Multibaggers: Rajen Shah bets on 2 stocks for 50-66% profit

In an interview to CNBC-TV18, Rajen Shah, CIO of Angel Broking picks two stocks as his multi-baggers for the day. Shah bets on CCL Products India & Shiva Texyarn, which according him are undervalued stocks and can give returns up to 50 percent in next 18 months and 66 percent in next six months respectively.

Also read: Sell on rallies; mkt may sink to 5500-5600 says Sukhani On CCL Products India Coffee culture in India is picking up and so is the consumption of coffee. Today I am recommending this very low profile Hyderabad based company called CCL Products India. The company is in the business of importing coffee beans, processing it and exporting it. Almost 90 percent of the company's turnover comes from export. It exports to very big names, which basically sell CCL coffee under their own brand name internationally. So far the company had been focusing on the export market. However, now the company is planning to get serious about the domestic market. It has recently joined hands with a number of retailers to sell its coffee under the retailers' brand. So the retailers would be buying coffee from CCL Products and selling it under their own brand. So, domestic operations of the company are in for a substantial jump in the coming years. To talk about CCL in a bit, CCL has currently got three plants. One is at Guntur District in Andhra Pradesh which is said to be a world-class plant. The second plant is at Switzerland, which caters to the requirements of its European clients. The third plant, which has been set up at a cost of about Rs 125 crore just got operational a few months back and that has come up at Vietnam, which would be catering to the Japanese market and the Far East markets. The thing is that if you see the performance of CCL Products India, for the past two years the company has been growing at a steady pace. However, this year if you see the first nine months' financial results, they are extremely amazing. Turnover went up by 32 percent in the first nine months from Rs 360 crore to about Rs 475 crore or so and profit went up by 67 percent from about Rs 22 crore to about Rs 37 crore or so. But if you see the Q3 results -- because the Vietnam plant commenced operation in that quarter -- there is a 52 percent jump in turnover, from Rs 130 crore to about Rs 200 crore and the profit went up by 75 percent from about Rs 8.75 crore to about Rs 16 crore or so. Now that the Vietnam plant has stabilized and commenced operations, we expect the performance of CCL Products India to improve in the current quarter as well as in the coming year, because in the coming year we will see the full impact of the Vietnam plant. This year already the company has achieved an earnings per share (EPS) of Rs 27 or so in the first nine months, we are expecting this EPS to go up to at least about Rs 38-40 in the current year. Also, next year since we will have the full impact of this Vietnam plant, its EPS could shoot up to at least about Rs 46-48. So, the stock is very undervalued at this level of about Rs 295. In the recent midcap carnage, this stock came down from Rs 371 to about Rs 295 levels or so. At this level of Rs 298-300, the stock is quoting at hardly about 7 times the FY14 earnings. I think there is a clear case for 50 percent upside in CCL Products India over the next 18 months or so. On Shiva Texyarn It is a very low profile company. Talking about this industry, if you see over the past nine months the spread between cotton, which is a raw material, and yarn, which is a finished product, has worked very favourably for yarn manufacturers across the country. Hence, we saw almost all yarn manufacturers report bumper numbers in the first nine months. Vardhman Textiles, Nahar Spinning Mills all reported fabulous numbers. This spread continues to be favourable for yarn manufacturers even in the current quarter because I have been interacting with a number of them and the feedback I have been getting is that this spread is still favoruable for these companies. The reason behind picking up this very low profile Coimbatore-based company, is that it is grossly undervalued. Yes, the textile sector is not fancied in the market, gets a very low price to earnings (P/E) multiple even quality company like Vardhman Textiles trades at about 7 times the earning, so why should one put money into Shiva Texyarn. One should put money into Shiva Texyarn because it is grossly undervalued. To give a brief about this company, it belongs to the prominent south-based Bannari Amman Group. This group has got two listed companies on the exchanges, one is Bannariamman Sugars and the other is Bannari Amman Spinning Mills. Both the companies are doing very well. Now Shiva Texyarn has got two plants with total spindleage capacity of about 90,000 spindles. Almost 50,000 spindles are brand new. It is also into the manufacturing of fabrics, it has got a unit to manufacture 10 lakh units of knitted garments. It has also got 80 windmills, which generate about 30 megawatt (MW) of power. On the financial side, in the first nine months the company’s turnover went up by 20 percent from Rs 250 crore to Rs 300 crore. From a loss of about Rs 19 crore, the company reported a bumper profit of about Rs 18 crore or so. Since this spread is favourable, the company could end the current year with a profit of about Rs 22 crore, which will result in an earnings per share (EPS) of about Rs 10. So, this company’s stock is quoting at hardly 3 times the earnings, which I believe is grossly undervalued for a company like this. I think it deserves at least 5 P/E multiple if not more. At 5 P/E multiple, the stock is worth at least Rs 50. The other interesting point about this company is that, the promoters hold about 75 percent stake in the company and the marketcap of the company is Rs 64 crore, so that makes the floating stock very low at about Rs 16 crore. The other thing is that last year because of loss the company skipped dividend but prior to that when the company reported such bumper numbers, they paid 15 percent dividend. So, 15 percent dividend on Rs 30 works out to a 5 percent kind of dividend yield if you buy the stock at Rs 30. So that will cap the downside. That will act as a cushion to any further downside in the stock price. So, it is a grossly undervalued stock with about 66 percent upside possible in six months from now. Disclosures: We own CCL Products. No positions in Shiva Texyarn, but both stocks have been recommended to clients.