Ashish Chugh's 2 multi-baggers worth a second look

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Ashish Chugh's 2 multi-baggers worth a second look

Investment analyst Ashish Chugh is bullish on Ansal Properties and Ganesh Polytex. Chugh advises investors to adopt a staggered buying approach for these stocks.

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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 Ansal Propertie BSE | NSE 31/05/12 Are Mutual Funds betting on Ansal Propertie? Other Stocks in this news Ganesh Ecosphere |

Investment analyst Ashish Chugh is bullish on Ansal Properties and Ganesh Poly . Chugh advises investors to adopt a staggered buying approach for these stocks. 

Below is a verbatim transcript of the interview. Also watch the video.

On Ganesh Poly:

This is a company which has been a beneficiary of higher cotton and crude prices mainly because of two reasons. There has not been any significant increase in the cost of raw material for the company, which is pet bottle waste, and also there has been a significant increase in the prices of its finished product, which is recycled polyester staple fibre. The prices have moved in tandem with PSF made from virgin material.

Ganesh Polytex is into waste management. The company recycles pet bottle waste and converts into polyester staple fibre. This company is the largest recycler of pet bottle waste in the country. It has got a capacity of close to 58,000 tonne per annum. The company has got two plants: one is located in Kanpur and other one is in Rudrapur. If you look at the financials of the company, for FY10, the sales were about Rs 200 crore. It was up by 45% over FY09, while profit after tax was about Rs 9 crore up by about 100%.

In the first nine months of the current financial year the company has achieved 30% increase in sales to about Rs 185 crore. The PAT has almost doubled from Rs 5.5 crore to Rs 11.5 crore. The full year PAT is expected to be about Rs 17 crore, which mean an EPS of close to Rs 12 on the current equity of about 13.4. At the current price of about Rs 60-62 the stock is trading at a PE multiple of about 5-5.5.

This company has undertaken expansion projects. It is increasing its capacity further by about 12,000 tonne per annum which will become operational in the next one to one-and-a-half years. Also, the company besides employing the traditional methods for collection of pet bottle waste, is taking a number of new initiatives for collecting pet bottle waste. This includes tying up with various shopping malls and multiplexes to collect pet bottle waste from those multiplexes. The company is also toying with the idea of setting up a collection and washing unit somewhere in the Middle East or South Asia. These measures would lead to long-term raw material security for the company.

Now, you have a company which is the largest recycler of pet bottle waste in the country and the capacity of 18000 tonnes per annum which went into operation a couple of months back could not have come in at a more appropriate time since prices of recycled polyester staple fibres are on a high. Also cotton yarn prices are buoyant, which may lead to customer shifting from cotton yarn to recycled polyester staple fibre. The company is thinking about raw material security and using non conventional method for pet bottle waste. The future for the company looks bright.

So at the current price of about Rs 60-62-63, this stock warrants a buy. Since the markets are volatile, I would suggest to make a staggered purchase in the stock and not buy everything in one go because it is possible in case the market comes down the stock can also drop to about Rs 55-58 levels.

Long-term investors can choose to do a staggered buying of the stock. The long-term potential of the stock and the price competitiveness vis-à-vis the cotton yarn and virgin PSF looks to be in favour of the company. So at the current valuation the stock looks attractive for investment.

On Ansal Properties

Ansal Properties is a stock which is currently out of favour. It belongs to a sector which is currently out of favour with the investors. This company has been around for over four decades and is involved in the entire gamut of the real estate activities. This company has got about 19 township projects, which are going on in almost five states. Some of the large projects, which the company is executing includes is a 3500 acre project in Lucknow by name of Sushant Golf City. They are doing a 2500 acre project in Greater Noida. The company has recently started a project called Esencia, which is about 220 acre, including phase I and phase II. This project is located in Gurgaon.

If you look at the financials of the company, for FY10, this company achieved sales of about Rs 750 crore. Meanwhile, PAT was about Rs 70 crore. In the first nine months of the current financial year this company has done almost what it did the entire last year which is Rs 750 crore and it has achieved a PAT of about Rs 68 crore, which is almost similar to what it did for the full year last year. For full year, the EPS is expected to be around Rs 5-5.5. So at the current price of about Rs 37-38 this stock is trading at a PE multiple of about seven, which seems reasonable for this company.

If you look at the investments, which have been made by various PE funds in various projects of the company, HDFC Asset Management bought 8.5% stake in the Greater Noida project and it gave about Rs 225 crore for the 8.5% stake. Redford Capital has just invested in the Esencia project. They have given Rs 200 crore to the company for the Esencia project. Of course, all these projects, all these investments are project level findings and not really investments into Ansal Properties.

This company has passed the enabling resolution to raise about Rs 1,000 crore by way of QIP. Now, given the size and scale of the projects the investments made into the company and also the revenue and profit potential for these projects, I think for the company the current marketcap of about Rs 600 crore looks small.
 
For a long-term value investor, out of favour stock in out of favour sector provides margin of safety. We are in a scenario when the inflation is high and the interest rates are also high which do not augur well for an interest rate sensitive sector like real estate. So this is a stock for the patient contrarian investor.

The stock during the boom times had seen a price of over Rs 500 and it also fell to about Rs 21 when the markets came down in 2008-09. At the current price of Rs 38 given the improved financials and also the fact that the company is able to manage funds for expansion, I think the negative with regards to the sector and the company looks pretty much factored in the current market price.