Is Talbros Automotive the next multi-bagger stock?

Mukesh Devrari 

The share price of Talbros Automotive Components Ltd. has jumped 50 per cent in the last three trading sessions after the news that celebrated investors Vijay Kedia and Dolly Khanna have bought more than one per cent stake in the company. The news generated an extraordinary interest of small investors in the stock. In any case, who would not like to make easy money by investing in a stock that will probably skyrocket in the next few years? 

All the information about companies is in the public domain these days, so small investors can also look at the technical and fundamentals of the stock. I checked the basic facts about the company. Technicals appear all fine. It is a small company, P/E ratio is around 10. It has almost nil debt, the market cap is around 500 crores, and it is a profitable venture with three factories, including the one in Kicha, Uttarakhand, that’s my home state. It has around 546 employees and an impressive website. Small companies generally have poorly designed websites. To be fair, I don’t understand the technicals properly, but I understand the yearly changes in turnover growth and profit.  

And that’s exactly what could be the problem with Talbros Automotive. The company’s turnover has merely grown by 50 per cent from 300 to 457 crore in last ten years (2011-21). If the company repeats the same performance in the next ten years, its turnover will be around 700 crores. That cannot be the performance of the next multi-bagger stock. 

The companies need ambitious and visionary leaders at the top to grow spectacularly. The India and world are standing at an interesting juncture of history where human beings on this planet will move from combustion engines to battery-powered automobiles in the next few decades. This change will make and break the fortunes of many existing and new automobile and auto ancillary manufacturers. Remaining present at the right time and location is not enough. Having the right motivation and imagination is also important. 

Talbros Automotive has been run by the same promoters for decades. The patriarch of the family Naresh Talwar, 80 is a non-executive chairman of the company. His brother Umesh Talwar, 70, is a Vice Chairman and Managing Director. And then the next generation of the Talwar family holds other key positions. Varun Talwar, 51, is a Joint Managing Director. He has experience in the IT sector and Health Care, apart from the automotive industry. Then his brother or cousin Vidur Talwar, 50, is a director in the company. Both Varun and Vidhur have studied business administration at Drexel University in the US. Then comes Anuj Talwar, 40, a Joint Managing Director who has done courses like BBA and MBA in the US.  

In other words, none of them has formal education in science, technology, engineering or maths, though that the gap can be filled with outside expertise. But it would be difficult for an outside expert to advise so many family members in one boardroom in key meetings concerning the company's future. It is a big handicap. Can you imagine working in such an environment where family members of promoters siege you in day-to-day meetings and board deliberations?

Talwars’ have been running the company for decades. The new generation of Talwars also has been associated with the company for the last two decades. Despite being in the business for such a long period of time, the company could not make it into the big league. But it does not mean it can’t do it now, provided promoters are interested in the business as investors are today after Vijay Kedia decided to buy more than one per cent stake in the company. But we have nothing to conclude that so far.

Vijay Kedia has bought the stake in the company, so it is quite possible that the company will give 2x, 3x or 100x returns in the next few years. Maybe he has seen something which mere mortals like us can’t spot. Still, the question is why this company could not do well despite being present in the industry for such a long period of time?

I noticed Talwar’s also sell Mercedes cars in India. Meaning Talwars are not focused on making big in automotive parts manufacturing, instead, they are into the fancy business of selling imported Mercedes as well. 

I am a big fan of Vijay Kedia. He is like a god of investing. And it is quite possible the Talbros is the next multi-bagger stock, but proprietors and their track record do not enthuse any confidence. These are my personal notes, not investment advice. 

Last but not least, so I might buy this share in the next dip when it falls at least by 25 per cent, though I see nothing inspiring in Talbros track record.

End.