PN Vijay's multibaggers: Goodyear India, Madras Cement

Portfolio manager PN Vijay picked Goodyear India and Madras Cement as his multibaggers stocks. He is bullish on these stocks and expects them to fetch better returns going ahead.

Goodyear India is only debt free tyre company in India. With the decline in rubber price and sentiment improvement seen in automobile industry, the stock may touch Rs 380 in the next 12-15 months, he said in an interview to CNBC-TV18. However, he cautioned that since the stock is illiquid, it may be subject to some activity.

Madras Cement, the fifth biggest cement player in the Indian market is expected to register good financial performance going ahead. Vijay expects it to outperform the rest of the cement industry in the next 12 months. He recommended the stock at Rs 190 with a target price of about Rs 275 in the next 12 months, however warned of the stock being fairly illiquid.

Below is the edited transcript of PN Vijay's interview with CNBC-TV18.

On Goodyear India

Goodyear is a multinational company. It's a subsidiary of Goodyear Tyre of USA, which holds 74 percent stake in the company. Incidentally, Goodyear group is the world's largest tyre maker. It has a presence in almost every country in the world. Goodyear India as such has not been performing too well, they have calendar year closed in December 2011, the sales did go up by about 16 percent, but profits were declined a wee bit. This is mainly attributable to high commodity prices and the start of a sluggishness in the automobile industry.

The first two quarters of calendar year 2012 have not been great either, typical topline growth and anemic situation in the bottomline. Going forward, I am bullish on Goodyear for the following reasons; one, it's the only tyre company in India which is totally debt free. It has absolutely no debt, in fact it's sitting on cash so that's good in these volatile times. Secondly, rubber prices have fallen a lot and from this quarter onwards, Goodyear will get the impact of good rubber prices going into the bottomline as well. Thirdly, the automobile sector is slowly coming out of the woods as we saw it in the results of Mahindra & Mahindra and so on. I expect that general uptick feeling in the automobile sector to translate to Goodyear.

Two specific kickers on Goodyear India; one is it has got huge parcels of land in Faridabad, which is on the outskirts of New Delhi city and this is worth fortune and a bit like Bata situation. When they sell that and commercialise it, there will be a huge dividend for the shareholders. Secondly, in 2010 Goodyear MNC, US made an offer to delist the company to buyout the rest of the 26 percent that didn't go to well because shareholders were reluctant to sell at that price.

Going forward, they will up the offer because in very few emerging markets are they listed entity, so they may like to privatize the Indian entity also. That could be another very big kicker. The share trades around Rs 310 with a trailing twelve months (TTM) price earnings of about 12. I expect this share to go up about Rs 380 in the next 12-15 months. The only risk associated with the stock is that it's illiquid; it doesn't trade much so it could be subject to some activity. 

On Madras Cement

Madras Cement is a large cement producer. It is headquartered in Tamil Nadu. It is a flagship company of the Ramco group of Tamil Nadu, which has interest in various other businesses. It has a capacity of 11.5 million tonne making it the fifth biggest player in the Indian market. They are low-key even though they are the fifth biggest player. As far as the operating results are concerned, even though cement companies have been having an excellent time since the last one year and Madras Cement has been no exception, in the last quarter, their volumes went up by about 20 percent. Their sales went up by about 30 percent and net profit by about 26 percent. I expect this good run to continue in the next 12 months also.

Some specific reasons why Madras Cement could go up quite well are that it has upgraded its capacity by 2.5 million tonne. This capacity is now getting operational. So that, should give a volume and bottomline uptick for the stock. They have acquired some more backup power. The electricity rates in Tamil Nadu are some of the highest in the world, so they are adding about 3-3.5 MW of power. This, should give them very good margin in the realisations per tonne. They have done some smart forward buying of pet-coke (petroleum coke), which is a major raw material for cement companies. So, they have locked in themselves at a fairly low price and that should help them.

I expect the topline, middleline, margin and the bottomline to grow quite handsomely. It may outperform the rest of the cement industry in the next 12 months. The share is trading at a very undemanding 10.5 times current earnings at the current price of under Rs 190. It's a blue chip that has always rewarded its shareholders with bonuses. The risk in this stock is that it is fairly illiquid. For example, it is not an UltraTech in terms of liquidity but a very safe sound stock. I would recommend at Rs 190 with a target price of about Rs 275 in the next 12 months.

Disclosure: I have no personal holding in the stocks discussed