In an interview to CNBC-TV18, Rajen Shah, CIO of Angel Broking picks two stocks as his multi-baggers for the day. Shah has picked Texmaco Rail and Engineering and Asahi Songwon Colors with the target prices of Rs 100 and Rs 150 respectively.
Below is a verbatim transcript:
On Texmaco Rail and Engineering
This market has a tendency of overreacting and we saw that yesterday.
The Texmaco Rail and Engineering stock tanked almost about 11 percent and the way it was hammered, one gets a feeling that is the Indian railways going to stop procuring wagons.
However, this presents a very good opportunity. In the context of what is happening in the economy we are seeing a serious slowdown in the economy and it has taken a toll on most of the infrastructure, engineering companies. But if you see the numbers of Texmaco Rail and Engineering, you will get a feeling that it is bucking the trend. It has been performing reasonably well over the past nine months. It should catch up in the coming two years significantly.
We all know that Texmaco Rail and Engineering is the largest manufacturer of railway freight cars and also a significant player in the hydro mechanical equipments, which are used by major power stations. Both these segments have been under a lot of pressure but the numbers reveal something else. In the first nine months of the current year, the company reported almost about Rs 810 crore of topline vis-à-vis about Rs 650 crore in the same period of the previous year. That is a growth of almost 25 percent. If you see the net profit, it moved up from Rs 65 crore to Rs 86 crore, that is a growth of 34 percent.
So, in the context of economy, the company has done very well. This performance has been despite a delay in inviting tenders for wagons by Indian railways and because of this delay it also impacted its Steel Foundry business because the fortunes of the Steel Foundry business is dependent on rolling stock business. The numbers have been pretty good but the stock has been mercilessly hammered.
Number of its joint ventures (JVs) are taking off, the first JV with Touax Rail of France which is one of the leading finance companies and has got a vast experience of leasing railway freight cars. I think that is now all set to take off.
The second JV with UGL of Australia where it has a 50 percent stake to manufacture bogies and wagons for the global market has commenced operations and full ramp-up is expected by next month.
The third unit to manufacture electric multiple unit (EMU) coaches is likely to start operations by June.
All these three JVs also are likely to start manufacturing and this will have a positive impact on the revenues and the profitability not in the next year but certainly in 2014-2015 when we are expecting the earnings per share (EPS) of this company to move up to at least Rs 8. Besides the hydro mechanical power plant also has got very good orders almost Rs 400 crore of orders and certain issues, which were related to 2000 megawatt power plant in Assam, I think that has been taken care of. So orders from that project are also likely to significantly flow in favour of the company.
Texmaco Rail and Engineering is not a stock, which you need to buy for six-twelve months but if you are looking at 2014-2015 we at Angel Broking are working at an EPS of almost about Rs 8. At about Rs 12-13 kind of price to earnings (P/E) multiple which this company has enjoyed in the past, I think the stock should be beyond Rs 100 in about 24 months from now. So that is almost about 90 percent upside, which I think -- there is a lot of irrationality prevailing in the market at this point of time and you are getting quality stocks at decent valuations and when sanity prevails there will be a significant rerating. Sooner or later the sanity is going to prevail. We are looking at very decent upside in Texmaco Rail and Engineering in the next two years.
On Asahi Songwon Colors
Five months back in October, this stock was quoting at Rs 100, today it is quoting at about Rs 60. It has lost 40 percent in market cap and yes, there is a reason for this kind of damage. The company's profit in the first nine months are down 40 percent. So yes, that is justified. However, at this point of time at this price of Rs 60, the downside risk is very low and the upside is significant from hereon. The reason is that we are expecting a significant improvement in the company’s operation in the next two years.
This company is basically a very low profile Gujarat based company and it manufactures superior quality pigments. Pigments are used by variety of industries, paint industry, ink industry, rubber industry, plastic industry, textile industry and a variety of industries. It has got two plants, one is at Baroda and one is near Ahmedabad and both the plants are said to be the finest in Asia including Japan, though they are small.
The fact that it exports to 23 countries -- almost 78 percent of its revenue comes from export -- talks about the company itself. The company has got very good clients, some of the clients are Clariant Pigments (Korea) which till last year held 6 percent stake in the company, which has now been transferred to Clariant Chemicals (India). Other client is Dainippon Ink & Chemicals company of Japan, which is one of the largest ink manufacturers in the world that also holds a 7 percent stake in this company. We have clients like Sun Chemicals of USA, BASF of Germany so very premium clientele.
The product, which the company manufacturer is said to be of very premium quality that is why when it comes to pricing in the market, it enjoys a 10 percent premium over its competitors.
If you see the financials of this company, this year as I said earlier has been disappointing. Te turnover for the full year we are expecting to be the same as last year i.e. Rs 230 crore and the EPS would be around Rs 10. My interaction with the company's joint Managing Director (MD) yesterday evening tells me very clearly that things are going to be very positive for the next two years. The company has taken a number of steps to improve productivity and the output is likely to increase substantially from May onwards. Next year they are talking about 25 percent jump in turnover to about Rs 300 crore and after that it is going to be the same 25 percent. So Rs 375 crore is the kind of turnover they are expecting for 2014-2015 and the EPS should easily go beyond Rs 15 for that year. At Rs 10 kind of P/E multiple, the stock should go up to about Rs 150 levels. That is about 150 percent kind of upside.
This company looks cheap on all parameters. If you see the book value, it is Rs 100, stock is at Rs 60 so it is at 0.6 times the book value. On market cap to sales, it is trading at 0.3, the market cap is Rs 74 crore, the sales is Rs 230 crore. If you see replacement cost of setting up these two plants would be nothing less than Rs 150 crore, the marketcap is Rs 75 crore.
Even on a dividend yield basis, last year the company declared 35 percent dividend, this year because of a little disappointing performance probably the dividend will be about 35 percent. So, on Rs 60 if you are getting Rs 3, it is a 5 percent dividend yield stock. So the downside also because of this factor becomes very limited from hereon. I think it is a decent stock to own and this is a long-term story, which ideally should give you very decent return over the next 24 months.
We do not own these stocks in our PMS.
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