See upside in Ballarpur Industries: Rajen Shah

See upside in Ballarpur Industries (BILT), says Rajen Shah of Angel Broking.

Shah told CNBC-TV18, "We had recommended Ballarpur Industries (BILT) sometime in 2009-10 at about Rs 25-26 and our target was Rs 45. It did touch Rs 41 actually. Now paper stocks are not those who would give you superior returns on a consistent basis but they do provide good returns if one is able to time well ones entry and exit. So BILT is such stock wherein you need to plan out your entry and exit at the right time."

He further added, "We did enter at about Rs 24-25, we did exit when there was upper circuit when the management came on the channel and spoke about, that was a day we booked significant profits on BILT because you need to get into this companies when they are going through rough times, turbulent times and exit when the times are turning to good actually. So that is a strategy we follow in this kind of commodity plays."

"Now last year was not too good for BILT. If you see the 9 month numbers, it is a June year end company, so in March they completed 9 months and for 9 months they reported a 35% kind of drop in profitability and that is a reason why the stock has cracked almost 45%. Last year it was Rs 38, now it has come down to about Rs 21. So it corrected 45% and that is the reason why we like the stock because at this point of time, I believe that the worst for BILT has been factored in."

"What has happened over the last 6-9 months is there are two things which have happened, one, 1.2 lakh tones of pulp manufacturing plant at Sabah forest in Malaysia has got operational and has now stabilized and last month its 1.7 lakh tones of pulp manufacturing plant at BILT has commenced operations. So it may take couple of months for it to stabilize but the management had very clearly mentioned in last years annual report that once this pulp manufacturing thing is into the play, margins will improve significantly."

"So far BILT used to buy pulp from the open market and there were times when it would not get it on time, there were times when it had to face the volatility and all that. But now with integrated operations, margins are bound to improve significantly. For the current year from July onwards we are expecting the EPS to shoot up from Rs 2.25 estimated for last year to about Rs 3 and next year Rs 3.5 and last time when the EPS was 3.5 year just two years back, the stock was at about Rs 40. So there is a very decent upside and the risk is very low."

"Also 3 things have happened in this company, 3 years back the management bought Rs 38 crore shares at a price of Rs 25 which is above the current ruling price. 2 years back the management took up 10 crore shares at a price of Rs 30 which is 50% higher than the current market price to raise their stake from 40 to Rs 49 and last year when International Papers bought out Andhra Paper, they paid an EV of Rs 2.5 thousand crore for 2.5 lakh tonne paper manufacturing plant and BILT is a 1 million tonne paper plant available at a market cap of just Rs 1370 crore. The capital employed in the business is Rs 8000 crore."

"I am seeing a very decent upside, this is not a stock which is going to give you sustained superior returns on a sustained basis, this is a stock wherein you need to plan out your entry and exit at the right time and if you are able to do that successfully you end up making decent money in 24 months."