A year ago, I studied Nitta Gelatin and it looked significantly undervalued based on its earnings power and balance sheet strength, even though sentiment was weak and most of the focus was on macroeconomic concerns. At the time, many investors were hesitant because of broader market uncertainty, but I found the business fundamentals more important than the noise around it. Over time, the stock has re-rated and moved up significantly (100% in two months) , which in my view reflects the gradual market recognition of its intrinsic value rather than any single catalyst.
As an investor we should never try to predict macroeconomics, like “If VHC introduces laws that reduce imports and promote local gelatin production, then Nitta Gelatin benefits.”
It should be centered on understanding business quality, long-term earnings power, and valuation discipline.
Not even Warren Buffett can predict possible future policy to justify current valuation upside..
I invested as per sheer valuations nothing else. The pe ratio was in single digit, decent margins, some expectations of development based on commentary and patience.
The company was always cheap on a valuation basis eventhough it maintained consistent margins. The parent company has started looking at Nitta much more positively in recent years. The recent collagen peptide and the proposed gelatin expansion next year is proof of that. The revenue has increased nicely since the expansion of collagen peptide facility. The margin expansion was a added bonus. And the reduction of tariffs on India by US removed an overhang on the stock.
If the company can execute on its contract manufacturing and direct sales of collagen products, their margins may further expand.
A lot of consolidation has happened in India in gelatin companies as well.
The demand for both soft gel capsules and hard capsules gelatin has also increased in India, Another factor is pricing of a key bi-product, DCP.
