Rajen Shah sees 100% upside in Tube Investments

Rajen Shah, CIO Angel Broking picks Tube Investments as his multibagger. He believes the stock will fetch multifold returns going ahead.

In an interview to CNBC-TV18, he says "The best time to buy a good stock is when there is gloom and doom and currently we are seeing that gloom and doom not only in the economy but also in the auto sector so that’s the reason you are getting Tube Investments very cheap." With a 24 month perspective, he believes the downside in the stock can be 10 percent and the upside can be as high as 100 percent. Also Read: Nifty heading to 6100; short-term traders be long: Sukhani Below is his analysis. Tube Investments This is a prominent company of the south based Murugappa Group. We know the other companies like EID Parry, Coromandel International, Carborundum Universal. The company is into five-six businesses. One is the engineering business where it manufactures precision tubes that find applications in automotive industry and a variety of other general engineering industry. It recently got into manufacturing of stainless steel tubes and the production has started. This business should also do equally well and is going to cater to variety of other industries. Second is the bicycle business where it enjoys a market share of more than 27 percent and sells about 45 lakh bicycles every year. Third is the metal form product business where it manufactures its automotive chains, industrial chains, car door frames. In the car door frame business, it is a market leader with a market share of more than 60 percent and supplies to almost every passenger car manufacturer. Fourth is a finance business where it has a 51 percent stake in Cholamandalam Investment and Finance Company which is into vehicle finance and home loans and is growing at a very aggressive pace. Last year it reported 77 percent growth in the bottom line. The fifth business is again into finance, it has a 74 percent stake in Cholamandalam, Mitsui Sumitomo General Insurance where the gross return premium is growing at a good pace. Last year it got into the gear business by acquiring Shanthi Gears at about Rs 81 and pumped in Rs 450 crore to acquire about 71 percent stake. Most of its businesses are dependent on the automotive industry and now since it has gone into gear, obviously economy. The auto industry has not been in good shape last year and it continues to be in bad shape even in the first quarter of this year. Last year, on a standalone basis, the company reported very disappointing numbers, almost 40 percent drop in bottom line but on a consolidated basis, when you consolidate the earnings of the finance business that is the Cholamandalam Investments Finance and Cholamandalam General Insurance, the company reported almost about 8 percent growth in bottomline. So, on a consolidated basis, the company reported better numbers with earnings per share of Rs 15.5. We expect a disappoint set of numbers in the first quarter and the second quarter but post second quarter, we expect auto industry and the economy to revive and hence we are betting aggressively on Tube Investments because the stock has corrected almost 35 percent from the top it scaled in December 2012 of Rs 220. It is down almost 35 percent from that level. The company has taken a huge capex of Rs 500 crore and is going to get over by December 2013. So around 14-15, we are expecting a huge jump in its turn over and profitability and are expecting about Rs 21-22 kind of earnings for 14-15. A company like this deserves at least 12-13 kind of PE multiple and at that PE multiple, the stock can easily move to about Rs 260 levels. Also, in case of Tube Investments, 900 shareholders own 93 percent of its equity and so, it is in strong hands. Any buying in this counter could see the stock flaring up significantly. The best time to buy a good stock is when there is gloom and doom and currently we are seeing that gloom and doom not only in the economy but also in the auto sector so that’s the reason you are getting Tube Investments very cheap. Downside is 10 percent, upside could be as high as 100 percent in the next 24 months.