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Last Updated : Oct 17, 2012 12:02 PM IST | Source: CNBC-TV18

Hidden gems: Ashish Chugh's 2 low risk bets

Investment analyst Ashish Chugh is bullish on Jayaswal Neco and Dr Agrawals Eye Hospital. According to him, both the stocks don‘t have too much of risk.

Investment analyst Ashish Chugh is bullish on Jayaswal Neco and Dr Agrawals Eye Hospital. According to him, both the stocks don’t have too much of risk.

Multibagger ideas: 2 stocks that have huge upside potential

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee.

Q: Why do you like Jayaswal Neco?

A: Jayaswal Neco is currently available very close to its three-year low. The stock currently trades at about Rs 11. You are getting this stock at Rs 11 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 favoured sector for the investors in today’s time. I think most of these investors are focused on pharma and FMCG. So, one, this is a ignored sector.

Secondly, in the recent Coalgate investigation, the name of Manoj Jayaswal came in for 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 that, Manoj Jayaswal got control of Abhijeet Infrastructure. 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.

Jayaswal Neco has got integrated steel operations. The company has its own captive iron ore mines, coal mines, captive power plant. That 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.

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. That means that cash profit was of about Rs 140 crore. Marketcap of the company at the current price is about Rs 400 crore. That means that the business is available at roughly 2.5-3 times of its marketcap. The book value of the company is Rs 35. 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. 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. The stock has fallen because of that news also. As dust settles down and as the sector outlook improves, this stock has potential to give good returns. At the same time, I don’t see too much of risk from these levels.


Q: You have picked Dr Agarwal Eye Hospital, what is the story there?

A: First, a sign of caution, it is an illiquid stock. This not meant to be a trading stock. But this is meant for small investors to be accumulated on bad days of the market.

I believe there is deep value coupled with a high growth potential. This business model has got huge scale up potential. Dr Agarwal operates as a chain of eye hospitals and eye clinics. They are primarily based in South India. They have clinics in Tamil Nadu, Karnataka and few clinics in Rajasthan and Orissa also. In total, they operate about 45 eye clinics as of today

FY12 sales were about Rs 100 crore and profit after tax was Rs 1.6 crore and depreciation was about Rs 5.7 crore. That means a cash profit about Rs 7.5 crore. The stock currently trades at about Rs 90 and has marketcap of just about Rs 40 crore at the current market price.

There is a lot of interest from private equity players in the health care space. We have seen a few deals particularly in the eye care segment happening in the last couple of years. Vasan Eye Care, which is an unlisted company, had offered 15-18 percent equity stake to private equity players. That values Vasan Eye Care at about Rs 3,000 crore. Recently, we are hearing news about a Delhi based company called Centre for Sight giving a 15% stake to Matrix Partners for about Rs 150 crore. That values Centre for Sight at about Rs 1,000 crore.

These two companies are unlisted company. We don’t have the exact financials of these companies. But whatever I have learned from my sources is that Vasan Eye Care is about five-six times the size of Dr Agarwal. The Centre for Sight is almost similar to size of Dr Agarwal.

Talking particularly about Dr Agarwal, the promoters, a few months back, consolidated all their holdings into one entity. That led to the promoters giving an open offer to the minority shareholders. That open offer came at about Rs 160. Against that, the stock is currently available at Rs 90. Promoters were able to increase their holding from 58 to 78 percent pursuant to that open offer.

The promoters had recently consolidated all their holdings into a holding company call Dr Agarwal Healthcare Limited. Recently, they have given a 25 percent stake in Dr Agarwal Healthcare to a private equity player for Rs 60 crore. Now, this values Dr Agarwal Healthcare at about Rs 240 crore. Since Dr Agarwal Healthcare owns 75 percent of Dr Agarwal’s Eye Hospital, this values the company at about Rs 320 crore.

At the current price, the marketcap of the company is about Rs 40 crore. What the company is going do with Rs 60 crore, which it has got from their parent company? They want to have a pan India presence. In times to come, we will see that the number of centres, which the company operates, will increase.

Looking from all angles, I don’t see too much of risk at the current marketcap of Rs 40 crore. Even though I am not fully aware about the detailed financials of the other players, but looking from risk angle and also from the margin of safety, which it provides at the current market price, in a few years time, this stock may be at a totally different kind of a level.

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

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First Published on Oct 17, 2012 11:23 am
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