Accumulate Shri Dinesh Mills around Rs 75-85: Chugh

Accumulate Shri Dinesh Mills around Rs 75-85, says Ashish Chugh, Investment Analyst, Hidden Gems.

Chugh told CNBC-TV18, "Shri Dinesh Mills is a small company which manufactures Dinesh brand of suiting. It is an Ahmedabad based company with more than 75 years of experience. The company has manufacturing facilities in Vadora and Ankleshwar. The company manufactures mainly suiting which are sold under Dinesh Brand, a well established brand and has brand equity. The market-cap is about Rs 42-43 crore and I think the value of brand is much more than the current market cap."
He further added, "FY11 sales were Rs 82 crore and PAT of Rs 8 crore. It had provided depreciation of around Rs 7 crore, which means a cash profit of about Rs 15 crore. This translates into cash EPS of close to Rs 30. In the first half of the current financial year, sales were up by 10% to Rs 44 crore. Profit after tax was up by 35% to Rs 5.7 crore. If one calculates EPS on a trailing 12 month basis then it works out to be Rs 18 and cash EPS of Rs 33."
"Besides financials, there is couple of reasons why I like this company. In the past 20 years, the company has never done any equity dilution. The only dilution, which happened, was by way of two bonus issues the company had given to its shareholders. Apart from that there have been no QIP, no rights issue, no GDRs or any means of fund raising by Dinesh Mills, which gives us comfort."
"It has grown mainly through internal accruals and bank loans with an uninterrupted track record of dividend for the past 20 years. The company has got a healthy balance sheet and the financials of the company are steady. It has operating margins of more than 25% and net profit margins of more than 10% which is much higher than the industry average for the textile sector."
"Also, if you look at the balance sheet of this company, the current market cap is around Rs 43 crore with investments of about Rs 36 crore and cash and bank balance of about Rs 18 crore. Around Rs 30 crore is the debt on the books of the company. So you have a company with market cap and debt total of Rs 75 crore and if you reduce the investments and cash of about Rs 54-55 crore, which means the enterprise value of the company is about Rs 20 crore. This for a company which is more than 75 years old and has a gross block on historical costs of about Rs 160 crore, the stock looks deep value."
"I would also like to clarify that this may not be a multibagger stock but more of a hedge. The reason is because of the nominal growth which the company is registering but at the same time it is available at a deep discount to its intrinsic value. It is a dividend paying company for the past 20 years and the valuations of the company are extremely reasonable. So this is a stock which will not give you nightmares in case the markets were to fall. But I would say any price around Rs 75-85 maybe a good level to accumulate this stock." Disclosure: Me and my family may have small investments in the above stock.