Jayaswal Neco has potential to give good returns: Chugh

Jayaswal Neco has potential to give good returns, says Ashish Chugh, Investment Analyst.

Chugh told CNBC-TV18, “Jayaswal Neco is currently available very close to its three year low. The stock currently trades at about Rs 11. The reason you are getting this stock at Rs 11 is primarily because of two reasons. One is that analysts at this point of time are not really focused on the metal sector. It is not really a favored sector for the investors in today’s time.”

He further added, “Most of these investors are focused primarily on pharma and FMCG. So one, this is a ignored sector and the second reason is that in the recent Coalgate investigation the name of Manoj Jayaswal came in for the investigation of allotment of coal mines. People have mistaken that Manoj Jayaswal as somebody related to the Jayaswal Neco Group. Management of Jayaswal Neco has categorically clarified that Manoj Jayaswal is nowhere related to the Jayaswal Neco Group. There was a family settlement in 2008 after which Manoj Jayaswal got control of Abhijeet Infrastructure and the other family faction got control of Jayaswal Neco. So these two factors provide an opportunity for the investors to accumulate this stock at such low levels. Coming to the business of Jayaswal Neco, Jayaswal Neco has got integrated steel operations. The company has its own captive iron ore mines, coal mines, captive power plant which makes it a low-cost producer of steel. The company also has value-added products to its product portfolio. The company manufactures castings and forgings, so they are in the entire gamut of the products in the steel sector. Coming to financials FY12 sales were about Rs 2,600 crore with a profit after tax of about Rs 54 crore.”

“The company provides very high depreciation of about Rs 90 crore which means that cash profit of about Rs 140 crore. Market cap of the company at the current price is about Rs 400 crore which means that the business is available at roughly 2.5-3 times of its market cap and the book value of the company is Rs 35 and the stock trades at a deep discount to the book value. Two years back Reliance Mutual Fund had taken a stake in this company at Rs 34 and a few months back promoters and a few investors have taken a preferential allotment in the company at Rs 40. So against that stock trades at just about Rs 11, I think it is a good opportunity. The near-term outlook for the steel sector may not be really good, but I believe that the stock has discounted not just the sectoral concerns, but also the news of the investigation of Manoj Jayaswal which came in which is an unrelated entity. Stock has fallen because of that news also. So I think as dust settles down and as the sector outlook improves this stock has potential to give good returns and at the same time I don’t see too much of risk from these levels.”

Disclosures: I and my family have investments in both the companies.