Good bets in the midcap space

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Amitabh Singhi of Surefin Investments lays his focus on stocks like Compucom Software, Pioneer Embroideries and First Leasing from the midcap space.

Excerpts from CNBC-TV18's exclusive interview with Amitabh Singhi:

Q: It must be hard job to find value in a market at 9000 level.

Yes, these are tough times right now, and the only comfort that we have is private equity. These investors set a floor price, but it is not easy to find value at this point.

Compucom Software:

Compucom Software is not even a technology play, its almost a kind of a cash play. The market cap is around Rs 40 crores and has Rs 20 crores in cash and another  Rs 6 crores in windmills. It is essentially paying Rs 14 crores for the underlined business which did Rs 5 crores PAT last year. So it is a business one can get 2.5-3 times earnings.

They don't have a fifteen year old track record on performance, but at 2.5-3 times earnings in this market, they pay good taxes. The business that they have i.e,  e-learning solutions for the Rajasthan government which is almost like an annuity business. 

That should have around Rs 3-3.5 crore profit every year, and the other Rs 2 crore of profit comes from the outsourcing contract that they have in US, which is fairly risky, but it is there for the long-term. They have had it for the last 9 years. So its one of the tiny companies, where one can keep building up positions and have confidence that after around 3- 4 years, it might become a midcap at which point the value will get unlocked.

Pioneer Embroideries:

Pioneer Embroideries is interesting. There are two plays there. It is indirectly placing the textile story in India. Primarily they are into embroideries which is the commodity part in the entire chain. When a garment exporter wants to embroider, say jeans or anything high fashion, they can either have the machine in house or they can outsource it to a place like Pioneer.

It is interesting, because the market cap is around Rs 100-110 crore in 2005. Their PAT was about Rs 10 crores last fiscal. This year they will do about Rs 12 crore. They also have a subsidiary which is a pure retail play-Hakoba. Hakoba is a women retail kind of ethnic wear brand and that is something where Bennett and Coleman has picked up stake, and valued it about Rs 60 crores. So they are essentially paying about Rs 40 crore for a company where they are making about Rs 10 crore profit. It has a retail play in Hakoba, which of course depends on how it will play in-terms of evaluation. But there are very little downsides in its current prices.

First Leasing:

First leasing is essentially into leasing, and if one looks at the numbers very broadly, they did about Rs 100 crore of sales, and about Rs 24 crore of profit after tax, their sales have been coming down for the last four years and I think that is one reason that the stock is very cheap. But one has to remember that their sales have been going down simply because of a change in the accounting rules for leasing companies but essentially their profit hasn't changed.

This company has a market cap of around Rs 100 crore. It has a book value of about Rs 180 crore. This is an NBFC, which is earning consistently at about 3-3.5% on assets, and very low NPAs with half the amount of book value. One cannot compare it with any other NBFC, such as Shriram or Cholamandalam directly, because they are slightly different businesses, but they are not far off and this is a company that has a 32 year of track record. Each year they have never made asset of less than 2-2.5%. It is absurd why it should be trading at 5% dividend yeild, since at the current price it is four time earnings and about 0.5 times book value.

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