Finolex Industries has target of Rs 60: Rajen Shah

Shah told CNBC-TV18, "I am exiting Escorts and getting into Finolex Industries. If you see the progress of monsoon till date I am pretty sure looking at the progress of monsoon the state government would aggressively take up a irrigation projects and even the farmers will take up aggressively making their fields more irrigated on a war footing basis - that is what I strongly believe and if you see the total farm fields in India almost 20% of them are irrigate and the rest 80% are rain feed or dependent on monsoon. So irrigation is going to be a significant business opportunity in the coming years.”

He further added, “The one player which comes to my mind is Finolex Industries. It is into manufacturing of PVC and PVC pipes, which are used in setting up irrigation systems. If you see the first quarter numbers of Finolex Industries the volumes in case of PVC pipes is up 32%. I think that is a significant growth and interaction with the management clearly gives us an indication that great times lay ahead for this company. Based on the first quarter numbers we are expecting Finolex to report almost Rs 10 kind of earnings for the current year.”

“Finolex is quoting about Rs 53-55 levels, it is quoting at 5.5 times the current year earnings. Whereas Jain Irrigation which is in a similar kind of business is quoting at almost 20 times the earnings, so it is a step motherly treatment I would say being met out to Finolex Industries by the market man, so I see immense upside potential. Finolex Industries is holding almost Rs 100 crore worth shares of Finolex Cable , which is a power and electrical cable manufacturer and which should do very well. Beside it has got a small port at Ratnagiri, this port is being used for imports of PVC and LPG for BPCL . But now the management is keen on making it a significant port over there, developing it and making it commercially viable for the company, so that is another thing."

"Thirdly it has got about 70 acres of land at Chinchwad, the value of that is about Rs 250 crore post tax. If you add all this thing it works out to about Rs 500-600 crore whereas the market cap is about Rs 600 crore. So you are getting the PVC business that is 2.6 lakh metric tonne of PVC and 1,40,000 metric tonne of PVC pipe manufacturing capacity absolutely free. So long term target is Rs 100 and target for the day would be about Rs 60.”

Disclosure: We hold the stock.