Panic Buying: Small-Cap Rallies 110% in a Month; NSE Seeks Clarification!

Since the benchmark indices marked their bottom in June 2022, many stocks have been on a massive run. Some small-caps and midcaps are especially outperforming their bigger peers which is generally the case as these stocks have a higher beta than stable large caps. However, one company that has proven to be a goldmine for investors in the last one month is Vinyl Chemicals India Ltd (NS: VNYL ) which is a small-cap specialty chemicals manufacturer, with a market capitalization of INR 1,199 crores and caters to various industries such as textile, paints, and adhesive sectors. 

The share price of Vinyl Chemicals has risen by a mind-boggling 112.8% in the last one month. In fact, for the last three sessions, the stock has been hitting a 10% upper circuit as there is a panic-buying-like situation for the company’s stock. Today, the stock is locked in at a 10% circuit of INR 719.5, clocking a volume of 890.2K shares. The 10-day average volume has risen to 654.8K shares, which was around 336.4K shares a month ago. The price surge had been so ferocious that even the NSE had issued a notice to the management to seek clarification on this trading activity to which the management replied that there are no disclosures to be made, meaning that every material information is being communicated to the exchange.

Not just retail investors but FIIs are also showing interest in the company. As per the latest filing of June 2022, FIIs were holding a 0.42% stake in the company which was nil a year ago. The financials of the company in FY22 somewhat seem to justify this buying frenzy. The company more than doubled its revenue in FY22 to INR 867.53 crores, from 405.52 crores in FY21. But due to increased operational efficiency, the net income rose over 206.9% on a YoY basis to INR 34.84 crores. The company has been growing its net income at a yearly rate of 31.98% over the last 5 years, comfortably beating the industry’s average growth of 18.1%.

The company also pays a healthy dividend, however, due to a relentless rally in the last one month, the yields have fallen to 1.53%. But the dividend payout ratio of 0.53 (for FY22) which has remained over 0.5 for the last 4 fears, is quite good for a small cap. 

However, the bigger question is there still an opportunity to make a long bet on the stock? As there has been absolutely no weakness being seen in the stock, despite soaring over 100% in a  month, making fresh positions here would be no less than highly risky. The RSI (daily, 14) is showing a reading of 81, marking the stock as highly overbought. If a fall comes from here, it might dip to the INR 600 level, where there is decent support.