See upside in Lakshmi Machine Works, says Rajen Shah, CIO, Angel Broking.
Shah told CNBC-TV18, "Many blue chip companies are illiquid in the market. I never look at the liquidity of a stock. I look at the strength, the value and the business potential of the company. Let’s see the market, November 8, 2010 the Sensex peaked at around 21200 levels. Today the Sensex is at 16000. So we have corrected over the last 19 months about 25%. There are companies which have corrected 30-40%, there are companies which have gone down 50%, but when a blue chip company comes down by 50%, I think it certainly warrants a look at that company’s stock and company’s business prospects."
He further added, "Lakshmi Machine Works is actually in that category. The stock has cracked 50% from the top. It was Rs 2,900 sometime in November 2010, today it’s quoting at Rs 1,550. It’s dropped 47%. I think it’s very significant for a blue chip company and it certainly warrants a look at this company. This is no Tom, Dick and Harry Company. This is a Coimbatore based blue chip company, which has been into existence for the past 50 years, has been paying dividend for the past 45 years consistently, is a debt free company, has Rs 700 crore cash on the balance sheet whereas the market cap is Rs 1,900 crore. So per share it works out to almost Rs 600 whereas the stock price is Rs 1,550."
"It is the market leader in the textile machinery business. It has got Rs 4,200 crore of order book position, which is two years turnover. The business is currently in pressure because of factors we all know, but I think if your timeframe is two and three years, this company should be able to come out of this. 13-14 and 14-15 I am expecting all the businesses whether it’s the textile machinery business or the machine tools business on which the management is very bullish."
"In the machine tool business the company is catering to a lot of auto companies and since India is aiming to become a auto hub of the world auto market, I think machine tool business should do exceptionally well. It’s growing at 25% plus and the management is very bullish. It has sounded that in the concall as well as in the annual report, which came last year. The founder business is also picking up, so all the businesses are doing well."
"I would like to add here something interesting. This company is a very old company. It owns about 28 acres of prime land in Coimbatore and the management has decided to develop this land and unlock about Rs 250-300 crore from this thing. So these Rs 250-300 crore should be coming between FY13 and FY15. So I think 13-14 and 14-15 the company should report decent numbers."
"We at Angel are expecting about Rs 150 kind of earnings for FY14 and about Rs 200 for FY15. So if you give it a 15 PE multiple which this company has enjoyed in the past, I think the stock is worth Rs 3,000. So if your timeframe is 36 months, I am sure that you can actually end up doubling your money."
"One more interesting point over here is that the company is sitting on huge cash and last year in the month of February the management bought about 11 lakh shares from the market at about Rs 2,045 pumping in Rs 225 crore. So any fall in the stock, the management may come out with another buyback offer and that should arrest any further fall or any further decline in the stock price of Lakshmi Machine Works. So I think downside is very low, upside is decent. Stocks like this need to be added in small lots in this kind of market."
Disclosure: No holding in Lakshmi Machine Works.