Aashish Tater feels Sona Koyo‘s market cap will touch at least Rs 450 crore from the next 18 months perspective, which is roughly 100% from current levels. He says Tilaknagar Industries‘ first strategic tie-up with Pernod Ricard India is going to materialize in some kind of M&A deal, then the stock will be worth Rs 120-140.
Aashish Tater, Head of Research, Fortunewizard.com, is bullish on Sona Koyo and Tilaknagar Industries. "Sono Koyo even for next year during this period will give another 65 or 70 paise dividend, which means in the holding period of 13 months an investor will get Rs 1.3 of dividend on a Rs 11 stock," he told CNBC-TV18.
He says Tilaknagar's EPS next year will be Rs 7-7.5 from current Rs 4.25.
Below is the verbatim transcript of Aashish Tater's interview on CNBC-TV18
Q: Sona Koyo, let us start off with that stock. Why do you like it?
A: We have been right now advising stocks where there is safety of return in terms of high dividend yield and with a possibility of mergers and acquisitions (M&A) activities in the prospects. We recommended Mahindra Ugine Steel on the same grounds and the stock actually had gone to that Rs 100 odd mark where our target got achieved.
In the topsy-turvy situation if one focuses on good value available at a reasonable price-earnings (PE) multiple and an attractive dividend yield they will end up making a lot of money.
Now the story behind Sona Koyo is that it goes ex-dividend on July 23 of this month. So, you get 65 paise dividend. It is roughly around Rs 10.85. It has been paying you dividend consistently. Even for next year during this period you will get another 65 or 70 paise dividend, that means in the holding period of 13 months you get Rs 1.3 of dividend on a Rs 11 stock.
Second more important aspect is the promoters of the company have bought some stake as per the disclosures in the last one year. Now what is happening is at current levels there is hardly any downside for this particular stock because if you see the replacement value of its Sanand plant or even the brownfield expansion, they have gone for in the Chennai plant and the Dharuhera plant which is about to commence, that is their greenfield project.
They will be able to do a turnover of close to Rs 1,700 odd crore for this fiscal, that means on a market cap of around Rs 220 odd crore you are getting a company which is getting a company, which is having a Rs 1,700 crore thing. Right now the situation in the industry is very bad especially for the automobile industry and since these are suppliers to those industry they are also beaten down significantly. They have got tie-up with Nissan Micra for original equipment manufacturing and they also had a strategic entry for John Deere and they have planned their capex accordingly.
So, John Deere, Nissan Micra and few others and plus you have got two subsidiaries, one having stake with JTEKT Corp of Japan which is very big and we feel in the next two or three years the value of this particular joint venture (JV) along Fuji Kiko will be much more than the current market cap of the company. So that is also going to add to the value. We feel that in the next 18 months or so people will factor in that Rs 4 earnings per share (EPS) for the fiscal that is like for FY15 odd and the stock trades at a PE multiple of 5-5.5 times.
I am not even taking a call that there will be a margin expansion though they have taken some insulated raw material practice, which will help them to reduce dependency on imports, which will again be EPS accretive. These are subsidiary of the company automotive stamping business, which will also be turning profitable for this particular fiscal. So, from a Rs 50 lakh odd loss to a Rs 3 crore of profit that will also compensate to the bottom-line. So, if you consider all this, we have a market cap expectation of atleast Rs 450 crore from next 18 months perspective, which is roughly 100 percent from current levels plus you get Rs 1.3 dividend over next 13-month holding.
So, if all these developments or any of the development happens the stock will zoom to the Rs 25 odd mark, which we feel because of these kind of developments that the company has planned through and the way the models have actually been able to identify. We feel there is definitely an M&A deal in this particular space, though the company has not been able to comment anything on this.
On Tilaknagar Industries
Tilaknagar Industries has been a favourite right from when United Spirits was identified at around Rs 500 mark. We feel Tilaknagar Industries is next into the merger and acquisition deal pipeline. If you see how the company has shaped up in the last 15 months period the stock was at Rs 34 when we identified it for a target of Rs 70. Again it corrected to Rs 54 level and it made a high of Rs 85. Again it is available at Rs 54-55.
This time their first strategic tie-up with Pernod Ricard India for high end spirits is going to materialize in some kind of M&A deal. If that happens the stock is worth even Rs 120-140 the way the enterprise value to sales is available for companies globally. For every rupee revenue you do in this particular space you get a market cap of four times or say enterprise value of 4.5 times. So on a sale of over Rs 650 crore with a high end spirit that will compensate almost Rs 150 crore over the next two years, we feel this is a piece of cake at current levels and identify a company with having Mansion House as one of its brands which is highly recognizable.
Also Tilaknagar has now expanded to eastern region as well as northern region, so combining all these factors we feel the next year EPS will be Rs 7-7.5 from current Rs 4.25.
Disclosure: Safe to assume that the stocks discussed have been recommended to clients. No personal positions.
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