Mudar Patherya bets on Manjushree Technopack, Weizmann

Mudar Patherya of Investment Advisor shared his midcap stock picks with CNBC-TV18.

Explaining his first midcap pick Manjushree Technopack, Pathreya said, "If we look at valuations, I would say the company today having a valuation of around Rs 130 crore and with established EBITDA of nearly Rs 20 crore per quarter. Looking at Rs 80-90 crore of EBITDA in the current financial year with a high interest cover which means there is a lot of trickle down happening to the bottomline which will benefit shareholders." Weizmann Forex has improved its revenues and earnings on quarter on quarter basis. The projected top-line  for this company is Rs 5,000 crore, it grows nearly 20 percent a year. It hardly has any depreciation on their books. You hold onto this company for about two or three years this will make phenomenal money, he added. Also Read: Ambit Cap sees Sensex at 20000 by mid-Nov, bets on midcap  Below is the verbatim transcript of the interview Q: What is the story of Manjushree Technopack? A: Manjushree Technopack manufactures pet bottles. The way the management has run the business reflected in one number and that’s interest cover. When you earn an EBITDA of nearly Rs 20 crore and you have an interest cover of Rs 8 crore in a business like this you are telling me about the quality of management. The forward looking path is the same company now wants to significantly enhance capacity and they want to do it out of accruals and debt which will probably fructify towards the last quarter of the current financial year. The annual report indicates that the company is probably setting up one of the largest plant in Asia. When you have that kind of a company which has demonstrated its capability setting up one of the largest plant in Asia, as a value seeker it gives me a lot of comfort level that significant things are going to happen in this company over the foreseeable future. If we look at valuations, I would say the company today having a valuation of around Rs 130 crore and with established EBITDA of nearly Rs 20 crore per quarter. Looking at Rs 80-90 crore of EBITDA in the current financial year with a high interest cover which means there is a lot of trickle down happening to the bottomline which will benefit shareholders. So, I think it’s an interesting company to be looking. At Rs 130 crore - we are talking about peanuts for a company with a vision like this and with a demonstrative management capability as theirs. Q: What is the management like for this company? A: I would say slightly opaque. The annual report doesn’t tell me too much. But it tells me exactly what I need to know which is as far as retrospective capabilities are concerned it is all there in the interest cover. In company if you have an interest of this Rs 2-2.5 crore and an EBITDA of nearly Rs 20 crore, I do not need to know enough, this is it. Secondly, if there are talks about setting up one of the largest plant in Asia out of internal accruals and debt, I think that’s phenomenal. On the one side you have a foundation and on the other side you have a super structure. This is going to be very interesting and inspiring super structure to be looking at. _PAGEBREAK_ Q: What is the peer set in the listed space? Are there any other companies to compare it with in the listed universe here? A: I am too focused on Manjushree to be able to look at others but you have companies like Dhunseri which is going to produce the raw material for a company like Manjushree. What gives me little interest is that Dhunseri has just commissioned its expansion which means you are going to have adequate raw material availability in this country over the next few years. It means that a company like Manjushree will get adequate and abundant raw material, well priced to be able to run the plant and that’s going to give them a fairly good foundation to be able to build scale which they are probably doing now with one of the largest plant in Asia coming up. This appears to be a good winner. Q: To your next stock which I don’t think has traded much today - Weizmann Forex. What’s the story? A: This is a concept stock. You buy stocks with two perspectives - one is what is today’s valuation vis-à-vis earnings - retrospective and prospective. The other is what is the kind of valuations that can actually trickle down to this business if the management ever decides to sell out? What is the external peripheral operating environment within its industry and I think this is a stock that enthuses me on both terms. Let’s come to earnings. This company has quarter on quarter improved revenues and earnings. Firstly remember that they are in the business of buying and selling foreign currency. In the sense you go to an airport, you go to the Hyderabad Airport, Calcutta Airport as well. You go to a number of these airports - you will find a Weizmann Forex counter which means there is good franchise value. Whenever somebody comes in from abroad with dollars or euros and wants to convert them into Indian currency you probably will inevitably do it at Weizmann Forex. It is something that we do not recognize because the mind has not yet started registering Weizmann Forex. The typeface is also such that it is very sleek and it is not intrusive, so we often miss the name, but Weizmann Forex is there in a number of places in our country, excellent franchise value. Secondly, a top-line of nearly Rs 5,000 crore, the market cap of this company is only about Rs 90 crore. While that may appear to be a huge cue, just remember that in this business you don’t make humongous margins. Net margin of 0.6-0.7 percent is huge. You have an EBITDA margin of 1.3-1.4-1.5 percent that is phenomenal. So, this company has already got beyond the 1 percent EBITDA level. Last quarter was 1.2 percent. They have gone up to higher 1.9 percent. 1.9 percent if they can maintain across the average for the current year they will make tonnes of money. So, you have a projected top-line of maybe Rs 5,000 crore, company grows nearly 20 percent a year. I think this is phenomenal. You grow 20 percent a year, you have hardly any depreciation on your books, you are swimming in cash. You hold onto this company for about two or three years this will make phenomenal money and I think after a certain time it will starts vomiting cash. This is the cash cow. The amazing thing is that the cash cow is available for a market cap of less than Rs 100 crore, this is ridiculous. The second part of your argument which nobody can prepare for is that should Western Union, its principle decide to ever buy this company out as part of its global realignment, reorganization and reconfiguration, the numbers are not going to be Rs 150-200 crore corporate valuations. In the industry, nothing sells for less than a Rs 1,000 crore. So, you are looking at two perspectives. One is the current run rate which is ongoing and the other could be that huge big sixer which can come, may not come. So, I am saying, if you keep these two perspectives in mind I think at a market cap of less than Rs 100 crore is peanuts Disclosure: I have investments in Manjushree Technopak and Weizmann Forex.