PN Vijays multibaggers: Redington and Elecon Engg

PN Vijay, portfolio manager, pnvijay.com, joins CNBC-TV18 to make his value picks for the day that are nultibaggers. He picks Chennai-based Redington India and infrastructure-ancillary player, Elecon Enginnering.
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Aug 26, 2011, 10.47 AM | Source: CNBC-TV18

PN Vijay's multibaggers: Redington and Elecon Engg

PN Vijay, portfolio manager, pnvijay.com, joins CNBC-TV18 to make his value picks for the day that are nultibaggers. He picks Chennai-based Redington India and infrastructure-ancillary player, Elecon Enginnering.

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PN Vijays multibaggers: Redington and Elecon Engg

PN Vijay, portfolio manager, pnvijay.com, joins CNBC-TV18 to make his value picks for the day that are nultibaggers. He picks Chennai-based Redington India and infrastructure-ancillary player, Elecon Enginnering.

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PN Vijay, Portfolio manager, pnvijay.com
PN Vijay, portfolio manager, pnvijay.com, joins CNBC-TV18 to make his value picks for the day that are nultibaggers.

He picks Chennai-based Redington and infrastructure-ancillary player, Elecon Engineering due to their strong business fundamentals and growth prospects going forward.

On Redington

The company is a Chennai-based electronics distributor. Primarily, they are wholesale distributors for Blackberry, the popular email-RIM technology, whose market share is expanding after Blackberry sorted out the security issues with the Indian government.

Redington recently added the iPad and Dell which are also gaining popularity among the Indian masses.

Secondly, Huawei, the Chinese manufacturing giant in the telecom space, which has a huge stranglehold in the android market in Asia, has appointed Redington to supply the technology to smartphone users. Android is a Google technology which is gaining ground compared to Nokia's proprietary technology and Apple's iTechnology. So with the growth of android use in India, Redington will get more of distribution revenue and more importantly, servicing revenue.

Moreover, Redington is a debt-free company, and there are no real concerns in the sense that itís a low margin company. Its competitors are one division of CMC and HCL Infosystems, but these people seem to be very robust in their client acquisition.

The stock is currently trading about 8-8.5 times FY12 earnings, and the interesting thing is that in the carnage of August, it is not been affected at all. From the present level of Rs 94, I expect this stock to go up to about Rs 125 in next 12 months.

On Elecon Engineering

Elecon Engineering is a well-known and well-established player. They are more of an infrastructure ancillary player, a bit like Bharat Forge in the auto sector, unlike BHEL or L&T which are pure plays. Elecon gets about 55% of their turnover from material handling and 45% from transmission equipment.

Whatís happened in the last quarter in this company, however, is typical of other infrastructure companies. The order inflow has been robust as more and more orders are coming out of the power sector. To some extent, there is unblocking of orders in the highway sector too that helps in their material handling division. Therefore, the order inflow recorded has been one of the highest in their history, of about 30% or so.

On the negative-side, they had an EBITDA erosion last quarter. Year-on-year, the figures seem fine, but the last quarter saw an erosion mainly because of interest cost. Secondly, the debt-equity is a bit high at nearly 1.2, but luckily, its not long-term debt. Itís more a working capital debt because Elecon has a long product commissioning and completion cycle, and working capital gets locked-in. Nonetheless, the bottomline has grown impressively for the company.

Also, they have relatively stood up very well in the August massacre at the market, the share hardly losing any value. It is again trading at a very nice price-earnings multiple of about eight to nine times and I think it surely has 25-30% upside from this level.

Disclosure:

It is safe to assume that the stocks discussed have been recommended to clients

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