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Investment Analyst Ashish Chugh discusses his favourite picks - Swaraj Mazda and Sterling Holiday Resorts.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Swaraj Mazda gearing up for the bus industry Lakshmi Precision Screws sales up 21% & net profit up 34% 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 ITC BSE | NSE 29/05/12 Are Mutual Funds betting on ITC? Other Stocks in this news Punjab Tractors | SML Isuzu | Taj GVK Hotels & Resorts | Sterling Holiday Resorts (India) |

Investment Analyst Ashish Chugh discusses his favourite picks - Swaraj Mazda and Sterling Holiday Resorts .

Chugh states that legal issues in the company have affected Swaraj Mazda. He informs that the profits of the company, which were about Rs 24 crore for the year ended March 2005, have dropped to about Rs 17 crore. Hence, he feels that this uncertainty provides the long-term investor with an opportunity to buy the stock at lower levels. He feels that the long-term potential of the company remains good.

As for Sterling Holiday Resorts, Chugh believes that once this company starts making profits or if the company sells its stake to somebody, it will be at a much higher price. Once that happens, Chugh feels that people will be more convinced about the potential of the company.

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

Q: Swaraj Mazda is a stock that you like quite a bit. Take us through that story and the valuations.

A: It was promoted by Punjab Tractors Limited and Mazda Motor Corporation of Japan, way back in the late 80s. Mazda Corporation sold out its stake last year in favour of Sumitomo Corporation.

Punjab Tractors also diluted a part of its stake in favour of Sumitomo at a price of Rs 400 a share. There are five major shareholders in this company, which together hold about 80% of the stake.

These are Sumitomo Corporation, which holds about 41% and Punjab Tractors is 14%. Besides these two companies, CDC, Actis and Reliance Mutual Fund also holds majority stake in this company. Together, these five shareholders hold about 80% stake in this company.

This company manufactures light commercial vehicles and specialty vehicles like ambulances, police vehicles, water tankers and such structured vehicles. The stock price of this company touched a high of Rs 435 in January 06. But it dropped to more that 50% from those levels, primarily because of a management tussle between two groups of share holders.

This tussle is because of some shares of Punjab Tractors, which were sold in favour of Sumitomo Corporation last year at Rs 400. One group of shareholders did not want those shares to be sold to Sumitomo Corporation because they had a share in Punjab tractors. Now there is an uncertainty in the minds of people as to what will happen. And because of that uncertainty, operations of the company has suffered.

The profits of the company, which was about Rs 24 crore for the year ended March 2005, has dropped to about Rs 17 crore. The company has reduced the dividend from 75% to 55%. But again, this uncertainty provides the long-term investor an opportunity to buy the stock at lower levels.

The long-term potential of the company remains good. There are some indications, which are a pointer to the good events that are happening in the company. In a recent move, this company has tied up with Isuzu Motor Corporation of Japan wherein they will use the manufacturing facility of Swaraj Mazda to manufacture Isuzu vehicles in India.

These vehicles will be sold through the dealer network of Swaraj Mazda. So there is

of course an uncertainty because of which the operations of the company are suffering. But I believe that this may be a temporary phenomenon and the long-term investor can use this uncertainty to acquire the stock at a cheap price.

The fact is that the five major shareholders have about 80% equity, leaving very little float in the market. So as soon as there is any good news, the stock can shoot up really fast because the float is limited.

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