What are Fort Share's views on Patel Engg & Jai Balaji?

Below is a verbatim transcript of the interview. Also watch the accompanying video.

Q: What do you like in Patel Engineering as that is your first picked stock?

A: We like Patel Engineering from order front book position. This stock is into civil engineering space and is a pioneer in designing and construction of power projects and hydropower projects. It has also diversified into water and irrigation projects.

If we look into the order backlog of close to Rs 10,000 crore for a company, it is available at a marketcap of just Rs 1,000 crore. This stock would definitely hog limelight as this covers 2.8 times forward marketcap in sales to book ratios.

If we look into the entire order log, it is 45% for the hydro projects, 40% for water irrigation projects and the remaining 15% is for the built, operate and transfer projects into the road space. They already have BOT projects in Andhra Pradesh and Karnataka.

Going forward, this could be a big project for the company. If we look into this Rs 900 crore odd, the company is sitting on a decent debt into their books. At a price of Rs 150, the company is available at 8.5 times forward price earnings multiple. They have 1,100 acres of land spread across India.

If we adjust with the debt, it is at least Rs 45-50 on to the books. It does not make much of a sense, as the real estate stocks are not into limelight right now. Every time the real estate is in limelight, the stock tends to give 20-30% return in no time. If we look into the sum of total parts of valuation of the stock, it is close to Rs 270-280.

We had a sell report on Patel Engineering of close to 400 mark for a target of Rs 270-280. Right now, we are comfortable in investing into this particular midcap stock as their fair value NAV of Rs 270 is achievable in the next 12-15 months’ timeframe.

Q: Why do you like Jai Balaji Industries ? Is it because of any expected news flow or does it fundamentally looks well valued?

A: Jai Balaji Industries hogs limelight every time there is a coal related news. The company is sitting on close to 700 million tonne of integrated space into the coal mines of Purulia and 37 million tonne has been allotted to the company by the government in the Dumri coal block region.

We came with a buy report at Rs 180 on Friday. The stock was logged into upper circuit. We have been trading this particular stock from a coal perspective as well as the fastest integrated player in the steel space against other steel companies. We always take a hedge position into the stock.

Fundamentally, this stock has the potential to test close to Rs 350-400. We expect some positive news in the coal mines regarding their environmental clearance in the Andal East block region, Jagannathanpur A and B, which might test the stock even technically close to 255 levels.

If we look into the peer set recommendations on to the Jai Balaji stock, most of us have come out with a buy report on the stock for a close target of Rs 350-400 on NAV basis. We like to invest into this stock at close to Rs 180-200 mark. This stock has a potential to give almost 70-80% return at Rs 200 with very limited downside.

We feel that there will be interest into the company's coal assets. With the company’s expansion plans into Purulia, there will be a lot of trading interest into the stock, as the company wanted to sell some part of their Purulia project which is spread across 1,130 acres.

The company has a 1,215 megawatt of power plant and  an integrated cement plant of close to 3 million tonne and 5 million tonne of steel project. The stock is a good trading bet in the midcap space.

There is a limited downside into the stock. The stock should test the recommended levels of close to Rs 253 on spread basis with a little bit resistance of close to 235 odd levels. On the longer-term, the investors should be entering into the stock close to Rs 190-200 mark.