Ashish Chugh bullish on Marg, Maharashtra Scooters

Ashish Chugh, Investment Analyst and Author, Hidden Gems, is bullish on Marg Ltd and Maharashtra Scooters. The former, he said, is a Bajaj Auto group company and holds 33.87 lakh shares in each of the three demerged entities. He likes Marg as it is a play on the realty and infrastructure space.
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Dec 08, 2008, 04.57 PM | Source: CNBC-TV18

Ashish Chugh bullish on Marg, Maharashtra Scooters

Ashish Chugh, Investment Analyst and Author, Hidden Gems, is bullish on Marg Ltd and Maharashtra Scooters. The former, he said, is a Bajaj Auto group company and holds 33.87 lakh shares in each of the three demerged entities. He likes Marg as it is a play on the realty and infrastructure space.

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Ashish Chugh bullish on Marg, Maharashtra Scooters

Ashish Chugh, Investment Analyst and Author, Hidden Gems, is bullish on Marg Ltd and Maharashtra Scooters. The former, he said, is a Bajaj Auto group company and holds 33.87 lakh shares in each of the three demerged entities. He likes Marg as it is a play on the realty and infrastructure space.

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Ashish Chugh (more)

Investment Analyst & Author, Hidden Gems | Capital Expertise: Equity - Fundamental

Ashish Chugh , Investment Analyst and Author, Hidden Gems, is bullish on Marg Ltd and Maharashtra Scooters.

 

Maharashtra Scooters , he said, is a Bajaj Auto group company. "It manufactured scooters for Bajaj Auto earlier but stopped making scooters since 2006. The company holds 33.87 lakh shares in each of the three companies: Bajaj Holdings, Bajaj Auto, and Bajaj FinServ. It holds 16.39 lakh shares in Bajaj Auto Finance valued at Rs 12 crore, and 12.55 lakh shares in Bajaj Hindustan valued at 5.3 crore. The total value of investments in listed companies is close to Rs 240 crore."

 

According to him, Marg was earlier called Marg Constructions.  "It has a presence in realty and infrastructure segment."

 

He feels the negatives in the stock look discounted. "The company will see short-term downside going forward. The next few quarters seem to be weak. When sentiments turn, this stock will be back on track very fast. The firm paid 20% dividend last year."

 

Here is a verbatim transcript of the exclusive interview with Ashish Chugh on CNBC-TV18. Also see the accompanying video.

 

Q: Marg Ltd is an interesting stock, which we don’t often talk about. What is the story there?

 

A: Marg is an infrastructure stock. This is in a sector which is out of favour as of now and there is a lot of negative sentiment surrounding this sector.

 

The company is into infrastructure as well as real estate. This company is into development of ports, airports, SEZ and they also into development of commercial and residential real estate. Most of their projects are in and around Chennai.

 

This stock had touched a high of about Rs 630 in January and currently trades close to Rs 35. It has dropped about 95% from its high, which it had touched early this year.

 

This is inspite of the fact that if you see the financials of this company, there has practically been no deterioration in financials till now.

 

In fact in the first six months of the current financial year, sales are up by about 80%, profit after tax (PAT) is up by about 42%, and the tax payment for the first half is more than double of what they did in the first half of last year.

 

Now, despite of any deterioration in the financials of this company till date, the stock price has dropped by about 90%. This drop in stock price is mainly because of negative sentiment surrounding this sector. Nobody wants to buy real estate or infrastructure today.

 

This is primarily on account of two things. One is fundamental factors. There has been a slowdown in the economy, stock markets have come down, and there has been a liquidity position which is getting worse by the day.

 

But having dropped by about 95% from its high, the major part of this decline seems to be on account of other factors like fear psychosis, which is surrounding investors. There is definitely a lack of confidence among investors in the market.

 

Even then I am not ruling out the possibility that in the next few quarters there could be a decline in the profits of the company, but that factor is already getting factored in the stock price. The current market capitalisation of the company is just about 90 crore, which is less than one year of operating profits.

 

As on March 31, 2008 the book value of this company was Rs 121 crore. As against the book value of Rs 121 crore, the stock trades at close to Rs 35 which is roughly 25% of the company’s book value.

 

From a current price, even if deterioration in the economy were to happen, the downside looks extremely restricted. In the case of liquidity easing off, these kinds of stocks can bounce back very sharply from their current levels.

 

The book value – even if you look at the gross block of the company ‑ is close to about Rs 425 crore. Given all these factors and that the stock has dropped about 95% from its high to Rs 35, the downside looks very restricted, and in case of conditions becoming slightly favourable, these stocks can jump up by 50-100-200% also in a short period of time.

 

Q: The other one that you have picked is Maharashtra Scooters.

 

A: Maharashtra Scooters is a Bajaj Auto group company. In fact, this company has been promoted by Bajaj Auto Ltd along with Western Maharashtra Development Corporation. Till about two years back, this company was manufacturing scooters and supplying it to Bajaj Auto. It was in fact an ancillary to Bajaj Auto, but this company stopped the manufacturing of scooters two years back. As of now, this company has got no business of its own.

 

This company has got an equity capital of Rs 11.5 crore and its book value as on March 31, 2008 was about Rs 172.

 

This company is totally debt-free, it has got absolutely no term loans or unsecured loans or working capital loans. It is a totally zero debt company. This company has got cash close to Rs 95-100 crore in its books.

 

It also holds shares of Bajaj Auto Ltd, which got demerged into three companies ‑ Bajaj Holdings, Bajaj Auto and Bajaj FinServ ‑ last year. So, this company was holding about 33.87 lakh shares of Bajaj Auto and it now holds 33.87 lakh shares in each of these three companies whose value at the current price comes close to Rs 225 crore.

 

Besides these three companies, this company is holding Bajaj Auto Finance and Bajaj Hindustan shares also, which are valued at close to about Rs 17-18 crore.

 

In all, this company has got the quoted investments whose value at the current market price is close to Rs 250 crore. All investments which this company is holding are trading very close to their 52-week lows whether it is Bajaj Auto, Bajaj FinServ, or Bajaj Auto Finance.

 

So, at the current price of Rs 65, you have a company whose market capitalisation is just about Rs 75 crore, which is holding cash of Rs 100 crore and quoted securities of Rs 250 crore. This company paid a dividend of 60% last year. So, at the current price, the dividend yield itself comes to about 9%, book value is Rs 171 as against which the stock is available at Rs 65.

 

In a market where there is so much of uncertainty, here is a company that is holding a lot of cash in the balance sheet. It is giving a good dividend yield to shareholders, and this seems to be a safe stock in an uncertain market like this.

 

Disclosure:

I have vested interest in both stocks.

 

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