Asahi Songwon Colors should give a very decent return over the next 24 months, says Rajen Shah, Chief Investment Officer, Angel Broking.
Shah told CNBC-TV18, "Five months back in October, Asahi Songwon Colors was quoting at Rs 100, today it is quoting at about Rs 60. It has lost 40 percent in market cap and there is a reason for this kind of damage. The company’s profit in the first nine months are down 40 percent. 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.”
He further added, "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. The 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 marketcap 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."
Disclosure: We do not own this stock in our PMS.