Eimco Elecon a multibagger stock: Ashish Chugh

Today not many people are interested in small caps but it is only during these distressed times that you are getting  well-managed businesses below their cash values. So these are extraordinary times but it does throw up extraordinary  opportunities also and Eimco Elecon is probably one of those opportunities, says Ashish Chugh, Investment Analyst.

Chugh told CNBC-TV18, "Eimco Elecon is a small company which is a part of the Elecon Group and this company  caters mainly to the mining and construction sector. This company manufactures machinery for mining and construction  sector. Now since both the sectors are currently facing difficult times I would say that this is a contrarian stock with high  risk, but however the valuations at which the company is available now the risk-reward is skewed in favour of the latter.”
He further added, “If you look at the financials of this company FY12 sales were about Rs 180 crore, Profit After Tax  (PAT) was about Rs 20 crore. This Rs 20 crore included an extraordinary income of about Rs 8-9 crore, which accrued  when the company sold a part of its business.”
“In the first nine months company has achieved about 3 percent growth in sales to about Rs 123 crore, PAT is about  Rs 12.7 crore which is slightly down by about 10 percent compared to same period last year, but the fact to be  mentioned is that this profit does not include the extraordinary income which was there last year. This company has a  small equity of Rs 5.77 crore which means the Earnings Per Share (EPS) for nine months is about Rs 22.”
“There are couple of other reasons we like this stocks. One is that this company has got uninterrupted track record of  dividend for the past 20 years. Company paid 40 percent each year for the last 5 years.”
“This company is totally debt-free. Another thing is that in the past 15 years this company has not done any equity  dilution or any fundraising. The promoter stake is high at about 74 percent and the best part is that the stock is available  close to its three-year low at about Rs 155.”
“The important part is the valuation of this company now. The stock currently trades at about Rs 155 which means  market cap of the company at the current price is about Rs 90 crore. This company is totally debt-free as I mentioned  and as on 31st March, 2012 this company had net current assets of about Rs 85 crore. This actually means that  company being debt-free, the market cap is almost equal to the net current assets, which means that you are getting  the business virtually free.”
“If I tried to be more conservative, out of these net current assets of about Rs 85 crore the company has cash and  cash equivalents of about Rs 55 crore alone. If I add the profit for the first nine months which is about Rs 12.5 crore, I  get a cash and cash equivalent of about Rs 67-68 crore, which means that I am getting this business for valuation of  about Rs 20-25 crore. This is a business which is doing a PAT of about Rs 15 crore in times which are considered  tough for user industry.”
“So I think we are in a time where not many people are interested in small caps but it is only during these distressed  times that you are getting well-managed businesses below their cash values. So these are extraordinary times but it  does throw up extraordinary opportunities also and Eimco Elecon is probably one of those opportunities.” Disclosure: I have no personal investments in Eimco Elecon.