See 100% upside in India Cements: Rajen Shah

Shah told CNBC-TV18, "India Cements is a contra call. In November 2004 I remember India Cements reported a huge loss of Rs 96 crore and the stock was at Rs 31. The capacity utilization in South was 65% and the cement prices were poor, the demand was weak and that is where you get the stock cheap. The best time to own a commodity stock especially a cement commodity stock is either the demand is very weak or the supply is abundant. Currently if you see the supply is abundant, capacity utilization in South India is about 65 to 70% and that is the reason why you are getting India Cements at this kind of valuations."

He further added, “Let us look at ACC and Ambuja Cement– ACC is about 30 million tonne we are getting it for, I have added the cash and took out the cash from the market cap and added that actually – if you work out 30 million tonne of ACC you are getting it about for Rs 18,000 crore, so around Rs 600 crore per million tonne.”

“If you see Ambuja, 30 million tonne for about Rs 20,000 crore, so around Rs 650 crore per million tonne. Even if you see South based Madras Cement 11 million tonne you are getting for Rs 5 crore, so Rs 450 crore per million tonne. But if you see India Cements you are getting about 16 million tonne for about Rs 4,200 crore market cap and that added together it works to about Rs 265 crore per million tonne. I think on all parameters India Cement looks too cheap actually.”

“It is a number one player in South, so I think in the next 2-3 years when the demand actually picks up we will see this company doing exceptionally well. That is what happened in 2004-2007 period. The stock went up 10 times. I am not saying the stock will go up 10 times but clearly see 100% upside in the next 3 years.”

“They are owners of Chennai Super King teams and sometime during 2012-2013 I do expect something to happen. The value of the Chennai Super King teams as of now would be somewhere around Rs 750 crore or so. If you take out that from the market cap, I think the stock is too cheap.”

“The last point I would like to make is that N Srinivasan himself has starting buying shares in the market by acquisition. They acquired about 3 lakh shares at Rs 70 levels or so. I think at these levels there is very less downside maybe about 10-15% or so but the upside could be as high as 100% in the next three years.”