Bullish on Kavveri Telecom, Andhra Cements: Ashish Chugh

Ashish Chugh, Investment Analyst, and Author of Hidden Gems, is bullish on Kavveri Telecom and Andhra Cements .

Kavveri Telecom is a Bangalore-based company and manufactures equipment which is used by the telecom industry. It also caters to the defence segment.

While Andhra Cements belongs to the GP Goenka group. It has two plants which are adding up to 1.4 million tonne capacity. The company plans to increase capacity to 3.5 million tonne.

Investment rationale:

Chugh feels Kavveri Telecom is an undervalued play on the telecom industry growth. He sees significant increase in Q1 operating margins. "Revenue and profitability are likely to increase going forward." But was quick to caution that it has less traction in revenues.

He likes Andhra Cements as the company will see better revenues post expansion. "However, a slowdown in infrastructure roll out and delay in execution of capacity are the likely risks."

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

On Kavveri Telecom:

Kavveri Telecom’s products recently won the innovator of the year among small and medium enterprises instituted by Business Today, Yes Bank, this itself talks about the strong R&D capabilities of the company. This is a company catering to the telecom infrastructure space and this company has a strong R&D and manufacturing capabilities. It manufactures Antenna’s , radio frequency (RF) equipment and micro wave products and it supplies these products to various telecom companies like Erricson, Motorola, Aircel, Aritel, Reliance Communications and Bharti Electronics.”

He further added, “In the past two years this company has made 4 acquisitions primarily in Canada. This will enable the company not just to acquire new products and customer but also allow the company stronger penetration into the defence, aerospace and space segments.”

“If one looks at the financials of the company for FY09 the company achieved a 28% increase in sales to about Rs 180 crore. Profit after Tax (PAT) was almost flat at about Rs 11.5 crore. The company has equity close to Rs 10 crore which means an EPS of about Rs 11. The stock currently trades at about Rs 46-47 which means a price to earnings ratio of about 4-4.5. Looking at the financials of Q1 even though there has been a decline in the revenues, the PAT has gone up by about 33% to Rs 5.5 crore, this is after providing for a tax of more than 400% compared to the same period last year. What is noticeable is a significant improvement in margins. So you have a company catering to a sector where the growth is good and the performance for this year is expected to be much better than last year. In fact last year they made some extra ordinary provisions because of which the profits were lower. So going forward the stock looks under valued given the price to earning ratio of about 4-4.5.”

Disclosures: I would have a vested interest in this stock.

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