See stock’s value, not its mkt cap size: Mudar Patherya

Excerpts from CNBC-TV18's exclusive interview with Mudar Patherya:

Q: Jhunjhunwala Vanaspati why do you like it and what's your target on it?

A: My expectation is that Jhunjhunwala is probably the next KS Oils  - we are all looking for the next KS oils and Jhunjhunwala has the potential of emerging as one - they are largely a Vanaspati brand. But they are evolving very fast into an edible oil brand as well.

They have got principal market leadership in Bihar and Uttar Pradesh and I would reckon that levering the brand presence in Uttar Pradesh and Bihar, they would probably become a success in edible oil as well. There is a big expansion coming up in edible oil in the year 2008-09 which is going to translate into significantly higher earnings. They are paying good amount of tax, they have got a strong brand, they have got a very good distribution network, they are moving into edible oil - I think this sums like a very interesting story and it is available at a ridiculously low market capitalization.

If one looks at KS Oil, it is somewhere around Rs 2,000-2,500 crore and Jhunjhunwala Vanapati with the expanded equity it is quoting at somewhere around Rs 225 crore - a huge disparity.

Q: Asian Oilfield and Repro India, they are the other two picks - take us through the targets on those?

A: Asian Oilfield, it's in a very interesting industry - Seismic data exploration and interpretation. It's one of the big turn around stories over the last year. They have got a good orderbook Rs 175 crore, it's a high margin business in an area, in a sector which is expanding very rapidly. This is an interesting story, they have gone through a big equity increase which will fund their business expansion.

I would say at declines, this is a very interesting stock to follow. Much of the growth happens in the last quarter of the financial year; I was pretty disappointed with the companies performance in the first three quarters. But the last quarter, I would think would be a big recoupment of what's not happened in the first three quarters and if one takes this story ahead, 2008-09 and 2009-10 are going to be very interesting years because of the high orderbook that they already enjoy at the moment. High orderbook, high margins looks like a very interesting business to be in.

Q: What about Repro India, what's your target on that, what's the rational behind it, it's a value added print-solutions company as you pointed out. What are you looking forward as a growth drivers for this company?

A: I would start with a small overview of why people have not looked at this sector. Most of the companies in this sector have not delivered value to shareholders. I think Repro might just bring the trend and the fundamentals are that Repro has been reporting an increase in EBITDA margins over the last 4-5 quarters, I like that trend, the trend is positive.

Current fiscal year - in my estimate, they should end up with a topline of Rs 160 crore.

Workout the margins - that would imply that the earnings will be close to about Rs 15 crore post tax. That's very interesting Rs 15 crore post tax on an equity of Rs 10 crore which means that at this current price, it's close to about 7 to 8 on the P/E scale. That's pretty good.

But what's going to happen in the next fiscal year is pretty interesting. I see, significant increase in the topline and in this particular business, as soon as there's a traction towards the topline, the margin starts increasing significantly. So next year is very interesting, I feel that at the current level one is getting it at for the next years earnings at half the P/E of what one is paying for 2007-08 result; very interesting company in a sector where one has not looked at.

Q: What's the sense that you carry for the midcap and the smallcap space, in the current market condition you have been recommending stocks from both the segments, what's your sense of how investors will approach these two markets?

A: I feel that the investors would rather wait for the bigcaps to take-off and then get into the smallcaps. I'm not sure whether that's a great strategy to adopt because I feel that some of the midcaps and the smallcaps are going at ridiculous values. So maybe the sensible thing to be doing is to be appraising individual stocks on their respective merits rather than wait for the bigcaps to move and then dash on to the midcaps an smallcaps. So bottomline is - go for value where you see it irrespective of whichever segment the stocks maybe belonging.

Disclosure:

I hold stocks in all three.