Invest in Tube Investments, says Rajen Shah

Invest in Tube Investments, says Rajen Shah, Angel Broking.

Shah told CNBC-TV18, "Tube Investments is one of the prominent companies of the south based Murugappa Group. The other prominent company is Coromandel International, E.I.D-Parry, Carborundum Universal, to name a few. This company is basically into 4 businesses, one is the engineering business where in it makes precision tubes, which find application in automotive industry and general engineering industry. Recently it has also got into manufacturing of stainless steel tubes and it is catering to variety of other industries."
He further added, "The second business is cycle business. Last year it sold about 45 lakh cycles and enjoys a market share of almost about 30-31%. Third is a metal formed product business wherein the company manufactures automotive chains, industrial chains and car doorframes. In the car doorframes business the company is a market leader with a market share of almost 60% and supplies to almost all the major passenger car manufacturers."
"And the fourth is a finance business wherein through its subsidiary Cholamandalam Investment where it holds about 54.5% kind of equity stake, the company does vehicle financing, home loans and in the last quarter of last year it got into gold loan business as well."
"The other business is the general insurance business wherein it holds 74% stake in Cholamandalam, which is Sumitomo General Insurance, which has actually turned around. If you see last year the engineering business in value terms went up by 21%. The cycle business in value terms went up by about 15% and the metal formed product business went up by about 12%."
"All these business did pretty well. But the real surprise came in from the finance business of Cholamandalam Investment where the disbursements went up by as high as 55%. So that was spectacular performance from the Cholamandalam Investment company. Also the gross return premium in case of Cholamandalam MS General Insurance went up by 44%. So these two businesses did exceptionally well."
"Now this all obviously reflected in the companies bottom-line which went up by 37% to about Rs 270 crore. This year we are expecting the engineering metal formed product business, the cycle business to do reasonably well growing at about 12-14% average. But we believe that the finance business is going to do exceptionally well in the current year as well."
"The management in the concall had very clearly mentioned that the disbursement in case of Cholamandalam Investment will be as high as 35% in the current year and the gross return premium could go up by about 20-25% in the current year as well. So what we are expecting is about 15% kind of bottom-line growth resulting in an EPS of about 16.5. At 12-12.5 of PE multiple which a company like Tube Investments because of the quality promoters should enjoy. The stock price works out to about Rs 200-210."
"The real story will unfold in 2014-15 when the huge capex which the company has undertaken currently, its largest ever capex of Rs 500 crore will come into play. This capex is likely to get over by December 2013. So 2014-15, the full impact of this capex will come into play when the turnover and the profitability is likely to shoot-up significantly."
"For 2014-15 we are expecting the EPS to be around 21-22. At 12.5-13 PE multiple the stock can go up to about Rs 280 levels. The current price is Rs 145. So the downside is very limited in the stock about 10-15%, the upside is 100% in 3 years. So it’s a quality company and one needs to invest at the current levels." Disclosure: We own Heritage Foods in our PMS.