Ashish Chugh unearths hidden gems for your portfolio

Ashish Chugh, investment analyst and author of Hidden Gems advices long term investors to pick Shreyas Shipping and UB Engineering.

Shreyas Shipping:

The name of Shreyas Shipping is a misnomer because this is not exactly a shipping company, it is more of a logistics company and I would say that this is an ignored stock from this space. This company started with costal shipping a couple of years back and has diversified into various segments in the logistic space over the years. This company has got a 100% subsidiary which is into road transport, rail transport and also warehousing whereas the parent company handles the costal shipping business.

If we look at the financials of the company, in FY10 this company made a loss of about Rs 15 crore. In FY11 there was a turnaround in the company and the company made revenues of about Rs 190 crore, which were up by about 25% over FY10. The company also made a profit after tax of about Rs 12.7 crore.

Talking about quarter one, sales are up by close to 10% to about Rs 46 crore. However, there was a small loss of Rs 1 crore on account of dry docking of one of the vessels. This also led to a loss in revenue of close to Rs 6.5 crore. On the positive side, the management has indicated that they are expecting to grow by about 100% in FY12. They are also expanding their businesses in various segments - they have charted a new ship for the costal business and they have also added on trailers and expanding their capacity in the warehousing space.

So I think for a company which is doing a turnover of close to Rs 200 crore and even if we assume that they grow only by 50%, it will still mean a turnover of close to Rs 300 crore. With Rs 60 crore market cap for this kind of a company where the profit potential growth potential is high, I think the stock is available very cheap close to its 52 week low of about Rs 25-26. So this is something which can be accumulated by the long term investor given the uncertainty which is prevailing in the market at this point of time.

UB Engineering:

This has fallen roughly 75% of its high of about Rs 215 which it touched last September. It currently trades at about Rs 50-51. I believe that the negatives with regard to the company as well as the sector seem to have been factored in at the current price of about Rs 50-52 and I believe that this could be accumulated at the current market price. In the event of this market going down further and the stock declining further, I think anything below Rs 50 would be a great price to buy into this stock.

Now this company, as the name suggests, is involved in the EPC projects and infrastructure projects. They are into onsite fabrication of structures for large industrial projects and they are catering to a variety of industries including power, steel, refineries, fertilizers and also desalination projects. The company is executing projects not just in India, but they are also doing projects overseas. Last year, the company incorporated a subsidiary called UB Infrastructure Ltd which is foraying into construction of roads, highways and bridges.

Looking at the financials of the company, FY11 sales were about Rs 610 crore which were up by close to 15% over FY10. Profit after tax was about Rs 26 crore which was up by 13%. Equity of the company is about Rs 17 crore. So EPS for FY11 was close to Rs 15.

In Q1 FY12, the company has done sales of about Rs 102 crore which was down by 23% over the same period last year. Profit after tax also fell down to about Rs 2.5 crore compared to about Rs 6.9 crore which it did in same period last year. But the thing to be seen is that the stock price has also been hammered down from over Rs 200 to the current levels of about Rs 50. At the current price the market cap of the company is just about Rs 85-90 crore, the revenues of the company are over Rs 600 crore and profit after tax FY11 was about Rs 26 crore.

Given the slowdown which we are witnessing in the infrastructure space these days, the profit was bound to fall. But given the fact that this company has got an order book of about Rs 1000 crore which is roughly 1.5-2 years of its revenues and also given the fact that Mr. Vijay Malaya has put a target of UB Engineering becoming a USD one billion company in the next five years, I think if the company is able to accomplish just about 50% of what he is talking about, that will still mean a growth of, CAGR of about 30% for the next five years. So I think given all these factors at the current market cap of about Rs 85-90 crore, the stock has value.

Also, given the fact that engineering is a non-core business for the UB Group, I do not rule out a possibility of the company getting sold at some point of time. I would like to clarify that there is no proposal or indication from the group as such but this is only my assumption. The company is reeling under losses in the airline business and at some point of time, maybe six months or three years down the line, it may sell. That is something which is very difficult to say but in the event of that happening, it could be a major value un-locker for the shareholders.