Ashish Chug's view on NCL Industries

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Ashish Chug's view on NCL Industries

Ashish Chugh, Investment Analyst, Hidden Gems share his view on NCL Industries.

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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 NCL Industries See messages about NCL Industries

Ashish Chugh, Investment Analyst, Hidden Gems share his view on NCL Industries .

Chugh told CNBC-TV18, "NCL Industries is a stock which is out of radar for most investors. This company was earlier called Nagarjuna Cements Ltd. and it had set up a mini cement plant in Nalgonda District of Hyderabad. In the past four years, NCL Industries has graduated from a mini-cement plant into a mid-sized company. The capacity of the company has grown from about 3 lakh ton per annum to about 2 million ton per annum between 2006 and 2011."

He further added, "The company also manufactures various products besides cement. It has cement board divisions that manufactures cement bonded particle boards and are sold under Bison brand. Bison is a well recognized brand in the cement particle board industry. NCL Industries also has ready mix concrete division (RMC), the prefab division and also energy division where it has a 15.5 MW hydel power project. The company does close to Rs 10 crore of revenues from the hydel project and makes profit of about Rs 6 crore from it."

"Meanwhile, FY11 sales of the company were around Rs 360 crore, around 50% more than the sales clocked in FY10. Profit after tax was about Rs 23 crore, almost 100% jump compared to FY10. In the first half of the current financial year, sales were about Rs 230 crore, up about 75% over the same period last year. Profit after tax was about Rs 28 crore as against the loss of close to Rs 10 crore, which the company did in the first half of FY11."

"EPS on trailing 12 month basis is about Rs 17.5. The stock is available at a PE multiple of about 2. On a trailing 12 month basis, the profit after tax will be about Rs 60 crore and cash profit will be Rs 90 crore. So as against the PAT of about Rs 60 crore and cash profit of Rs 90 crore, the market cap of the company is just about Rs 130 crore, which is just about 1.5 times of the company's cash profit."

"NCL Industries has been a regular dividend payer for the past 10 years. The company paid 15% dividend in FY11, which at the current price translates into a dividend yield of about 4.5%. The whole analysis of picking the stocks is that we are getting a company from a sector which is out of favour. Once the situation improves, this stock will do well based on strong financials."

"At present, the sector is plagued with many problems. The coal prices are high; the input prices for cement companies are also soaring, but once the demand picks up most of them will be able to pass on the hike to the customers. So I think the PE ratio will drop further once they pass on. This is a time when most analysts are not looking at cement sector. Nobody is interested to buy the cement companies. But I think this is a contrarian bet. I don't see too much of risk from these levels. It gives investors a good dividend yield also. As the industry revives, I think the stock has a potential to give good returns."

Disclosure: Me and my family may have small investments in the above stock.