Hidden gems in capital goods & IT

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Hidden gems in capital goods & IT

Investment analyst and author of Hidden Gems, Ashish Chugh gives his views on Electrotherm India and California Software.

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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

Investment analyst and author of Hidden Gems, Ashish Chugh gives his views on Electrotherm India and California Software.

Excerpts from CNBC-TV18's exclusive interview with Ashish Chugh:

Q: Electrotherm India , what is the story there?

A: Electrotherm India is catering to the steel and foundry sector. This company manufactures induction heating furnace and electric arc furnace, which is used for making steel. The other companies in the business are ABB and Inductotherm. Being an Indian company, Electrotherm has an advantage that it does not have too much of overheads as compared to  multinationals like ABB .

This company has got its manufacturing facility located near Ahemedabad and they have their installations over 1500 locations all across the world. This company has been showing very good numbers in the last one year and for the first nine months of the current financial year, they have done a turnover of close to Rs 207 crore as against Rs 185 crore, which they did for the whole last year. They also have done a profit of Rs 17.5 crore for the first nine months against Rs 13.5 crore for the full year 2004-2005.

This company has a very small equity of 4.75 crore, out of that promoters hold about 65%. So the earnings per share on an annual basis comes to about Rs 50. The stock is in the capital good sector, and it virtually has a monopoly position in the kind of business that it operates in. Going ahead, PE of less than Rs 4 looks grossly undervalued. There is a new initiative in the company also. The company is planning to get into alternate energy and they are planning to launch two-wheelers and three-wheelers that will operate on battery. The launch of two-wheelers will commence this month and the company plans to launch three-wheelers in the next couple of months. So in case this business takes off, it could be a big volume business and this can get the company in a totally different orbit.

Good thing about this company is that it has a very small equity, very high promoter stake and the company has been sending out very good numbers QoQ and YoY. At the price-earning ratio of four, even if the new business does not succeed, this company looks to be grossly under valued.