Don’t be shocked to hear that Dynacons Technologies has returned 5,062% in 24 months. The company was trading at INR0.37 on February 18, 2014 and the stock trades at INR19.1 two years down the line. The returns are stellar, but the story for Dynacons Technologies is still to commence. This article discusses the reason behind the 5,062% returns and the reason to still remain bullish on this stock.
At the onset, I want to mention that Dynacons Technologies is a high risk high return stock and investors should invest based on their risk appetite. In my view, a small exposure can be considered at current levels and exposure can be increased if the growth plan materializes.
The Big Trigger
Dynacons Technologies is a software services company and there was no big trigger in terms of strong sales growth or new business development when the stock started surging ahead.
On August 14, 2014, Arun Govil, the chairman of Ducon Technologies, made an open offer to acquire a total of 60% stake in Dynacons Technologies through promoter stake transfer and through an open offer to existing shareholders. This was the game changing moment for Dynacons Technologies.
Arun Govil is a NRI with Mr. Govil serving in the BOD for Cemtrex (NasdaqCM: CETX). The company currently has a market capitalization of $18 million. Mr. Govil is also the Chairman of Ducon Group of Companies (annual turnover of $470 million), which is in the business of air pollution control equipments and has operations in India as well.
With Mr. Govil taking control of the company there is renewed hope for Dynacons Technologies and the current rally has largely been backed by that expectation of something big to come.
The Business Plan
On November 2, 2015, the new management of Dynacons Technologies announced that the company will diversify into the sectors of infrastructure, power and power transmission, renewable energy and environmental control products.
Further, Dynacons Technologies management is looking for organic as well as inorganic route for expansion in these sectors.
The Dynacons management again met on January 20, 2016 to change the name of the company to Ducon Infratechnologies Limited.
The point I am trying to make here is that there is steady progress in terms of setting stage for the new business plan and I expect some big news flow in the next 3-6 months. This will set stage for the next stage of rally for the company.
However, with the company considering foray into capital intensive sectors, the stock returns in the next 3-5 years will not be anywhere close to the returns generated in the last two years. Still, if the management takes the company in the right direction, the stock can generate another 10x or 20x returns in the next 3-5 years.
Besides the points that I have already mentioned above, there is no other information on the business plan or the way forward. However, my view is that there can be a potential reverse merger of Ducon Technologies India operations with Dynacons Technologies.
The new management of Dynacons Technologies is targeting high growth sectors and Arun Govil is a successful entrepreneur. In the coming years, Dynacons Technologies can make it big and the stock might have surged in the last two years, but is worth considering for the fresh energy and momentum the new management brings.
I consider Dynacons Technologies as a strong buy at current levels, but as I mentioned earlier, the company is a high risk high reward investment and investors should accordingly decide on the level of investment. However, my final opinion is that Dynacons Technologies has the potential to make it big.
Note: The article is not a research report but assimilation of information available on public domain and it should not be treated as a research report.
Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”
Disclosure: It is safe to assume that I have or I plan to initiate long-term positions in the stock discussed. Investors should carefully do their own research and verify points discussed before investing.
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