Ashish Chugh's 2 multibaggers for 2012

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Ashish Chugh's 2 multibaggers for 2012

Ashish Chugh, Investment Analyst & Author of Hidden Gems in an interview to CNBC-TV18 selected GVK Power and Lancor Holdings as his multibagger stock picks.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Ashish Chugh, Investment Analyst & Author of Hidden Gems in an interview to CNBC-TV18 selected GVK Power and Lancor Holdings as his multibagger stock picks .

Chugh finds GVK Power an atttactive stock at this point of time on the back of its valuations and the fact that it has been hammered down to its lifetime lows. "The stock is for courageous investors. The prudent thing to do at this point of time will be to go for a staggered approach in buying this stock," he said.

For Lancor Holdings, he doesn't see too much downside from these levels. But says that since it is an illiquid stock, investors can choose to buy on dips, on bad days and Rs 25-28 may be a good range to get into this stock.

Below is the edited transcript of Chugh's interview waith CNBC-TV18. Also watch the accompanying video.

Q: Let's start with a liquid stock that you have chosen this time around, GVK Power, a beaten down name, why do you think it could be a multibagger?

A: This is amongst the category of stocks which have become untouchables. Firstly, it belongs to the infrastructure sector and secondly, it has significant amount of debt on its books. But, at some point of time given the valuations and the fact that this has been hammered down to its lifetime low, it is starting to look attractive.

This company operates broadly in three segments, in the power sector they have 900 megawatts (MW) of operational capacity, which is expected to go up to about 5,000 MW in the next three-four years. In the transportation sector, they took a lot of toll road projects in public private partnerships; they have got toll roads in Rajasthan, Madhya Pradesh and Gujarat. Some are coming up and some are already operational. They also have stakes in two airports, Mumbai International Airport and Bangalore International Airport. They have 50.5% stake in the Mumbai International Airport and about 43% stake in Bangalore International Airport.

There are a few short term negatives with regard to the sector, since the interest rates are at an all time high, there is a pressure on infrastructure companies. This company is leveraged, there is no doubt about that, but if we look at its valuations at the current price of about Rs 10.50-11, market cap is close to Rs 1,700 crore. It has a total debt on a consolidated basis of about Rs 5,500 crore which makes the enterprise value at Rs 7,200 crore.

In the recent transactions done for Mumbai International Airport and Bangalore International Airport, they bought about 13.5% stake in Mumbai International Airport at USD 231 million which values the airport at about Rs 8,500 crore. Given the recent transaction in the Bangalore International Airport, the valuation of the airport comes to Rs 4,500 crore. Mind it, these are small transactions and if the company were to sell majority stake in one of the airports, they will be able to fetch control premium. So, the investment of the company in these two airports may be more than the current enterprise value of the company.

This company has been acquiring stake in coal mines to get raw material availability at competitive prices. I am not sure whether Rs 10-11 is the right price to buy or given the current market scenario I don't rule out the possibility of the stock falling to Rs 8-9 also. But in this kind of a scenario, the stock is for courageous investors. The prudent thing to do at this point of time will be to go for a staggered approach in buying this stock. So, the valuations at this point of time look extremely attractive and the stock is available at its lifetime low.

Q: What about Lancor Holdings? Why have you picked this one?

A: This is a stock from a sector which is out of favor. This is a real estate company, they do real estate projects in Chennai. They have around six-seven projects which are under implementation in Bangalore and Chennai. Their FY11 sales were about Rs 195 crore, operating profit was Rs 55 crore and profit after tax was about Rs 32 crore. In the first six months there has been a slight decline in sales of about 20-22%, which comes around Rs 68 crore.

Profit after tax has also declined about 22% to Rs 14 crore.The stock currently trades at about Rs 26-27 giving it a market cap of Rs 57 crore, which is equal to one year of operating profit. Currently, the stock is available at a price to multiple of just about 2.

For the past many years there has been a consistent increase in sales and profitability. The company has got a uninterrupted track record of dividends in 1994. There is only one year which is 2003, where the company skipped dividend, otherwise they have been giving dividends on a regular basis. The company derives about Rs 10 crore of income out of rentals. So, one can very well imagine the valuation of the property.

The company has got a reasonable debt, it is not highly leveraged. It has got short term loans of about Rs 56 crore. At the same time the company has got investments of close to Rs 50 crore in various debt funds. The promoters stake is about 62% and this company has never diluted its equity. The only dilutions which has taken place is on account of the generous bonus of 3:1, which the company gave to the shareholders and on account of merger of one of the subsidiaries of the company with the company.

Otherwise, they have never raised money through GDRs or FCCBs which most companies were doing at that point of time. The best part is that for the past 2 years the company pays a 100% dividend. There is a Rs 2 paid up stock. The dividend yield at the current price comes to about between 7.5-8%. So given all these factors, I don't see too much of downside from these levels. But I would like to say that its an illiquid stock so investors can choose to buy on dips, on bad days, Rs 25-28 may be a good range to get into this stock.

Disclosure: I have vested interest in GVK Power