Ashish Chugh's top stock picks for May

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Ashish Chugh's top stock picks for May

In an interview with CNBC-TV18, Ashish Chugh of Hidden Gems advises investors to buy Ansal Buildwell and Voith Paper.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Stocks in news: Dalmia Cement, RIL, RNRL, DRL, Sun Pharma Ashish Chugh's hidden gems for May 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 BSE | NSE 01/01/70 Are Mutual Funds betting on ? Other Stocks in this news Voith Paper Fabrics |

In an interview with CNBC-TV18, Ashish Chugh of Hidden Gems advises investors to buy Ansal Buildwell and Voith Paper .

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

Q: Is Ansal Buildwell your first pick today?

A: Ansal Buildwell recently came out with its financial numbers for the quarter ended March of 2010. In fact, sales have been marginally down to about Rs 31.5 crore, but the company has registered a profit after tax of about Rs 2.6 crore as against the loss of Rs 1 crore for the same period last year. This is a Delhi based company operating primarily in Gurgaon. In fact, Ansal Buildwell is responsible for development of a large part of Sushant Lok II and Sushant Lok III in Gurgaon.

The company is currently doing row houses in independent floors in Sushant Lok III. There was a decision by the Haryana government about two years back which allowed registration of independent floors in Gurgaon. That decision came as a big benefit for Ansal Buildwell since it was involved mainly in independent houses and independent floors in Gurgaon. So that has been a big business booster for this company. If you look at full year numbers for this company for FY10, sales are up by about 3% to Rs 125 crore. Profit after tax (PAT) is up by close to 50% to about Rs 10 crore, EPS is about Rs 13.25. So at the current price of Rs 80, the stock is traded at a price to earnings multiple of about Rs 6 and the good part about the company is that the company has got land which is available in the books at the historical rates.

The company has been a consistent dividend payer for the past five-six years. In fact, last year also, which was considered a difficult year for most real estate companies, the company managed to make a profit after tax of about Rs 6.5 crore and paid a dividend also last year. Given all these factors, the stock looks undervalued even though there maybe a few concerns. The major concern is with regard to information sharing and information decimation by the management.

That seems to be a larger concern as to transparency and information sharing with the shareholders is what I believe is lacking in this company. We have seen that in a number of smallcap and midcap companies, once management becomes forthcoming and they are willing to share the future plans with the shareholders in a transparent manner, many of these stocks undergo rerating. So once you go to Gurgaon and see the work which is happening there being done by Ansal Buildwell, it makes you happy. However, there is not complete information about the future plans of the company and other details with regard to land bank available with the shareholders. At the current market price, the negatives seems pretty much factored in the stock price.

Q: Any disclosures on Ansal Buildwell?

A: I have got investments in the stock of Ansal Buildwell.

Q: You have picked a paper stock as well, Voith Paper.

A: This is a paper company. It makes the products which are used for paper manufacturing. It is a 74% subsidiary of Voith Group of Germany. Now Voith Group has got worldwide sales of close to 5 billion euros and employees about more than 40,000 people and about 200 locations all across the world. Now it is said that one-third of world's paper production is carried out in machines which is made by Voith Paper. So it is a fairly large company specialized in the paper sector.

Coming to the Indian subsidiary, Voith Paper Fabric make industrial feel which are used for paper manufacturing. The primary customers for this company are the paper and cement sector. Now if you look at the financials of the company for FY09, the company achieved sales of about Rs 47 crore made a profit after tax of about Rs 7.11 crore. In the first six months, in fact the financial year for the company ends in the month of September upto March 2010, the company has managed sales of about Rs 26 crore, which is up by about 5% over the same period last year. The profit after tax is up by close to 38% to about Rs 4 crore.

If you look at the valuations of the company, at the current market price, the marketcap of the company is just about Rs 80-81 crore. It is a totally debt free company having cash in hand of close to Rs 42 crore which makes the enterprise value of the company at just about Rs 40 crore. So you have a multinational company available at enterprise value of Rs 40 crore. There are various possibilities which exist in this company. One is that in case Voith decides to expand their operations in India, they may introduce a number of other products for the Indian market which will definitely scale up the business of Voith Paper.

The other opportunity for the shareholders exists in the form of a possible delisting. In case the management decides to delist the share, it can lead to value accretion for the shareholders of the company. Now if these things do not happen, you still have a company which is growing at the reasonable rate and available at very attractive valuation of about enterprise value of just about Rs 40 crore and making a profit after tax of about Rs 8 crore every year and also paying dividends for the past 12 years, last year they paid a dividend of 40%.

So under the first scenario, in case they want to scale up the operations or in case they decide on the delisting then you may have big value created in Voith Paper. In the second scenario, the company decides to go the way they have been going for the past couple of years, grow at about 8-10-12% every year, you still have a company available at an enterprise value of Rs 40 crore and making profit after tax of about Rs 7-8 crore and also paying dividends on a regular basis. So that downside from these levels look extremely restricted upside would depend a lot upon the future course of action which the management wants to do with the company.

Q: Any disclosures?

A: I or my family may have small investments in the stock of Voith Paper.