Andhra Cement looks undervalued: Chugh

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Andhra Cement looks undervalued: Chugh

Andhra Cement is looking undervalued, says Ashish Chugh, Investment Analyst & Author of Hidden Gems.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by Ashish Chugh See what other Experts & Brokerages are saying about Andhra Cemen See messages about Andhra Cemen Andhra Cemen BSE | NSE 31/05/12 Are Mutual Funds betting on Andhra Cemen?

Andhra Cement is looking undervalued, says Ashish Chugh , Investment Analyst & Author of Hidden Gems.

Chugh told CNBC-TV18, "We like Andhra Cement because of the capacity expansion, which is going in the company. This is a GP Goenka group company which has got two cement plants with a total capacity of 1.4 million tonne per annum. In FY09 this company achieved a sales of close to Rs 370 crore, profit after tax (PAT) was about 60 crore, which results in an EPS of about 4.5. At the current price of about Rs 28, stock is traded at a price to earning multiple of about 7."

He further added, "This company is undertaking a capacity expansion which will take its capacity from 1.4 to 3.5 tonne per annum. The increased capacity is going onstream in the next couple of day's maybe next week as what Mr GP Goenka mentioned in a recent interview with CNBC-TV18. So I think you have a company which is available at a price to earning multiple of about 7 on the old capacity and with the new capacity going onstream next week which is going to potentially add the turnover by 2.5 times, since the capacity is going up from 1.4 to 3.5 million tonne per annum, I think at the current market cap of about Rs 350 crore and the current P/E of 7, the stock is undervalued."

"Promoters have been increasing their stake in the company through market purchases and there has been a lot of inter state transfer between the promoters also. So promoters also realize the potential of the company. The heartening fact is that the promoter's stake in the company is close to 75%. So over the next few years, there is potential for dilution."

"I see Andhra Cement is one of those candidates where potentially since there is a lot of interest in the cement companies from foreign players, there could be some kind of a strategic investor coming into the company or maybe some majority stake being given to some potential investor. I think Andhra Cement maybe a fit case where those possibilities exist. Fundamentally also at a price to earnings multiple of 7 on 1.4 capacity; of course earnings are going to grow up when the expanded capacity goes onstream. So at Rs 28 again, this is a market where midcaps and smallcaps have run away quite a bit. Andhra Cement at Rs 28 looks to be a stock where the downside looks restricted even if the market falls and since the earnings are going to rise in the coming years, there is scope for significant appreciation from these levels."