Buy Essel Propack, says Rajen Shah

Shah told CNBC-TV18, "Essel Propack is not any Tom, Dick and Harry company. It was once sort of sought out midcap company. This I am talking about 2004, 2005 and 2006. If you see the aggregate turnover in these three years it was about Rs 900 crore and the profit was about Rs 90 crore. So the net profit margin was as high as 10% during those good days. But one thing I have observed in the market is that when a good company goes through a prolonged phase of non-performance it’s sort of written out by the investing fraternity and that is what precisely seems to be happening with Essel Propack. After those good days the company seems to have got a little more overconfident and got into aggressive expansion, acquisition and certain unrelated diversification and that actually backfired and we saw what happened."

He further added, "The company’s marketcap came down by 60% over the past six years; since 2006 the company’s market cap is down almost 60%. But now what has happened is that the management has realized this. Last year they realized this and have been acting towards cleaning up all these things. If you see the annual report Mr. Subhash Chandra has very clearly mentioned that the immediate goal of the company is to attend the peak profitability levels of 2006."

"In 2006 the company reported Rs 99 crore of profit. I do expect the company to reach this level in the next two-three years and when it reaches the company’s EPS would be about Rs 6.5. In the past Essel used to trade at about Rs 80-85. The downside is very low but the upside is very high and interestingly over here one should keep in mind is that in these past five years if you see the companies to which has been supplying these laminated tubes and all that, they have grown up four-five times."

"Like Colgate market cap has gone up four times, HUL has done pretty well, so I think when all those companies to which it is supplying its product is doing well Essel should not lag behind. So I think risk is very low, upside is very high, so a decent buy at the current levels."

Disclosure: We own Essel Propack in our PMS.