investor selling his stake in Surya Roshni. Before this, in the June 2023 quarter, Mukul Agrawal divested 0.2% of his stake in the company, which amounted to 100,000 shares.

While we don't know why he sold shares of Surya Roshni, there are some reasons that we can guess.

#1 Profit Booking

In 2023, up until 30 September 2023, the steel stock witnessed a remarkable growth of over 80%, with an outstanding 101% return over the past year.

This surge was due to heightened demand due to rapid expansion and ambitious infrastructure projects.

Additionally, on 6 October 2023, the company underwent a 2:1 stock split, which means that each shareholder's existing shares with a face value of Rs 10 per equity share were split into two shares, each with a face value of Rs 5 per equity share.

This move has generated positive sentiment among investors as it made the shares appear more affordable, attracting new investors to the market.

So one reason behind Mukul Agarwal's decision could be profit booking.

#2 Sectoral Challenges

According to media reports, there has been a substantial year-on-year decline of 50.2% in steel exports. Firstly, the imposition of export duties on steel products from May to November 2022 has significantly hindered the industry's ability to compete in international markets, eroding its export potential.

Secondly, the sector grapples with weakened global demand, which can be attributed to ongoing geopolitical tensions and inflationary pressures.

These external forces have dampened the appetite for steel products in international markets, contributing to the decline in exports.

Moreover, the scarcity of crucial raw materials, such as scrap materials and iron ore, compounds the challenges faced by the steel industry.

More than 60 countries have either prohibited scrap exports or are in the process of doing so, creating a significant hurdle in securing the necessary inputs for steel production.

Additionally, the exploration of deeper forest areas with reserves for iron ore has become increasingly complicated due to various concerns, including those related to biodiversity.

This impediment to the procurement of raw materials has further strained the industry's ability to meet demand and maintain profitability.

A look at the Financials

Over the past three years, the company has demonstrated impressive financial performance, with revenue increasing by 12.8% and net profit experiencing substantial growth of 28.4%.

These positive results were driven by a combination of factors, including a reduction in raw material costs and heightened demand in the post-COVID period.

India's ambitious goal of achieving a US$ 10 trillion economy by 2030 places the steel industry in a pivotal position to contribute significantly to this growth trajectory.

Financial Snapshot

(Rs m, Consolidated)	FY21	FY22	FY23
Net sales	55,614.0	77,308.0	79,967.0
Sales growth (%)	-1.6	39	3.4
Net profit	1,583.0	2,049.0	3,355.0
Net profit margin (%)	2.8	2.7	4.2

Further, the company's financial are also set to benefit from five-year anti-dumping duty on certain Chinese steel products.

What Next?

The prominent investor has not completely divested from the stock; instead, they still hold 1.5% ownership stake in the company.

The company is currently experiencing a positive influx of orders and inquiries and is committed to actively participating in numerous Smart Lighting projects within the professional lighting sector.

The company also boasts a robust order book and plans to aggressively expand it throughout the fiscal year 2024.

The recent establishment of a sizable DFT (Direct Feed Technology) facility is expected to significantly enhance the company's growth and profitability prospects.

In addition to these internal factors, the Indian government has instituted a range of policies and initiatives aimed at fostering growth and development within the metal industry, with a specific focus on the steel sector.

One noteworthy example is the National Steel Policy, which has been designed to boost domestic steel production, encourage value addition, and increase steel consumption within India.

These supportive governmental measures create a favorable environment for metal companies to expand their operations, invest in cutting-edge technologies, and augment their market share. As a result, the company is well positioned to strengthen its financial standing.

About Surya Roshni

Surya Roshni is the largest GI Steel Pipe Manufacturer and the second largest in lighting products in India.

It is primarily engaged in the manufacturing and distribution of steel pipes and lighting products.

Surya Roshni is one of the largest Indian steel pipe manufacturers, with a production capacity of over 1 million tonnes per annum. The company's steel pipes are used in a variety of applications, including construction, oil and gas, and water and irrigation.

It is also a leading manufacturer and distributor of lighting products in India.

For more details, see the Surya Roshni company fact sheet and quarterly results. For a sector overview, read our steel sector report.

You can also compare Surya Roshni with its peers:

Surya Roshni vs 3M India

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...