Fairfield Atlas can touch Rs 240-250: Rajen Shah

Fairfield Atlas can touch Rs 240-250, says Rajen Shah, Angel Broking.

Shah told CNBC-TV18, "Fairfield Atlas is a very good quality company. It’s a very low profile company, rarely spoken about on the media. It’s a small cap company; the marketcap is just about Rs 434 crore and 84% of its equities held by TH Licensing which is a wholly owned subsidiary of Fairfield Manufacturing Company US which is in turn a part of the OC Oerlikon Group of Switzerland. This OC Oerlikon Group of Switzerland basically operates in about 38 countries at about 150 locations and is a 4.2 billion Swiss franc group. So this is just a brief about the parent. It has a very strong well-known parent."
He further added, "This company basically manufactures automotive and industrial transmission gears and gear boxes. Last year it reported about Rs 250-260 crore of turnover and almost 50% of it comes from exports. Even in the domestic market if you see it is doing pretty good. It has got very good clientele like Mahindra and Mahindra, which is a very prime clientele, John Deere, TAFE, Carraro to name a few of its clients."
"If you see financially this company has been doing well for the past two years. Last year it reported 50% growth in top-line and a very decent bottom-line resulting in an EPS of Rs 12. If you see the first quarter of current year, it was challenging for the best of the corporate and yet this company reported 32% kind of growth in the topline and about 175% growth in the bottomline. The bottomline went up from Rs 3.7 crore to about Rs 10.2 crore."
"Assuming that there is no growth in the bottom-line for the next three quarters still the company will end the current year with an EPS of almost Rs 16-17. Even if you give it a 15 kind of PE multiple, I think the stock is worth about Rs 240-250."
"Come June 2013 and the new SEBI directive, which says that minimum public holding has to be 25%. Promoters with more than 75% holding either need to bring it down to 75% or hike it to 100% and delist the company. When that comes we expect the parent to come out with a open offer and if you see most of these companies, which have got very good multinational companies as a parent, they are all quoting at 25-30-35 kind of PE multiple. Even if you give a 20 kind of PE multiple to Fairfield Atlas supposing at 20 PE multiple, the parent goes in for delisting this company."
"The stock is worth Rs 300 and it’s not a big deal for the parent, because only 16% of its equities in the market, so if they were to come out with a 16% open offer even at double the current rate they will have to just pump in Rs 140 crore which is peanut for the parent. So we are looking at a very decent upside. The risk in the stock is very low."