See re-rating in Fedders Lloyd: Chugh

See re-rating in Fedders Lloyd, says Ashish Chugh, Investment Analyst & Author of Hidden Gems.

Chugh told CNBC-TV18, "Fedders Lloyd is a Delhi based company. This company is primarily into three business segments. They are into refrigeration and air-conditioning. The company is also into engineering and structural steel business and the company operates also in the power transmission and distribution business. Now as far as the air-conditioning and refrigeration business is concerned, this company provides air-conditioning solutions mainly for commercial establishments, they cater to institutions like railways, they are also catering to the mining and defense segments also to the corporate sector."

He further added, "In the engineering and steel structural business, this company provides turnkey fabrication solutions for a large industrial projects and the company also operates in the power transmission and distribution business wherein it provides EPC solutions for power transmission and distribution projects."

"If you look at the financials of the company, FY10 sales were close to Rs 700 crore which were up by 50% compared to FY09. Profit after tax (PAT) was about Rs 40 crore, up from about Rs 11 crore which the company did in FY09. In the first quarter of this financial year, incidentally, the financial year for this company is July to June. So in Q1 ended September of 2010, this company has done sales of close to Rs 190 crore, which was up by about 18% over the same period last year, profit after tax was about Rs 11.5 crore up by about 35%. EPS on trailing 12 months basis is close to Rs 15 which means at a current price of about Rs 75-76 the stock is traded at a P/E multiple of just about 5-5.5."

"Now if you compare this company with the peer group namely Blue Star and Voltas Ltd, you find a significant undervaluation to the peer group. Now Voltas and Blue Star both command a P/E of close to 18-20 times and they have a marketcap of about 1.5 times of their sales whereas in case of Fedders Lloyd, this company trades at a P/E multiple of about 5-5.5 and as a marketcap to sales of just about 0.35, the marketcap of this company is just about Rs 235 crore and does a sales of around Rs 700-750 crore."

"If you see the balance sheet of the company, this company is asset rich, out of the total gross block of about Rs 150 crore, company has got freehold land of about Rs 38 crore, company has got a five acre plot which is located in Delhi at a prime place in South Delhi which maybe very valuable as of now. But I think the main trigger for re-rating of the company is not going to be the property but it is going to be sustainability of earnings."

"The major concern about this company is low dividend payout even though this company makes an earning of about Rs 15, this company pays only Re 1 dividend to the shareholders. So I think it is a bit of a concern. I think the re-rating for the stock could be on account of increased investor friendliness of the company and also if the company is able to sustain its earnings and grow at the same pace for which it has been growing for the past couple of quarters, I think we could see a re-rating of the stock."