Jayant Agro-Organics looks undervalued: Chugh

Chugh told CNBC-TV18, "As far as Jayant Agro-Organics is concerned the opportunity for the company is very big mainly because of the fact that there is a very important statistic, which is that India produces about 60% of the global production of castor seeds. I think that is something that will put castor companies in India at a big advantage, competitive advantage. Jayant Agro is probably the only listed play in the castor sector. I think that is what excites us about Jayant Agro. The user industry for castor oil and castor based chemicals range from lubricants to pharma, food to fragrances, telecom to paints and coating they are used in a variety of industries segments."

He further added, "If you look at the financials of Jayant Agro FY10 sales were close to Rs 900 crore, where the profit after tax is about Rs 12.5 crore. In the first half their sales are up by close to 55% to about Rs 580 crore. PAT is up by more than 100% to about Rs 13 crore, which is more than PAT for the full year FY10."

"We do not have any peer group as far as the listed space is concerned. But there is also a very big company in the castor business, which is Biotor Industries. Biotor Industries it is a private company, not much information is available about this company in public domain. But 2 years back this company gave a minority stake of about 25% to Morgan Stanley Private equity for about Rs 182 crore, which Biotor at close to Rs 700 - 800 crore. There are some press reports which suggest that Biotor maybe planning of IPO of about Rs 500 crore. Even if we assume 50% dilution it will give Biotor a market cap of about close to Rs 1,000 crore. Biotor is a company which is slightly bigger than Jayant Agro. So a market cap of Rs 1,000 crore for number 1 company and Rs 150 crore for number 2 I think the disparity will narrow down."

"The second thing is that Jayant Agro has formed a joint venture with Mitsui corporation where Mitsui holds about 24% stake to manufacture high value added products. I think once earnings from that venture start to kick in we can see a substantial rise in the earnings of Jayant Agro. I think the stock looks undervalued."