Limited downside seen in Hikal, says Rajen Shah

Shah told CNBC-TV18, “ Hikal is a very low profile company. It is a 25 year old company but very profile rally spoken about on the media and but the promoters are very strong, the Pune based Kalyani Group is one of the promoters along with Hiremath family of Pune. So these are the two strong promoters of this company and both these promoters own about 34% stake each in this company. So the promoter holding is at about 68% in this company.”

He further added, “What is this company doing? This company is basically into pharmaceutical and crop protection business. Both the businesses are doing very well. The pharmaceutical business, which contributes about 65% to topline grew at about 40% last year and the crop protection business, which contributes about 35% to the topline, the balance 35% grew at more than 42% last year. So both the businesses are doing well. If you see the financials, the results were declared just a week back and they were absolutely very strong, very good numbers. The topline which was 500 crore in 2010-2011 grew to 700 crore in 2011-2012 i.e. last year, that is a 40% jump in topline and the bottomline unfortunately was up about 25% on account of certain exceptional losses in the forex front. But for these forex losses, the bottomline would have been easily up by more than 50%. The EPS works out to about Rs 28-29 for last year. Now the company’s management has very clearly mentioned in the press release that this momentum in the topline and the bottomline would continue in the current year as well. We at Angel Broking have made a very conservative estimate of 20% kind of topline growth and about 25% of bottomline growth. We have not at all considered the weak rupee because rupee has moved up from 46-47 to 54.”

“This company will benefit because almost 75% of its turnover comes from exports. So without factoring that, I think the company should easily report about Rs 35 kind of earnings and at 15 kind of P/E multiple, which this company deserves on account of strong promoters, I think the stock is worth Rs 525. The book value of the company is about Rs 200 and it is currently quoting at Rs 270. So I think it is very compelling the price. The other interesting thing is that I think the stock has corrected from a high of Rs 450 in November 2010 to current levels of Rs 270. So that is a 40% correction. I think there is hardly any downside in this company and the company pays 60% dividend, Quality Company, good promoters, very low floating stock in the market, decent valuations, I think in times like this, this kind of stocks will certainly help one make a decent portfolio.”