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May 22, 2012, 12.12 PM IST
S Kumars has target of Rs 45- 50, says Aashish Tater, Head of Research, Fort Share Broking.
Tater told CNBC-TV18, “Before taking a call on textiles, we have been studying patterns which help us to find where could be the next smart money moving in. Last time when we took a call on asbestos sheet, despite index going from 4,700 to 5,500 and back to 4,900 levels, in that three months period or four months period asbestos sheet has given you a return of almost 40% weighted average across all the stocks. Now similar pattern is visible during May period to somewhere around Diwali period that is almost five-six months where we feel textile stocks are ought to do well and if I take my quant model into perspective, all the textile stocks seems to bottom out or very near to the bottoming levels especially ex-Raymond and Century where we have got neutral view at current levels.”
He further added, “If I take the entire perspective and then match with my fundamental call, I feel S Kumars has potential to give you decent returns in just three-four months perspective. Now these are strong market buzz like promoters might be either exiting of Reid & Taylor or would be looking for an IPO. IPO call at current level would be out of question but looking at deals that happened with Pantaloons, I feel there could be a possibility of Reid & Taylor actually getting sold off. Now if I take an entire call from the revenue perspective, if you want S Kumars, you should have an enterprise value of approximately USD 1 billion which is roughly 5,000 crore. Now I took a balance sheet call on to it and that is what is worrying me. 3,400 crore of debt and 800 crore of marketcap roughly works out to be 4,200 crore. The respite would come from Reid & Taylor, which is a quite possibility and if I see the weighted average lows for last four years, it adjust at a regression of Rs 22.85 and this year they have already made a low of Rs 22.1. That means it is very near to its low.”
“On upside, the stock tends to go to Rs 55-78 odd levels where my regression target comes to at Rs 62.25 but we would be happy to book out a large part of our profit somewhere between the range of Rs 45 to Rs 50 for the simple reason because of the stretched balance sheet and we would like to see how the sell proceeds or the IPO proceeds are used either to retire debt or the company keeps itself for expansion because going for an unwarranted expansion even from current levels would be distressing for the company. But if I see all these aspect, I feel the risk reward ratio is extremely beneficial for people who are holding this stock at current levels from next four-six months perspective where we are expecting Rs 45-50 as our first target and the regression target of Rs 64 also looks quite achievable. If all the things that we expect patterns out well for the company in days to come.”
Disclosure: I do not have holdings in the stocks discussed.
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