Aashish Tater's multibaggers: Sandesh Ltd, India Glycol

On Sandesh

We are taking a very conservative call because we want to protect the investor from the perspective that your capital is safe and the returns expected would be 20-25% year-on-year. Sandesh Limited is having a market cap of Rs 220 crore. The company is sitting on a cash equivalent after adjusting debt of close to Rs 180 crore which is cash and cash equivalent and loans and advances given to promoter group company. The company is sitting on almost one-year forward cash equivalent because the company is generating close to Rs 45-50 crore of free cash flow, post adjusting for dividend pay out.

So from one year perspective, you are getting a company which is the second leader in Gujarat-based Samachar Patrika, and you are getting a business almost free of cost which has four manufacturing units – Rajkot, Bhavnagar and other places in Gujarat.

Here is a company where the downside is limited, but there are potential upsides. If I try to map on valuation perspective, we had a target of Rs 350 from last year and we still maintain that the Rs 350-390 should be tested within six to eight months. If sentiment improves, there should be more lookout for those defensives type of picks into the sector.

On India Glycol

India Glycol is one interesting business whose fortune is directly co-related to crude outperformance, which is one of those bets that I feel is relatively going to give better returns to investors if crude keep on outperforming. While its peers business is depended on petroleum derivatives, this particular company produces gycol and ether through molasses. So every time there is an increase in crude prices, there is a direct benefit in terms of passing on cost to customers.

If I take a call from fundamental perspective, we expect that the company would be doing close to Rs 10 of EPS for next three quarters. That means Rs 30 for the remaining years. They already did close to Rs 9 for the first quarter,  so on Rs 40, with a positive trend on crude, I think before Rs 111 on closing basis is tested, the stock might go and test Rs 180- 220.

Taking a call from the promoter’s perspective, the promoter has been gradually increasing the stake in the company, and the stock liquidity is getting stuck. Thus there is a promoter who is buying own company at a PE multiple of 4.5 times because even they can sense that their peers are actually not going to benefit as much as they can because of the passage of molasses to the customers directly when crude outperformers.

From all these parameters, if someone is looking for 20-25% gain from next six months perspective, I think this is one bet that one should be definitely looking at. We have a medium term target of close to Rs 180- 220, but one should keep a strict stop loss of Rs 111 on closing basis on this particular stock as the technical would shape out badly after that or if Brent closes below USD 98. On both the parameters, the stock should actually be squared off, otherwise our level should be tested in next three to six months.