Accumulate UB Engineering below Rs 50: Chugh

Chugh told CNBC-TV18, “UB Engineering has fallen roughly 75% of its high of about Rs 215 which it touched last September. It currently trades at about Rs 50-51. I believe that the negatives with regard to the company as well as the sector seem to have been factored in at the current price of about Rs 50-52. I believe that this could be accumulated at the current market price. In the event of this market going down further and the stock declining further, I think anything below Rs 50 would be a great price to buy into this stock. Now this company as the name suggests is involved in the EPC projects, infrastructure projects. They are into onside fabrication of structures for large industrial projects and they are catering to a variety of industries including power, steel, refineries, fertilizers and also desalination projects.”

“Company is executing projects not just in India but they are also doing projects overseas. Now company last year incorporated wholly on subsidiary called UB Infrastructure limited which is foraying into construction of roads, highways and bridges. If we take a look at the financials of the company, FY11 sales were about Rs 610 crore which were up by close to 15% over FY10. Profit after tax was about Rs 26 crore which was up by 13%. Equity of the company is about Rs 17 crore. So EPS for FY11 was close to Rs 15. In Q1 FY12 company has done sales of about Rs 102 crore which was down by 23% over the same period last year. Profit after tax is down to about Rs 2.5 crore compared to about Rs 6.9 crore which it did in same period last year. But the thing to be seen is that the stock price has also been hammered down from over Rs 200 to the current levels of about Rs 50. At the current price the market cap of the company is just about Rs 85-90 crore.”

“The revenues of the company are over Rs 600 crore. Profit after tax FY11 was about Rs 26 crore. Of course it is going to come down given the slowdown which we are witnessing in the infrastructure space these days but given the fact that this company has got an order book of about Rs 1000 crore which is roughly 1.5-2 years of its revenues and also given the fact that Mr. Vijay Malaya has put a target of UB Engineering becoming a USD one billion company in the next five years, I think if the company is able to accomplish just about 50% of what he is talking about, that will still mean a growth of, CAGR of about 30% for the next five years. So I think given all these factors at the current market cap of about Rs 85-90 crore, the stock looks value.”

He further added, “Also given the fact that engineering maybe a non-core business for the UB Group, I do not rule out a possibility of the company getting sold at some point of time. I would like to clarify that there is no proposal or any indications from the group as such but this is only my assumption that this is a non-core business of the group so since the company is reeling under losses in the airline business, at some point of time I do not rule out that possibility, it may happen six months down the line or it may happen three years down the line. That is something which is very difficult to say but in the event of that happening, that could be a major value un-locker for the shareholders.”