Watch the interview of Prakash Diwan of Altamount Capital Management with Latha Venkatesh & Sonia Shenoy on CNBC-TV18, in which he shared his readings and outlook on market and specific stocks.
Below is the verbatim transcript of Prakash Diwan's interview with CNBC-TV18
J Kumar Infraprojects
If you look at the kind of take off on capex from the government side it is primarily public utilities and the soft infrastructure that the government has started spending on. Companies which are in that space have already seen a huge interest come up otherwise like Madhucon Projects and Ahluwalia Contracts have started getting into that momentum and activity.
J Kumar Infraprojects specialises in transportation engineering work which means anything to do with roads, flyovers and stuff like that and that is why they were very prominent in large cities. In fact they have started gaining orders from the metro railways also which is the big thing. Ahmedabad is a first big project that they have just landed for themselves. It is a
diversification for the company beyond Maharashtra where they were all the time focused, so they have gone into Gujarat, they have gone into Rajasthan. Geographical diversification helping them quite a bit in terms of the de-risking themselves from any kind of political turbulence.
Interestingly it is a company which has one of the lowest debt equity ratios among its peers including the likes of ITD Cementation, Simplex Projects and Sadbhav Engineering. It has got enough headroom to participate in lot of new activity which the government tenders for and what I feel is that this company have executed things very well. The cash flows have
been very good, the efficiencies that they managed have decent margins in a business which otherwise is really tough to operate. Their order book is actually 3 times of sales already, it is at about Rs 4,000 crore plus. So if they were to execute even half of what they have as an order book in the next couple of years you would see at least a 33 percent growth in sales
every year for the next three years. It has definitely got the matrix in its favour.
What I feel is that the company is going to benefit out of this that it should be able to scale up because of the new geographical expansion that it has done. It started getting projects like sports complex, for example Goregaon Sports Complex in Mumbai is being built by them. So it is a new activity which they have altogether landed themselves in. It is competing with ITD Cementation India and Rigging Corp in a lot of tenders also where there is piling work. The stock has actually come down a bit, 10 percent from its 52-week high recently. So these are the times when you can start accumulating and look for may be a triple digit or four digit targets very soon.
Talbros Automotive Components
The markets have been giving a lot of opportunity for people who have thought that they missed out because of the higher valuations. However surprisingly the ability to enter atlower levels also seems to be missing with most retail investor but our endeavor is to point out the ones that make sense.
From the auto side, I have slected Talbros Automotive Components and I believe that is the story which is still kind of intact. It is a market leader and it shows a category of gaskets. What has happened is last couple of years because of environmental concerns, asbestos free gaskets are the norm and they have been priced higher than the rest and this company is actually converted itself into 100 asbestos free operation. It is basically something which is very progressive and gives them pricing power, gives them acceptance through lot of international markets particularly Europe.
They diversified from gaskets into other things related to suspension systems, forgings and not just dependant on one particular area. They had very good tie-up and collaboration with three Japanese companies and diversified the product mix. It is a story like Motherson Sumi Systems, very clearly getting into exports in a gradual but very definitive way.
They have not gone into acquisition because it is a very small company at this point in time. My sense is that the way it has traded at above 5.5 times FY16 for a market leader and historically it has been into 8-9 kind of a band one year forward. So there is a huge arbitrage in terms of a re-rating. In terms of a growth rate the management has been talking about going forward is phenomenal. Any dip would be a great idea to, in fact it moved from recent high to Rs 140 levels recently. That is the time you can start accumulating. Every dip in a market like this is a great opportunity to get these kind of companies in your portfolio.
They scaled up their operation dramatically. It was infact 3X that they did without too much of capacity which is a story with most of the auto player, so under-utilisation of capacity is the first big leg that comes up and then they have also got into a lot of new geographies in terms of the export market. On a compound annual growth rate (CAGR), the topline growth will be
muted but the margins growth and EBITDA level growth will be almost 40 percent for the next four years